Vantage Funds Update – COVID-19
Vantage Asset Management is closely monitoring the developing COVID-19 situation and has implemented responsible measures to ensure the health and safety of our employees, business partners, service providers, clients and investors. In addition, the protection of the value of all of Vantage’s Funds underlying investments, is one of our highest priorities.
As at the date of this note, we can confirm:
- No one at Vantage, or any of the team’s family members have contracted the virus;
- All work-related travel is suspended until further notice;
- Meetings with individuals outside the Vantage team will only be conducted utilising phone or video conference facilities;
- All Vantage staff are now working from home, as an extra precaution to protect themselves, their teammates and their families;
We have completed an assessment of all companies currently within each Vantage Fund portfolio and their potential exposure to the impending downturn in activity across the economy as a result of the virus. We are also in constant communication with all of our underlying fund managers to ensure that they have considered carefully the potential impacts of COVID-19 on all underlying company investments.
Vantage’s Funds underlying portfolios are strongly diversified across a broad range of industry sectors, with the majority of our 72 underlying company investments occupying noncyclical, defensive or growth industry sectors including;
- Health and Aged Care (e.g. Inter Health Care, Perth Radiology Clinics, Heritage Lifecare, TRG Imaging and Zenitas),
- Consumer Staple / Food (e.g. Hellers, My Food Bag, Noisette Bakery, Pizza Hut and Vesco Foods),
- Industrials (e.g. Marand Engineering, NZ Bus and Strait Shipping),
- Information Technology (e.g. Compass, Iseek and Message Media) and
- Agricultural Products (e.g. Hygain and Delta Agriculture)
Vantage portfolio companies within these industry sectors may experience some disruption to their supply chains during this time, however demand for their products or services is likely to remain steady in the near term.
Vantage Funds have a small number of investments that may have some exposure to sectors that could experience some impact from the spreading virus. However, in almost every case these investments have been structured by Vantage’s underlying private equity funds to provide significant downside protection for Vantage’s invested capital. This may be provided from our funds having purchased the relevant company at less than tangible asset value or as a result of other structured protection mechanisms such as secured loans or preference shares, protecting our funds total investment in each underlying company in the event of a liquidation.
Finally, it is important to note that Vantage Funds have NO INVESTMENTS in any company operating in the industry sectors that are most impacted by the spreading virus which include; airlines, cruise ships, travel agents / intermediaries, hotels, luxury goods, gambling, oil & gas or the auto industry.
As a result of our review, we believe our underlying portfolio companies are sufficiently resourced and well positioned to ride out this period of lower growth in the near future until the virus can be contained and their original growth plans re-implemented.
Vantage’s underlying fund managers are also in the process of re-assessing the investment cases for new deals in their pipelines and evaluating the impact of a downturn in discretionary spending by consumers on every business they may be seeking to acquire.
While the longer-term financial implications of COVID-19 are still unknown, the volatility in global markets has already created a re-rating of risk amongst market participants. Arguably these events may signify the beginning of a new cycle in financial markets and end the prolonged period of asset inflation and increasing acquisition multiples. Once the public health and safety issues have been addressed and the economic ramifications can be more clearly assessed, we expect there will be meaningful opportunities for our underlying funds to invest capital at attractive valuations.
Vantage’s executives have extensive experience in Private Equity investing across a broad range of economic cycles over the past 20 years including having successfully invested Vantage Private Equity Growth Limited (VPEG) across the Global Financial Crisis delivering positive returns for investors. As a result, we continually refine and enhance our investment strategies to reduce the risk of loss across our portfolios when these types of global economic and financial crisis events occur.
The ultimate attraction of including a Vantage Private Equity Growth Fund investment in a balanced investment portfolio, is that unlisted private equity has a low correlation to public equity, bonds and property. As such when those asset classes are experiencing heightened levels of volatility as they are now, the volatility of Vantage’s private equity portfolios remains low, allowing Vantage to ultimately deliver superior risk adjusted returns to investors over the medium to longer term time frame.
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