% of AUM, Andreas Rialas, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, Globalworth Real Estate Investments, intrinsic value, Kyriakos Rialas, Price/Cash, The Argo Fund, TPPI
You may want to first read my preview of Argo Group’s (ARGO:LN) interim results here.
My estimate for end-Jun Assets under Management (AUM) was $333.8 mio. Actual AUM was reported at $308.0 m – down (5.6)% from end-Dec, but up 1.9% y-o-y. The H1 return estimates I noted for The Argo Fund (TAF), the Argo Distressed Credit Fund (ADCF) & the Argo Local Markets Fund (ALMF) were all spot-on. [And my Argo Real Estate Opportunities Fund (AREO:LN) estimate was derived directly from their published results]. What tripped me up was the Argo Special Situations Fund (SSF) – its (20.6)% H1 NAV decline was rather unexpected… That’s a loss of nearly $23 m, which accounts for the vast majority of my AUM over-statement (net redemptions presumably explain the rest).
Even with more info to hand, I’m not sure I would have anticipated this kind of result anyway. Here’s management’s explanation: ‘The main contributors to this position were the decline in share price of AREOF; a write down in the value of an investment in the Greek telecommunications company, On Telecoms; a higher valuation ascribed to the investment in TPPI.’ Now, let’s consider each of those components:
– The PT Trans-Pacific Petrochemical Industries (TPPI) gain is no great surprise – TPPI was also the main performance contributor for TAF & ADCF this year.
– While AREO’s price decline (from EUR 0.0522 to EUR 0.02) may seem fairly irrelevant at this point, the company’s share count is high & Argo (Group & funds) own a 73.9% stake. [NB: Argo Group itself only owns a 1.8% AREO stake]. That still translates into a meaningful write-down. If I assume SSF’s the only Argo fund invested in AREO – and I’m not at all sure that’s a correct assumption – by my calculation, its loss could total up to $18.8 m.
– As regards On Telecoms, the Greek telecommunications company, it was my understanding that SSF’s predecessor funds (ACPF & AHL) had already recorded a complete write-down on their investment in the company.
Considering the points above, I’m puzzled how SSF lost almost $23 m..?