21 August 2010
Unitholders Questions Answered
Question 1:
[In respect of your letter to Unitholders of 25 May 2010 (BT's Letter) as
appears on Balmain Trilogy's website, (www.balmaintrilogy.com.au/Default.aspx#redemption)]
what is manifestly unfair about the payment of $100m to one investor as a
result of [an issue price redemption] … offer?
Such a payment is manifestly unfair as the redeeming unitholder will be
receiving $1.00 for each of his/her redeemed units, which is more than the
current value of each unit. This means that the value of the Fund per unit for
the remaining unitholders will reduce. In the example given, the remaining
unitholders will now own units which have a reduced value of $0.40. The BT
Letter clearly states, in some detail, that UNITHOLDERS CAN ONLY BE GIVEN
CHOICE AS TO WHETHER THEY ACCELERATE OR DELAY THEIR EXIT FROM THE FUND UNDER
CURRENT VALUE REDEMPTION FACILITY
Question 2:
Is a manager of a non-liquid fund permitted to pay one investor at the expense
of all other investors (NTA drop from $0.47/unit to $0.40/unit)?
No. No manager of any Fund is properly able to discriminate between unitholders.
Question 3:
Would you as a manager of such a fund make such an offer and payment?
No. This would be in breach of our fiduciary responsibilities
Question 4:
Wouldn't it be the case, that in the circumstances, pro-rata payments (without
'opt in' and 'opt out') would be made?
If we properly understand your question (which we assume is, "Under what
circumstances can the Fund redeem at the issue price of $1.00?") then you are
correct in saying that an issue price redemption facility can only be fairly
implemented if all unitholders receive pro-rata payments AND HAVE NO ABILITY TO
CHOOSE WHETHER OR NOT TO PARTICIPATE (I.E. THERE IS NO CHOICE WHETHER TO
ACCELERATE OR DELAY THEIR EXIT FROM THE FUND). It is for this reason that
Trilogy and Balmain Trilogy recommend that all unitholders vote in favour of the
Current Value Redemption Facility as this gives unitholders a choice as to the
level of their future involvement in the Fund.
Question 5:
It seems that the expert (a firm of reputable accountants) is unable to
specify
precisely WHO will incur the 'performance' fee. Please be kind enough to specify
exactly how the manager intends to apportion the 'performance' fee between
members.
The performance fee will be paid out of the Fund. The change in the value of the
Fund's assets will be reflected in the Fund's unit price. Similarly, where
Trilogy believes a performance fee will be payable by the Fund (for example as a
result of an increase in the value of the Fund's assets), the accounts of the
Fund will be adjusted to reflect that potential liability (even though the fee
may not be immediately payable). However, the Fund will not be liable to pay a
performance fee until the Fund has performed at the appropriate level.
Unitholders who accelerate their exit from the Fund and redeem their units prior
to the accrual of a performance fee will receive a unit price for their units
reflective of the fact that the Fund has not reached the relevant performance
threshold (i.e. a unit price which is reflective of the Fund's assets being
worth less than that required to satisfy the performance hurdle). Conversely,
where a unitholder redeems their units after the performance fee has been
accrued, they will receive a unit price reflective of the fact that the Fund has
satisfied the relevant performance hurdle (in other words, they will receive a
unit price reflective of the value of the Fund's assets being in excess of the
relevant performance hurdle, adjusted for the payment of the associated
performance fee). This means that where a current value redemption facility is
adopted, neither unitholders who accelerate their exit from the Fund nor
unitholders who seek to remain exposed to the performance of the Fund's assets
will be treated unfairly or otherwise disadvantaged.