How the tables have turned for L1 Capital… Back in April 2018, the wealth manager had just launched one of the biggest Listed Investment Company (LIC) IPOs in the ASX's history. Based on the unlisted managed fund of the same name, this LIC looked to replicate L1's successful investment strategy that had allowed this unlisted fund to return 23.1% per annum since its inception in 2014.
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Long or short?
The L1 Long Short Fund Ltd (ASX: LSF) debuted on the ASX with a market capitalisation of roughly $1.33 billion. The ASX doesn't host many funds which employ both a 'long' strategy (which means buying shares) and a 'short' strategy (involving short selling shares to profit if the company falls in value).
As such, the Long Short Fund attracted a lot of attention in this regard too. But things quickly went sour for this LIC. Between April and December 2018, the LIC lost around 36% of its value – a figure which grew to more than 60% during the March COVID crash last year.
However, things have been turning around nicely for the Long Short Fund ever since. Today, Long Short Fund shares are trading for $2.61 – well above the company's IPO price of $2 and pretty much at an all-time high. Since the lows of March last year, the LIC has managed to grow around 230%.
A rapidly growing net tangible asset (NTA) backing has helped turn things around for the Long Short Fund. This has seen the LIC's NTA rise by 24% over the 6 months to 31 May 2021, and 70.1% over 12 months. Both of those figures are more than double what the S&P/ASX 200 Index (ASX: XJO) has returned over the same periods.
Now that this LIC has seemingly gotten its mojo (and arguably, reputation) back, L1 Capital is looking to expand its offerings.
A new L1 fund?
According to a report in the Australian Financial Review (AFR) today, L1 Capital is looking to expand its offerings. The company is reportedly less than a month away from launching a new fund for ASX investors called the 'L1 Capital Catalyst Fund'. This fund will be available to retail and institutional investors from 1 July. It will invest in a highly concentrated portfolio of 6 to 8 stocks. These companies will be subject to a criterion that is "highly selective" and based on quality, value and potential share price catalysts.
The new fund will be headed by James Hawkins. Mr Hawkin told the AFR that "the time is right" for the style that this new fund intends to follow:
It could be a high growth asset embedded within a conglomerate structure which is not fully valued by the market, and if extracted through either a trade sale or an IPO might unlock significant value… It might be the fact that following the pandemic last year, a lot of ASX listed companies' balance sheets are under-levered, and they are under-levered because they anticipated the COVID pandemic was going to be bigger than it eventually was in Australia.
Therefore they may be in a position to buy back more stock because their stock hasn't rebounded, and reinstate the dividend at a higher level than they were perhaps contemplating 12 months ago… There's a whole range of examples of where we see latent value opportunities.
Given L1 Capital's history, it will be interesting to see how this new fund fares upon its launch next month.
*Editor's note: this article was amended on 17 June 2021 to correct a reference to the L1 Capital Catalyst Fund as an LIC and amend reference to the unlisted L1 Long Short fund's return per annum from 19.6% to 23.1%.
