Blue Sky Alternative Investments, the listed investment firm which entered a trading halt after it was the target of a short-seller’s analysis last week, has responded to the attack on its business model and valuation of its assets.
The company said it stood by its fee-earning assets under management (‘AUM’) valuation of over $4 billion and that it has generated returns of 15% p.a.1 net of fees since inception.
Blue Sky said it “categorically rejects” accusations levelled at it by Glaucus Research — chiefly that it wrongly calculated the value of assets under management and charged exorbitant fees — and said it had asked Australia’s corporate regulator ASIC to investigate Glaucus.
The Brisbane-based investment company lodged a 10-page rejoinder to the Glaucus note, along with a two-page letter from chairman John Kain, with the ASX on Tuesday evening.
In a series of tweets last Wednesday, Glaucus announced it was shorting Blue Sky and published its research. Blue Sky shares plunged more than 13%, prompting the company to call a trading halt.
The attack has been the talk of the Australian equities market since and investors have been eagerly awaiting Blue Sky’s response.
Kain wrote that Blue Sky had served Glaucus with a preservation notice, “requiring it to preserve all relevant documents and communications whilst Blue Sky evaluates possible future legal steps”.
“Blue Sky is also concerned that Glaucus and any associates who engaged in the notable increase in short selling in recent months, may have manipulated the market in breach of the Corporations Act,” Kain wrote. “Accordingly, … this morning Blue Sky formally invited ASIC to investigate Glaucus and the short selling of Blue Sky securities in recent months.”
Its shares will now start trading again tomorrow (Wednesday) when the market opens at 10am AEST. Blue Sky managing director Rob Shand will hold a teleconference beforehand at 9am AEST for investors and analysts.
In a statement on Tuesday night, Shand said:
Blue Sky categorically rejects the allegations made by GRG which are both fundamentally flawed and materially misleading. Blue Sky confirms that it manages in excess of $4bn in fee-earning AUM, has a strong track record of delivery of 15% per annum since inception (net of fees), has a robust balance sheet and is in the best position to capture the longterm opportunities of the alternative investment market.
The calculation of Blue Sky’s fee-earning AUM, which is in excess of $4bn, is entirely in line with market
practice in Australia and Blue Sky has adopted the same approach since it listed. Blue Sky confirms
that its approach is consistent with industry practices in Australia and the approach taken by a broad
range of other ASX listed businesses.
Blue Sky confirms that it has 20 domestic and international institutional investors, including First State
Super, Goldman Sachs, and PSP Investments.
Blue Sky confirms its track record of 15% p.a. net of fees since inception and that we have attracted growing support from a wide range of investors because of this strong performance. We are also the first to admit that our track record is not perfect. We manage 80 funds and a small portion of these are not performing in line with our expectations. This is obviously no different to investing in a portfolio of 80 stocks: it is simply not possible for all investments to perform well all of the time which is the reality of investing.
Blue Sky has always adopted the highest industry standards and practices with respect to valuations. Independent verifications are based on the same approach used by other leading global alternative asset managers. The valuation in each asset class is reviewed by multiple top-tier independent experts: KPMG; Colliers International; CBRE; JLL; Elders; Herron Todd White; amongst others. This process is then followed by a review by five independent directors of BLA and BAF.
Blue Sky’s performance and management fees are entirely consistent with market practice in Australia. These fees are fair, both with respect to their quantum and the way they are structured. They are fully and fairly disclosed.
Blue Sky’s strong financial performance has been audited by EY each year since our listing, and at no
point since our listing have we received anything other than an unqualified audit opinion.
The statement to the ASX (available here) rejects 14 various allegations about the company’s valuation methods on its assets, and its fee structure.
It specifically deals with this claim by Glaucus, which it singled out in a tweet:
Just an example of how absurdly $BLA Blue Sky marks up its investments: we calculate $BLA values 12 beach burrito joints at +$60 million. Take a look: would you pay $5 million for one of those restaurants? https://t.co/E4WpR2oyDT
— GlaucusResearch (@GlaucusResearch) March 28, 2018
Blue Sky responded: “The claim that Blue Sky’s carrying valuation of Beach Burrito Company is grossly inaccurate. The carrying value is less than $20 million (for 100% of the equity); that is less than one third of the $62 million asserted in the [Glaucus] Opinion.”