Blue Sky launches business review and further boardroom changes

The asset manager's share price continued to fall today, falling below the short-seller's target of A$2.66.

Blue Sky Alternative Investments has announced a review of its business operations and a comprehensive shake-up of its board as its share price continues to slide.

The embattled company’s interim managing director Kim Morison, who replaced previous MD Robert Shand on April 23, also revealed in a Monday statement to the ASX that Blue Sky is withdrawing its guidance for underlying net profit after tax for FY18 and fee-earning assets under management for FY18 and FY19.

The firm said it had taken this step to take “prudent account of recent developments”, which include: uncertainty, due to deal timing, regarding accretive US transactions that will occur before or after June 30, 2018; uncertainty as to the timing and structure of three unnamed development projects in Australia; and allowance for significant non-recurring fees associated with the restructuring of the business. The three Australian development projects are in the retirement living and student accommodation sectors.

Speaking to Agri Investor, Morison said that it remained “business as usual in real assets” for Blue Sky, particularly in the agriculture space.

Morison also sought to reassure investors about the health of Blue Sky’s business: “We’ve got no net debt on our balance sheet and that’s a great comfort to us. It means we’ve got plenty of runway and we’re pleased at the support from our institutional investors.”

Blue Sky first came under attack by the US hedge fund and short-seller Glaucus when it issued a critical report accusing the Australian asset manager of overvaluing its investments and misleading investments, claims that Blue Sky has denied. Glaucus also said that Blue Sky’s shares, which were priced at A$11.40 ($8.55; € 7.18) per share before the publication of the report, were worth just A$2.66 per share. On Monday, the share price slipped below Glaucus’ target for the first time since the report’s publication, closing at A$2.52 per share.

Blue Sky revealed that it expected to complete exits from four to five assets before the financial year ends on June 30. This includes Blue Sky Agricultural Fund I’s minority stake in Gundaline Pty Ltd, the owner of the cotton-growing property Gundaline Station, in which Blue Sky invested in June 2014.

The sale will be subject to Foreign Investment Review Board approval and Blue Sky expects the fund will achieve an IRR of 15 percent.

Blue Sky reconfirmed that it had reached a second close on its Strategic Australian Agriculture Fund in April 2018 and that it was in the process of deploying capital across a range of agricultural assets for the fund. It does not expect to reach final close in the current financial year.

Blue Sky’s board is also set for radical change as part of attempts to make it more independent.

Chairman John Kain, who has been a director of Blue Sky companies since 2007, will step down to be replaced by an independent chairman before the company’s annual general meeting in mid-October this year. In addition, executive director Tim Wilson will retire from the board but remain in his position as managing director of Blue Sky’s private equity business, while executive director and chief investment officer Alexander McNab retires from both of his positions with immediate effect.

The firm is set to appoint a chief risk officer to manage risk across the group which will make the position of CIO redundant, it said in the statement.

It also acknowledged calls to disclose greater detail about how its funds operate, providing some additional detail about fee-earning assets under management and fee arrangements, and admitted that it had underestimated the potential impact of shareholder activism on its business.

In the statement to the ASX, Morison said: “The board is examining proposed changes to the Blue Sky business model and management structure, to prioritise Blue Sky’s areas of competitive strength and to better align Blue Sky’s fixed cost base with recurring management fee revenue. There will also be changes to board composition and disclosure framework to promote greater independence and further improve communication.

“In the meantime, we have been heartened by the ongoing support and commitment of our institutional investors and joint venture partners, who have remained committed to our business.”