Blue Sky Alternative Investments is sticking by its claim that the company has $4 billion in fee-earning assets under management and has called US short-seller Glaucus' report "materially misleading".
The company "formally invited" the Australian Securities and Investments Commission "to investigate Glaucus and the short-selling of Blue Sky securities in recent months" citing a concern that short-sellers "may have manipulated the market".
Last week, Glaucus published its short thesis on Blue Sky, alleging in contested research that shares of the Brisbane-based asset manager were 77 per cent over-valued because Blue Sky overstates the value of its assets – a claim that Blue Sky forcefully denies.
It stepped up its denial on Tuesday with a 12-page reply to the hedge fund's piece, which it derided as containing "basic factual errors".
Glaucus' report drove shares of Blue Sky down 9 per cent to $10.40, wiping $80 million from its market value. The stock has been halted from trading in anticipation of management's rebuttal. Glaucus' head of research, Soren Aandahl, estimates that Blue Sky's fee-earning assets under management figure is "at most" $1.5 billion, compared to the $4 billion the fund manager discloses.
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Shares of Blue Sky will return to trading on Wednesday, when managing director Rob Shand is hosting a teleconference.
Mr Shand said in a separate statement that Blue Sky's valuation practices were no different to industry standards, "entirely in line with market practice in Australia and Blue Sky has adopted the same approach since it listed", he said.
He continued: "Blue Sky has always adopted the highest industry standards and practices with respect to valuations," and named KPMG, Colliers International, CBRE, JLL, Elders, and Herron Todd White "amongst others" as independent experts linked to its process. Blue Sky's accounts are audited by EY.
Disputed estimate
Fee-earning assets under management exceeded $4 billion as of March 9, Blue Sky said on Tuesday, disputing the "bottom up" method that Glaucus used to come to its own conclusions. Blue Sky also said that Glaucus failed to account for joint venture assets "such as for Goldman Sachs and SC Capital" in compiling its disputed estimate of no more than $1.5 billion.
Further, "Blue Sky earns fees on assets managed for Goldman Sachs and SC Capital", the company said, challenging the hedge fund's claim that it does not earn management fees from its joint ventures.
As for Blue Sky's "advisory mandates", which Glaucus suggested Blue Sky wrongly included in its calculation of fee-earning assets under management, the company took the view "each of these mandates, however described, is a mandate to manage assets upon which Blue Sky earns fees on an ongoing basis".
Over the Easter break, Mr Shand communicated with investors and clients saying that Glaucus' report on Blue Sky lacked diligence and the "facts about Blue Sky have not changed". Glaucus put a $2.66 a share valuation on the business by applying a 20 per cent corporate governance discount to its $3.33 a share valuation, which is based on a $187 million estimate of enterprise value.
The asset manager rejected every claim of inflating its investment performance and criticised Glaucus for extrapolating the performance of seven assets "across a portfolio of 80 funds" including a burrito chain, a portable toilet business and wine start-up Vinomofo, whose valuation was appraised by KPMG.
Glaucus thinks Vinomofo will run out of cash in the absence of an injection of capital and claims it missed its revenue targets, despite being re-valued in December 2016.
'Strong performance'
Blue Sky also reiterated its superior track record of 15 per cent annual returns, after fees, which Glaucus said made Blue Sky "one of the best asset managers in the entire world over the last decade".
"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," Mr Shand said, admitting that a "small" number of its 80 funds were not performing to expectations.
"At no point since our listing have we received anything other than an unqualified audit opinion."
Blue Sky is Glaucus' second campaign in the Australian market following its successful targeting of sandalwood grower Quintis in 2017. Quintis called in administrators in January 2018.
Law firm Gadens is investigating whether losses suffered by shareholders of Blue Sky could form the basis of a class action against the company.
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