K1 Ventures

[cif5000]

For this, you have to refer to the paragraph 3 of the "Proposed Amendment to the Management Agreement" circular entered between K1 and Greenstreet in 2014.

http://www.k1ventures.com.sg/admin/files...202014.pdf

This is how i inferred the management agreement. To keep it simple, upon disposal of any investments, Greenstreet gets a cut on the realized net profits(total distributions + divestment amount - initial capital - threshold level).

1) If the investment managed to compound at 10-15% over the years, Greenstreet will be entitled to a carried interest of up to 10% of the realised net profits

2) If the investment managed to compound >15% over the years, Greenstreet will be entitled to a carried interest of 15% of the realised net profit.

I tried to do some rough calculation for the case of KUH, the initial capital was US$57M and additional threshold was US$41M. Total threshold US$98M.

Based on AR2016, "Total cash and property distributions received from inception are approximately US$223 million at 30 June 2016." Divestment of KUH gives US$29M.

Therefore, capital in KUH managed to compound at ~12% over 13 years. The capital would grow to US$197M if investment in KUH compounded at
10% over 13 years. Greenstreet should be entitled to 10% of US$55M (US$252M less US$197M), therefore ~US$5.5M.

Thank you!

How about Guggenheim? Assuming k1 disposed this at US$220m, how much would the incentive be?

I finally looked at the circular for the 2010 Management Agreement. 
http://www.k1ventures.com.sg/admin/files...rcular.pdf

Based on 2016 AR, it was stated that "The Group has received approximately US$35.1 million of scheduled dividends since June 2011. In addition, the Group has received supplemental special distributions of approximately US$3.8 million related to the Preferred Units."

Assume K1 disposed Guggenheim at US$220M, total sum would be US$259M. This gives a return of 17.2% compounded over 6 years.

10% compounded over 6 years would give US$177M. Greenstreet should be entitled to at least 15% of the realized net profit in this case. Actual amount may vary though since they are many confusing subclauses under the management agreement.

Wow, cif5000 guessed the disposal price of Guggenheim almost right on the dot, just by 1M! Impressive!

At US221M, assuming 4% stake, the p/aum would be 2.3%. If the assumption is right, I would be disappointed as the valuation is on the lower end of what I expected.

Nevertheless, this "workout" gave me a decent return with a 4 month holding period. I have since sold off my position after the announcement was made.

Congrats!

I've got no crystal ball and the assumption was at best a guestimate.

Still can't get precise with the tax and incentives.

Book value $143m
Gross consideration US$220m or $309.4m (USD @ 1.4)
Gross gain $166.4m
Net Gain of 29ct or about $125.6m

Tax and management incentives $40.8m (or 24.5%)

If the tax/incentives had been 35%, the current NAV of 76ct will get a 3.5ct cut. 
If the transaction was any lower, it would have been worse.
In hindsight, buying at $0.70 wasn't that great. At sub-$0.60, it was worth a punt.

If any lesson, it would be to value the parts net of tax/incentives rather than its gross value.