A global equity portfolio in one share

Mauritian-based investment company Astoria and local asset manager Anchor Capital are taking a page from property counter Rockcastle’s book with the listing of Astoria on the JSE’s AltX in two weeks time.

Rockcastle effectively offers investors an opportunity to invest in a broader portfolio of offshore property shares. Astoria is replicating this model in the equity space.

Carl Esterhuysen, director at Java Capital who acts as the sole book runner and corporate adviser to Astoria, says the idea is to offer South African investors easy and cost efficient exposure to offshore global equities.

Astoria will hold about 60% of its portfolio in direct listed equities, roughly 20% in private equity assets and some 20% in niche funds.

Esterhuysen says it aims to raise about $150 million in the current round of capital raising and already had commitments in excess of $50 million before its road show commenced roughly a week ago.

Astoria will have a primary listing in Mauritius and a secondary listing on the JSE. The listing is scheduled for November 25.

What it is

Darryl Kaplan, CEO of Astoria, says Astoria is an investment company with permanent capital.

“It is not a fund, it is not a unit trust and it is not a managed account. It is a company with its own share capital, which is of a permanent nature, which enables it to take investment views and investment positions based on a long-term view.”

Kaplan says Astoria is looking to create long-term growth in net asset value (NAV) per share over a protracted period of time. Largely based on feedback it received from potential shareholders who expect it to compound earnings, it will initially reinvest all dividends.

The net asset value per share is $1 and the issue price the rand equivalent of $1 per share.

The investment policy is primarily driven to find large, quality, growth companies internationally – companies with strong and defensible franchises, strong free cash-flow generation and strong profit growth potential.

“In other words we are looking for growth at a reasonable price. We are not looking to be a value investor in international markets,” Kaplan says.

Anchor Capital will run Astoria’s investments.

Peter Armitage, CEO of Anchor Group and non-executive director of Astoria, says they don’t believe investing in Astoria is better than physically taking money offshore. For high net worth individuals, the first prize is still to use their allowance and externalise their funds.

However, in his experience a lot of clients don’t take money offshore due to the hassle. Some investors do, but still have a material South African portfolio. Within this portfolio, offshore exposure is typically obtained by investing in companies like SABMiller, Richemont or through an exchange-traded fund (ETF).

Astoria is effectively a share on the South African market, which represents a portfolio of offshore equity opportunities, he says.

Armitage is particularly excited about the private equity allocation.

“Private equity firms internationally have achieved fantastic returns because they have got long-term capital and they are able to gear pretty cheaply.”

The company has a mandate to gear up to 40% in its portfolio, which it will utilise “very cautiously”.

Armitage says the first private equity group with which it is likely to invest is Apollo Capital Management. The fund they are interested in is in the natural resource space (energy) in North America and Canada.

“We’d typically put 2% to 4% of the fund in something like that.”

Armitage says a team of 40 investment professionals around the world will be sourcing opportunities. Anchor Capital’s team will mainly be responsible for decisions around direct equity holdings, but where specific opportunities present themselves in Japan or China for example it would appoint a niche or specialist fund manager for this purpose.

It has partnered with ACPI, an investment company in London, which is focused on investing private client money in funds around the world.

It will also be looking to Capricorn Fund Managers (CFM) for emerging market ideas. Anchor recently reached “commercial agreement” to acquire 47.41% of CFM.

Armitage says ultimately the objective is to achieve a 15% dollar compound internal rate of return (IRR) over a five to ten year period.

He admits that this is a stretched target and that it would require equity markets to provide an underlying 5% to 10% return.

While it won’t achieve this if equity markets are negative, it has the ability to gear and is motivated to find the two or three investments that will add an additional 3% to 5%.

But in the early days it will be a very risk averse investment, Armitage says.

“We’d much rather invest in a fund, which has got a guaranteed 10% dollar IRR than a risky 25[%], but [will] ultimately try and get a balance between the two.”

Amelia Morgenrood, certified financial planner at PSG, says while it is preferable to use your allowance to move money offshore directly, Astoria is an attractive alternative to direct offshore investments, which often require significant minimum investments.

Investors can get similar exposure fairly quickly and safely through investing in Astoria with a relatively small amount of money, she adds.

Morgenrood says the private equity portion offers a “sweetener” as individual investors are rarely in a position to get private equity exposure unless they commit substantial amounts of money.

Unlike unit trusts, which have to sell some of their assets when investors dispose of their units, Astoria is a share, and investors who would like to exit the investment will merely sell their shares to other investors – it won’t have an impact on the underlying portfolio of assets, she says.

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