Blue Sky shares tumble amid renewed Glaucus assault

US short-seller resumes its attack in response to Blue Sky’s rebuttal of its initial research.

US hedge fund Glaucus has described Blue Sky Alternative Investments’ response to its short-selling attack as “flimsy” and accused it of fabricating its stated obligation of secrecy around investments in a second opinion piece.

In a continuation of an increasingly heated war of words, Glaucus today responded to Blue Sky’s rebuttal of its initial allegations, stating: “Rather than address our [first] report on its merits, Blue Sky has doubled down on obfuscating simple details about its business.”

It accused Blue Sky of hiding behind a “fabricated obligation” not to reveal details of its investments, portfolio and performance, and called on the manager to “point to the statute or requirement which prevents them from even high-level disclosures regarding their portfolio”.

A Blue Sky source told Agri Investor that this was something the firm didn’t feel it had to provide and that it was “very reluctant” to reveal the nature of its investments in order to protect clients’ confidentiality.

Blue Sky referred back to its initial rebuttal in a further response to Glaucus’s second opinion piece, issued to the ASX on Thursday afternoon. Trading in Blue Sky’s shares was paused at the request of the ASX for around 40 minutes while Blue Sky prepared its response, resuming at 1.45pm.

Blue Sky’s shares closed at A$6.95 ($5.34; €4.35), down 17.95 percent on Thursday’s opening price of A$8.40, and significantly lower than the A$10.40 price when trading was first halted last Wednesday.

“Blue Sky notes that this second opinion: raises no new allegations; does not identify any information which previously has not been disclosed and which the board believes a reasonable person would expect to have a material effect on the price or value of Blue Sky’s securities; and does not identify any errors in the information previously disclosed by Blue Sky.

“The board confirms our previous standing invitation to the short-seller to meet with us to discuss and clarify any further issues they may have,” the fund manager said in the statement.

Call for AUM breakdown

In its new opinion, Glaucus argued that other publicly-listed asset managers like KKR and BlackRock provide a breakdown of both gross AUM and fee-earning AUM across not only asset classes, but at the individual fund level – and called on Blue Sky to do the same.

The Blue Sky source argued that this comparison was unfair due to the scale and nature of businesses like KKR and BlackRock, which are far larger than Blue Sky, despite Blue Sky comparing itself to those businesses in investor and financial presentations. The source said that those comparisons were not intended to be exactly like-for-like, but were rather intended to give investors an idea of the kind of business Blue Sky is, as it is the first alternative asset manager listed in Australia.

Glaucus also reiterated its line of attack around Blue Sky’s transparency, saying: “Blue Sky’s response was notable not for its flimsy rebuttals, but for its startling lack of transparency as to the basic composition of its portfolio. Blue Sky insists that our estimates are incorrect; yet failed to provide any corrective details or any explanation as to how we should adjust our estimates.”

The Blue Sky source responded by conceding that its valuations could be perceived as opaque, but that presenting a fully transparent list of its investments and AUM would not be in the best interest of its investors, many of which invest through direct mandates. If it did so, as Glaucus has called for, potential asset buyers would then know precisely how much Blue Sky values them at, minimising the potential return for investors.

In response to Glaucus’s accusation that Blue Sky overvalues its assets, the source argued instead that its valuations were often on the conservative side, pointing out that of the 39 assets Blue Sky has exited from, 33 had to be revalued upwards from the valuations Blue Sky originally had in its funds.

The central allegation made by Glaucus on 28 April was that Blue Sky’s fee-earning AUM were “at most” A$1.5 billion, which Blue Sky denies. The fund manager has repeatedly stood by its own valuation of its AUM as A$3.9 billion as of 31 December 2017 and more than A$4 billion on 9 March 2018.

Blue Sky said yesterday that it had referred Glaucus to the Australian Securities and Investments Commission for investigation into whether the short-seller had manipulated the market.