Holdo co Fund

Objective  

The objective of the fund is to seek to unlock value by investing in listed holding companies across a wide array of industries. Holding companies in the fund’s universe are defined as those entities which hold stakes in other listed entities, and trade at a significant discount to the NAV of the underlying assets.

Background

The main reasons for discounts are:

  • Distribution tax if assets are to be distributed.
  • Lack of control discount because minority shareholders cannot exercise control over the method and timing of distribution.
  • Uncertainty over future growth of the underlying assets.
  • Tendency of the controlling promoter to unlock value but instead of distribution to shareholders, re-invest in empire building.

Regulatory changes, like the Companies Act 2013 have enabled certain shareholder rights and brought sweeping changes in how companies approach “Related Party Transactions”. The renewed thrust of SEBI in ensuring higher level of corporate governance would motivate promoters to consider delisting their holding companies.

Strategy

To invest in holding companies which are sub-scale and run as group holding companies rather than strategic investment companies. Companies that have stakes in strong operating business but are typically run by, for and of the promoter are the most likely ones to feel the heat of change in regulatory landscape.

Portfolio Structure 

The fund will operate on the PMS platform where the investor’s assets will remain either in cash with a bank/liquid fund (pending deployment), or if deployed, in the form of stock with CDSL. In either case, the assets will be under the investor’s name. While the tracking and monitoring of the investments will be active, the activity at account level will be passive, resulting in lower transaction costs and better post-tax return. The fund would remain open ended, but the expected time frame to realize the full value of the investment is about 60 months. Capital would be returned to the investor either when the portfolio doubles or at the completion of 60 months, whichever is earlier.