Why Hostplus has been labelled Hostminus

Cartoon: Rod Clement

These are dark days indeed for embattled industry fund Hostplus and its once colourful and now muzzled chief investment officer Sam Sicilia — or should that be, as its critics are calling it, “Hostminus”. And then there is Sam’s new market nickname, “Sam Si-Silly”.

On the back of Sicilia’s troubled investments in property, infrastructure and venture capital that have reportedly led Host­minus looking to redeem a big property trust position, Margin Call can now reveal another — a $300m punt on investment banking legend turned boutique fund manger John Wylie’s Tanarra Long Term Value Investment Fund.

Look at these pearls from Tanarra’s latest March quarter client update.

“We’re not going to sugar coat things, the headline performance figure for the quarter to March 31, 2020 is ugly in both relative and absolute terms. Over the quarter, the fund fell 33.1 per cent on invested funds against a benchmark index fall of 13.8 per cent, so we therefore underperformed the index by 19.3 per cent,’’ write Wylie and his investment directors Lee Mickelburough and Anna Shave.

The former was trumpeted in a newspaper headline when he joined Tanarra last year after stints at Janus Henderson as head of Australian equities and before that at Perennial Growth Partners.

They continue: “We’re alert but not alarmed by these figures; we will endeavour to explain why. Our LTV strategy has always been designed as a concentrated portfolio of investments, targeting five to eight stocks.

“The timing of the COVID-19 crisis made it even more so, arriving when we had only deployed in three companies. These companies have been hit hard in the short term by the perceived impact of the crisis — we think excessively so — leading directly to these Q1 numbers.”

The problem for LTV has been the performance of its two disclosed investments — in embattled building materials giant Boral and struggling consumer finance group FlexiGroup.

Both are down 40 per cent from LTV’s purchase last year.

There are another three ­undisclosed investments in ­Tanarra’s LTV portfolio, on which it has spent more than $20m, and together they have lost more than $5m in value.

So it is no surprise the letter concludes with this not unexpected gem.

“We recognise everyone is tightening their belts at the moment (metaphorically at least; the physical experience may be somewhat different) so we want to do our bit,” they write. “We will therefore be reducing the fee payable on the undrawn committed capital portion by 50 per cent to 0.25 per cent until such time is the portfolio itself is performing at least back in line with its benchmark index. That reduction will take effect from April 1.”

So there is some solace for Sicilia that Wylie’s charging him less to lose him money.

But Tanarra isn’t alone.

After the drama of being investigated by ASIC and raided by the Federal Police last November, Phil King’s Regal Funds Management’s bad luck continued in the March quarter.

Its latest performance figures show King’s Atlantic Fund lost a stunning 70 per cent of capital in the first quarter. Ouch.

Flying under radar

The share registry of the smaller Virgin investors has thrown up a merchant banking name that old-timers might remember from two decades ago.

Holding 4.75 million shares is white-collar crook Simon Hannes, the former senior executive at Macquarie Bank, and his sister Mignon Booth.

They have held a steady shareholding since they appeared in Virgin’s 2017 annual report, but understandably remained under the radar given the attention drawn by other big-name major Virgin shareholders.

The then Roseville-based Hannes was convicted of insider trading after a clandestine plan to make millions by acquiring options in TNT in 1996, shortly before the logistics giant received a takeover offer from Dutch company KPN. Macquarie was advising TNT.

Using the purchasing name “M Booth”, the trading activity triggered what was then the largest case of insider trading ever tried, at least until Rene Rivkin’s 2001 Qantas share trading after a tip about Impulse Airlines.

The then 42-year-old merchant banker was charged in 1997 and, on being found guilty, served 16 months in jail before the case was retried. He was again found guilty in 2002. The reclusive Hannes did take the conviction to the High Court, but lost his appeal.

Guardian struggles

Millionaire former prime minister Malcolm Turnbull might feel chuffed about his newly revealed role in establishing The Guardian in Australia, but the left-wing news site has struggled since day one to turn a profit. Since its first digital edition at the end of May in 2013 thanks to the financial backing of entrepreneur Graeme Wood, founder of travel website Wotif, Guardian Australia has generated results that amount to $26.7m in total losses over its seven years of operation.

A Margin Call analysis of the finances of the media outlet’s local company GNM Australia since its inaugural 2013 financial year reveal the now Lenore Taylor-led masthead has managed to grow sales revenue each year since it began for total sales receipts of $62m. However, profit has been much harder to come by, with GNM recording a loss in four out of its seven years.

The local group’s first financial accounts noted that Wood’s initial financial support was provided as “an arm’s-length relationship, having no say in editorial matters or operational decisions”.

Accounts reveal that in its first full year of operations, Guardian Australia generated sales revenue of $3.8m, but a net loss of $6.1m.

Taylor wrote in her online news site this week about how the local edition had come to pass, confirming that Turnbull had had a hand in the media outlet’s creation, but said that the “Guardian Australia owes Malcolm Turnbull thanks — but not favours”.

The former Goldman Sachs investment banker’s role was revealed in his memoir, A Bigger Picture.

Turnbull did not provide seed funding to Guardian Australia. Rather, it is only thanks to the ultimate financial support of its UK controlling parent, The Scott Trust, that the publication has been able to survive. Lending to the trust’s Aussie publishing offshoot peaked in the 2016 financial year, when borrowings were as high as $32m.

In 2018 it had to be repaid, with The Scott Trust swapping its debt for $34m in fresh equity in the local operation, which since July 2018 has been run by managing director Daniel Stinton.

Stinton joined from billionaire Kerry Stokes’s Seven West Media, where he was head of digital.

The capital injection from the UK boosted GNM’s cash balance to about $16m by the end of the 2019 financial year.

GNM Australia has a March 31 balance date to match its UK parent, with its results for the 12 months to the end of March this year expected to be lodged at the end of July.

We, perhaps like Turnbull, will be watching.

Marital split spoils

Nine chief Hugh Marks has transferred the ownership of 216,216 shares to his lawyer wife, Gayle Peres da Costa, “pursuant to his marital settlement agreement”.

The shares were worth about $260,000.

Marks still retains 2.3 million in shares, along with another 2.3 million in performance rights, with 958,000 of those set to vest after July 1 and the balance over the next two years.

His 2.3 million ordinary shares are worth $2.7m at yesterday’s closing price.

Nine shares have fallen heavily since the start of the year, when in late January they were trading at about $2. At that time his ex-wife’s stake would have been worth a chunkier $430,000. Still, the matrimonial home at Sydney’s Artarmon is now just in Gayle’s name.

After two decades of marriage, Marks moved out of the family’s Artarmon Californian bungalow last year. He took a $2450-a-week modern townhouse rental on Balmoral Slopes. Last month the Marks’ short-lived 40ha NSW south coast weekender was sold for $4.325m to the rag trading Gazal family, fresh from the $270m takeover of Gazal Corp by the New York-based PVH group. Marks retains investment apartments in Neutral Bay and Surry Hills.