TOL - 11th Jul, 2025
Is now the time to invest in small caps?
In this edition of the IIR LMI Monthly Update we take a look at the key news in June as well as whether now is the time to be investing in small caps given the RBA rate cuts that have occurred this year and the further rate cuts forecast. See the attached report for the piece on small caps and IIR rated LICs and LITs that provide exposure to small caps that may be worth consideration.
The keys news included:
PE1 Continues to Focus on the Discount
In a recent investor webinar, Pengana Private Equity Trust (ASX: PE1) detailed that it will be seeking to accelerate cash inflows where possible with excess cash to be used to undertake buybacks which it has previously announced in an attempt to address the discount to NAV. The Trust highlighted that the dislocation was being perpetuated by the move to managed accounts with the Trust not seen as having sufficient liquidity to accommodate this model. As such there is a mismatch in the demand and supply dynamics which is driving a material dislocation between the NAV and unit price.
The Trust stated in the webinar that they are prepared to materially reduce the size of the Trust to remedy the discount. IIR views the material discount as an attractive opportunity for long-term investors given the Trust has highlighted its intentions to address the discount and the high regard in which we view the Manager of the portfolio.
The Manager is expecting increased excess cash in the 2H’CY25 which will be used to buyback units which will be accretive to the NAV. While the buyback initiative is expected to have a positive impact on the discount, this will reduce the size and liquidity of the Trust. It is IIR’s expectation that once the supply and demand imbalance is rectified the Trust would then be seeking to grow the Trust to improve liquidity and ultimately be of sufficient size for inclusion in managed account portfolios.
L1 Capital Not Supporting PMC Scheme
Platinum Capital Limited (ASX: PMC) is proceeding with the Scheme in which it is proposed shareholders will exchange their PMC shares for units in the Platinum International Fund Complex ETF (ASX: PIXX), which is the ETF vehicle that provides exposure to the strategy. The Scheme booklet is scheduled to be released on or around 11 July with the Scheme meeting scheduled for 12 August.
If shareholders vote in favour of the Scheme, the Board is proposing to pay a special dividend approximately equal to the Company’s retained earnings prior to the Implementation Date. The dividend will be franked to the maximum extent possible but will not be fully franked. Based on the retained earnings as at 31 May 2025 and expected restructure costs, the special dividend would be 13.53 cents per share and 49.9% franked.
In June, L1 Capital announced its intentions to vote against the Scheme being proposed by Platinum Capital Limited (ASX: PMC). L1 Capital has a 16.85% interest in PMC. In light of this announcement the Board has stated that it is actively considering alternative transactions that provide shareholders the opportunity to exit around NTA in the event the Scheme is not approved.
Restructure of MCP Credit Trust Approved
Unitholders of the MCP Credit Trust approved the proposed restructure and transactions at a meeting held on 30 June 2025. The restructure and transactions are relevant for the Metrics Income Opportunities Trust (ASX: MOT), which represents ~40.6% of MOT’s portfolio. Unitholders approved the following:
- Restructure of MCP Credit Trust - a new unit trust named Metrics Credit Trust 2 (MCT2) will be established. MCT2 will acquire certain assets from MCP Credit Trust in return for the issue of units in MCT2. Following the disposal of the assets to MCT2, MCP Credit Trust will undertake an in-specie distribution of the MCT2 units, by way of a return of capital, based on their proportionate interest in the MCT2 portfolio. MCT2’s investment objective and strategy will be substantially similar to MCP Credit Trust.
- Sale of Interest in Taurus & BCI to Navalo Financial Services - MCP Credit Trust has a 100% interest in the Taurus Financial Group (Taurus) and a 29.8% interest in BCI Investment Group (BCI). In March, MCP Credit Trust announced the acquisition of the remaining equity in BCI. The acquisition has a purchase price of $140.3 million upfront and deferred consideration of $6.9 million. Unitholders have agreed to sell the interest in Taurus and the minority interest in BCI to Navalo Financial Services (a newly established wholly owned subsidiary of Metrics Credit Holdings (MCH)) in exchange for shares in MCH. As a separate transaction, Navalo will acquire the remaining interest in BCI. To fund the acquisitions, MCP Credit Trust will acquire MCH shares for cash consideration equal to the purchase price of the BCI majority interest which will be used to capitalise Navalo. MCP Credit Trust’s exposure to MCH will be 15.4% post the restructure and transaction with MOT’s ~3.9%.
PAI Scheme Progresses
During the month, Platinum Asia Investments Limited (ASX: PAI) announced that a draft scheme booklet had been lodged with ASIC and the ASX. A scheme booklet is scheduled to be released on or around 11 July and a Scheme meeting schedule for 12 August.
If shareholders vote in favour of the Scheme, the Board is proposing to pay a special dividend approximately equal to the Company’s retained earnings prior to the Implementation Date. The dividend will be franked to the maximum extent possible but will not be fully franked. Based on the retained earnings as at 31 May 2025 and expected restructure costs, the special dividend would be 9.97 cents per share and 50.8% franked.
KKC Maintain Distribution Target for FY26
On 27 June 2025, KKR Credit Income Fund (ASX: KKC) announced the target distribution for FY26 will remain the same as FY25 at 1.67 cents per month, which represents 20.04 cents per annum. Based on the NAV as at 31 May 2025, the distribution represented a yield of 8.24% and a yield of 8.83% based on the unit price.
KKC provides exposure to a diversified portfolio of traded and private debt through the GCOF and European Direct Lending strategies with exposure to both fixed and floating rate securities. Given the current market uncertainty, we believe investors should be looking for actively managed portfolios for their fixed income exposure.
BTI Announces Valuation Uplifts
During the month, Bailador Technology Investments Limited (ASX: BTI) announced a number of revaluations for investments in the portfolio, tabled below. Included in the revaluations was a 49% uplift in the valuation of DASH after new capital was raised. There was also an 24% uplift in the valuation of Updoc, the third largest position in the portfolio.
One valuation was written down and that was in Nosto. The value was written down 63% to $1.6m, however only represents a small portion of the portfolio.
In light of the revaluations, the private portfolio has delivered a gross return of 32.8% for the FY25 period.
WAA Provides Lifeline to Keybridge
On 5 June 2025, WAM Active Limited (ASX: WAA) announced it and other entities within the Wilson Asset Management Group had provided a bridge funding facility to Keybridge Capital Limited (ASX: KBC) until the company is in a position to undertake a recapitalisation. Wilson Asset Management owns ~45% of Keybridge across its entities.
The facility is for up to $9.3 million with the term maturing on 31 August 2025 with extension on request provided there is no default. The funds have an interest rate of 12%p.a., which will stepdown to 9.0%p.a. on the agreed upon date. Keybridge will repay the outstanding balance in full at the end of the term with Interest capitalised in the event there is no default.
GVF Raises $16.9m from Wholesale Investors and Kicks Off SPP
During the month, Staude Capital Global Value Fund Limited (ASX: GVF) announced a Placement and Share Purchase Plan (SPP). Under the Offer, shares will be issued at $1.34, representing the NTA at the time of the announcement. The Company raised $16.9 million through a Placement to wholesale investors, issuing 12.6 million new shares. The SPP is now open and is scheduled to close on 11 July 2025. Shares under the SPP will be issued at the lower of $1.34 per share or the pre-tax NTA per share on 11 July.
Capital raised will be invested in the discount capture strategy of the Company with the Company generating returns with materially lower volatility than the broader market.
Investor Thirst for Income Continues
In June, the MA Credit Income Trust (ASX: MA1) raised a further $49.7 million through a Placement to wholesale investors. This comes after the Trust listed in March. We also saw another fixed income LIT comes to market, with Latrobe Private Credit Fund commencing trading after raising $300 million.
Income focused strategies, whether through debt or equity, have dominated the landscape in the last 12-months with all listed closed-ended funds coming to market having an income focus.
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The views here are not recommendations and should not be considered as investment advice.
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