The Blue Sky Alternatives Access Fund Ltd (ASX: BAF) ("BAF" or "Access Fund"), a feeder entity associated with Blue Sky Alternative Investments Ltd (ASX: BLA) today announced a number of measures to reassure investors in its portfolios.
As part of its monthly net tangible assets (NTA) report to the market, where the company has to state the value of its investments (BAF's were down 0.3% to $1.1385 per share, pre tax), the Access Fund also announced that it would revalue its whole portfolio. Readers may already be familiar with the Glaucus report and our coverage from last week.
While the Glaucus report contained several flaws, it also struck a nerve with investors regarding Glaucus' criticisms of Blue Sky's lack of transparency regarding the valuations of its investments. In simple terms, and among other things, Glaucus essentially argued that Blue Sky was increasing the value of their investments to unjustifiable levels – leading to higher fees for Blue Sky and more investor demand for its funds.
Blue Sky itself fell more than 50% following the report, but the Access Fund (BAF) is also down somewhat, from $1.15 a few weeks ago to $0.91 at the time of writing. In the net tangible asset release today, BAF has apparently responded to criticism by increasing the level of disclosure and also commencing independent valuations of all its assets. BAF stated that it:
- "will immediately accelerate additional independent valuation reviews for all investments which have carrying values of 1.2x or greater for each $1.oo invested." (that refers to 28% of total NTA, and the other 72% will be reviewed in May and June)
- BAF will also implement a valuer rotation policy, which would lead to the independent valuer being rotated regularly
- In an appendix, BAF provided an overview of its allocations and investment amounts to all of its properties and private company investments like Foundation Early Learning and Wild Bread
The increased disclosure appears to be at least a part of what Glaucus was agitating for and it remains to be seen whether this will help or hurt both of the Blue Sky entities. The Glaucus report appeared to imply that Blue Sky was at least partly dependent on an opaque valuation process to do questionable things.
If this is true, and Blue Sky increases its disclosure levels substantially, then the valuations may fall apart as the company gets put through the ringer by the court of public opinion. On the contrary, if the Blue Sky business is entirely legitimate, then full disclosure should largely invalidate the Glaucus report.
The problem is that it is difficult to know on which side of the fence Blue Sky rests, and evaluating the winner and loser of this battle will likely take hours of meticulous work. As a result I think the situation is too difficult for many household investors, and I suggest remaining on the sidelines for now.
