Another team circling?24 Jan 2016 17:02
************* sticking the boot in, perhaps a change in fortune is not too far away?...GL S
Interesting to note the suggestion of another team circling?
Article and link below....
Continuing my look at the many investment companies on AIM I turn to Pires Investments (PIRI) to look at the costs involved and the oddity of these companies investing solely in listed companies.
Nod to Drunken Sailor and Bob the Brush who made these points on my Blue Star piece but I wanted to provide a more detailed example.
Pires is headed by Peter Redmond, its Nomad is Cairn and Peterhouse Corporate Finance is broker, names that come up frequently in this space. Its current share price is 0.0135p valuing the company at £310,000. You will note that it is named after an Arsenal footballer. Investment companies created by Peterhouse are often named after Gunners players.
It has often been mentioned on this site that the costs of running these businesses mean that one would need to have a better record than Warren Buffet to make money but let's look at that in detail.
The admin expenses of Pires run at about £250,000 per annum and the investments in the last interims as at 30 April 2015 were valued at £561,000. That equates to a management fee of 44%. Compare this with a top hedge fund that might charge '2 and 20', a 2% annual management fee and a 20% share of returns in excess of a certain hurdle rate. This re-emphasises how odd it is that investors are willing to pay fees of anywhere from 25-50% of assets under management in these sub-scale companies.
To make the point absolutely clear, a quick glance at the share price chart over the last three years shows that, unsurprisingly, Pires has been unable to generate returns in excess of its costs and the inevitable decline in the share price ensues.
I would have some sympathy, not much but some, if the directors were scouring the globe and unearthing hidden private gems that could become the next Facebook, but that is not the case. Pires has 4 investments at the moment, all of which are listed on AIM and 3 of which are merely other investment companies, namely Armstrong Ventures (AVP), which was another Redmond shell at one point, Kennedy Venture (KENV) and 3 Legs Resources (3LEG). Its final, and largest, investment is Rame Energy (RAME).
I just don't get this.
I can make those same investments myself and pay no fees. If I invest £1,000 in those 4 listed businesses myself and the portfolio goes up 25%, I make £250, whereas if I invest that amount in Pires today and the portfolio goes up by the same amount, an impressive result, the NAV of Pires would still go down by about £100,000 due to the excessive annual costs. It's crazy.
So is this a stonking sell?
Well, not at this price actually as that would be ignoring an important element in the life-cycle of these companies. At a market value of around £300,000, I wouldn't be surprised if another te
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