Member Info for Damienmoore

Ade,
Fascinating to hear your long term history with HFEL, and Micheal Watt. Thanks for sharing this. However, I would not share your view that, just because our fellow contributors to this board are finding it difficult to accept/understand the truth, they are agents acting for the fund. Though, I do hope they take the time to assimilate the evidence and come to understand that a significant proportion of HFEL's income revenues are from "dividend stripping". Just how much, we don't really know, and this continues to be a fundamental part of my argument - the reprehensible lack of disclosure.

Fund managers are very good at shaping how they disclose information to justify their existence, and to make themselves look smarter than they actually are - like many salespeople do. I've grown wiser (I think!) and more intolerant of it.
D

longtimeinvestor, I am very sorry but I can't explain it any further than I already have. I suggest you digest the Edison report yourself and think it through.

Thank you for your comments, ade2a.

I refer to your comment "You are probably correct". I regret to report that there is no "probably" or "maybe" about the crux of my argument. Some of my fellow investors here perhaps feel that I am simply making assumptions or "have fears". However, I believe my contention to be factually based. Please refer to Edison's December 2021 report:

https://www.edisongroup.com/publication/compelling-income-and-recovery-potential/30350/

"The current 7.9% yield is well above the c 4.8% portfolio yield for several reasons. Kerley uses option-writing to generate extra income (7.7% of FY21 revenues) and is ‘dividend aware’ in the timing of purchases and sales".

Edison are a valid information source, and in fact I believe HFEL pay them to issue their reports.

I continue to believe that Mike Kerley and the Chairman have a duty to be transparent about the strategy of buying companies cum-dividend, and the contribution (and costs) associated to this activity. I see no reference to this in their reports, though it is evident they are employing this strategy. I have no respect for for this type of opacity - in fact it makes me downright suspicous and annoyed.

We are the shareholders - they are accountable to us and I want to see more transparency so investors are empowered to make an informed choice. Again, time for Mike Kerley to justify himself.

Good Afternoon, Guitarsolo. For me the management have lost credibility. Let's analyse this - they actually believed that forex contracts would achieve NAV stability. In other words, they assumed the forex positions were a one way bet, and there was limited downside risk. How unintelligent can they be?? How can an investor possibly place their money with people who have made such a peculiar, illogical assumption. Do you really want to keep your money invested with people like this?
I will stay invested, but not because I wish to. I have lost too much to make it worth selling.

Absolutely appalling nonsense. If they think today's presentation with all their financial jargon masks the truth of what they have done, they have a twisted sense of reality. Let me sum up the excuse they have made, versus the truth:

EXCUSE: “Hedging policy focuses on NAV stability”.
TRUTH: The hedging policy has actually introduced volatility to the NAV, and destroyed a significant proportion of the
company’s capital.

Where was the apology, or at least an expression of regret? So they think it’s okay that they have used the dividend money due to us to pay for THEIR mistake. How about using some of the 55 million Euros they took in performance and management fees during the 2021 financial year? Unless they feel that shareholders exist to take losses, while they take nothing but gains?

Where the hell is the Chairman? Is he going to say something about this debacle or just keep taking his pay cheques to be docile?
I just can’t believe the audacity and arrogance of the entire situation. Shame on the board, Shame on Partners Group.

Thank you for your comments, Actuary63. I find it interesting how you describe it as "worrying". This is apt, because worry would be derived from a perception that the manger is possibly doing things that we are not fully informed of, and that we are precluded from understanding the possible consequences. I am pleased to share some common ground with a fellow investor here.

Thank you for your input, mrcautious. Your comments are somewhat vague and off-topic. The recent drop in the share price is due to FOREX positions that have adversely moved against the company and resulted in suspension of the dividend. As a shareholder I am converned about the possibility the manager has mismanaged the fund given the extent of the losses. We are awaiting further details from them.

Thank you for your reply, longtimeinvestor. My views are not based on a hunch, or fears - their is sufficient evidence in the fact that the underlying portfolio yield is significantly lower than the yield of the trust. Edison Research made this point in December 2021:

"The current 7.9% yield is well above the c 4.8% portfolio yield for several reasons. Kerley uses option-writing to generate extra income (7.7% of FY21 revenues) and is ‘dividend aware’ in the timing of purchases and sales. As share issuance creates a drag on returns per share, the proceeds from new shares may be invested to maximise income".

I am sorry to keep repeating myself, but again, as a shareholder I want Mike Kerley to justify his less conventional income strategies and provide greater transparency surrounding them, given the poor total return performance of the fund. If he is turning over (or "timing") investments to generate income, I want to see this referred to in the annual report, and detail provided. I also want to know what the costs are to the trust for employing such a strategy.

The majority of investors appear to be blinded by the allure of the yield, hence the consistent premium to NAV they are paying. But I for one, as a long term holder, want more accountability and transparency from the manager given that my faith has gone unrewarded for a prolonged period of time.

Thank you for your comments, longtimeinvestor. I agree, the managers are indeed there to produce an income. What I am challenging is the artificial production of income that is coming at a total return cost to investors. As I said in my original post, the current yield is not naturally occurring from the underlying businesses the trust invests in. The manager boosts income via options trading and purposefully turns over investments to buy businesses that are about to go ex-dividend. This enhances the income account, but at the same time introduces cost and capital erosion in to the mix. Converting capital in to income + costs is not a wealth creation exercise - it is robbing Peter to pay Paul.

My argument, which is a reasonable one, is for the manager to justify this behaviour, which hasn't been working for a number of years, and to address the contention that the trust should perhaps cease the income boosting activities and pay dividends from the natural yield occuring from the underlying investments.

Hopefully the above clarifies my view, and it appears less strange to you.

It is time for status quo to be challanged. The manager uses financial creativity to achieve the current yield, which involves 2 behaviours:

1. OPTIONS WRITING - using options to boost the revenue account, which can drag on returns if the options/bets work against the company.
2. BUYING BEFORE EX DIVIDEND DATES - the manager is said to be "dividend aware", and will buy companies where they are about to go ex-divi. This will boost the revenue account, but the cost comes in the form of transaction fees, and the companies bought being marked down ex-dividend.

The result has been that over recent years HFEL has become a capital return vehicle (and worse), and as a shareholder I am now saying the manager has to justify why they think this strategy is appropriate in to the future. Is it time to cut the dividend and for the trust to pay at a level truly covered by the dividends paid by the underlying companies - without the financial hocus pocus?

Shareholders have been blinded by the yield for too long - time to wake up and start asking questions about the poor total return performance. Let's not forget, the manager wins in all weathers. If we lose, they still get paid!!

This has been going lower, even when I thought it wasn't possible for it to do so. However, the selling in EM's is likely due to the interest rate rises around the globe. A lot of money invested in EM's tends to be borrowed, so when interest rates rise, investors are forced to sell to cover their debts. Might be worth putting more in to this, but I do get fed up with the downward trend.

Interesting announcment today: "Princess will hold a quarterly investor update on 22 November......Princess portfolio based on unaudited figures as at 30 September 2022 as well as providing further background regarding the suspension of the second interim dividend for 2022." This is at least showing a willingness to provide detail on the issues we are all concerned about.

I couldn't have put it better myself, SageofLondon. It is difficult not to assume they overexposed the company to the forex contracts to see if they could make quick/effortless returns from Euro appreciation. Why else would they have an exposure to forex that significantly outweighed the value of (USD denominated) pipeline asset disposals?

And here we are, waiting to hear what the extent of the gambling has been. Could it be £200m, £300m or £400m?? We don't know, because they don't want to inform the extent of their ineptitude. But at some point the information will have to come out, one way or another. I sense it is not going to be pretty!

I believe my pessimism to be appropriate, Guitar Solo. When a listed company makes a negative announcement, but fails to provide any context or meaningful detail i.e. deliberate obfuscation, there is worse to come.

I believe It will get worse than this, Guitar Solo. 6 Euros per share by the end of the week, is my guess. It is pointless for me to sell now. I will hold in the small hope that I am wrong, and they can turn the situation round.

Thank you for your comments, Guitarsolo. As we know, the currency hedging is in place to ensure that asset sales in USD can be converted to Euros at a known exchange rate, which can give a degree of certainty as to the Euro value of any disposals. Princess reports its income in Euros.

However, as Partners Group will know, currency hedging for future assets sales doesn't work if there are no assets sales! All that is left is a currency contract with a positive or negative value, totally dependent on the vagaries of currency markets. To my mind this is unforgivable. They knew that private equity deal activity was slowing down some time ago. They are paid to manage such risks or at least advise investors of any possible future risks, and I see no evidence of this in the annual and interim reports.

This could be just the beginning of the value destruction, as the announcement today does not give any detail on how much currency in total has been hedged, and the maturity date/s on the contract/s. If the currency contracts are huge, and margin calls cannot be fulfilled, the forex counterparties will become unobliging creditors to Princess, and it could be "goodbye and goodnight". Similar happened to Alpha Pyrenees Property Trust, where the (mis)managers wiped out the business with big forex bets that went against them.

Make no mistake, we are in the danger zone here.

Ultimately the board has approved currency hedging to gamble with other people's money, in the hope of making effortless returns. There was no need to hedge currency because of the geographical spread of the underlying companies. 36.4% of the value is in Europe and 50.9% in North America, so the "hedge" was already a natural part of the portfolio. Why take the risk?

The dollar has appreciated significantly against the Euro, and it looks like currency forward contracts have come to the end of their term, meaning real and serious losses. It's difficult to tell without more detail on the currency exposure and the nature of the contracts. They have been very good at keeping it out of focus, and I didn't see much about it in the annual report either.

All in all, pretty disgusted. And, of course, they take their fees whatever happens to us. They win, we lose.

sdfs

Has anyone looked at DEMD (or DEM if you prefer GBP listing)? The Wisdomtree fund has a comparable yield with a focus on quality and ESG factors. It's also a large cap play, whereas this one is a mid-cap tilt.

Tempted to put some in to this ETF, which is a large cap emerging market dividend play. Wisdomtree's "quality factors" have perhaps played a part in the increasing dividends over time, and the ESG tilt means the fund avoids more of the "old economy" stocks . The yield is very tempting; not without more risk, but still tempting.