Blue Sky falls short of disclosure expectations

Following on from the opinion article by Glaucus Research, Blue Sky chair John Kain said the company has fallen short of shareholder and market expectations around transparency and disclosure.

As a result of this, Kain said Blue Sky is now commissioning an independent review to enhance the company's disclosures regarding financial reporting and valuations.

Blue Sky will implement measures designed to deliver better clarity on fee-earning assets under management; separately report one-off management fees and ongoing annual fees; and provide greater transparency on investment performance by analysing every one of Blue Sky's exits over the past five years.

The company will also commission an independent valuation review of every asset it manages.

The board has revised fee-earning AUM guidance for FY18 from $4.25-4.75 billion to $4-4.25 billion. Underlying net profit after tax guidance has been revised from $34-36 million to $20-25 million.

This has been done as a result of recent negative market sentiment, which Blue Sky said "is likely to constrain the company's ability to make new investments in the short term."

Kain added: "The revision to fee-earning AUM and underlying NPAT is based on the expectation that the company will now be constrained from completing new investments outside of unallocated institutional mandates.

Kain said that Blue Sky is "committed to making changes which will improve the business, provide greater transparency and improve shareholder value over the long term."

At the time of writing, Glaucus has yet to publish a response to these latest developments. The hedge fund had originally argued that while Blue Sky claims to have achieved a 15% internal rate of return net of fees since inception, driving its market capitalisation to about $1 billion, "all is not as it seems."

"We believe that Blue Sky is significantly overstating its fee earning AUM by reporting the gross value of certain assets as AUM instead of the fair value of the capital invested. Based on our analysis, we estimate that Blue Sky's real fee earning AUM is at most $1.5 billion, 63% less than Blue Sky's reported figure," Glaucus said.

Glacus added Blue Sky "compensates for its overstated AUM by charging clients egregious management fees, which can reach up to 17% of the capital invested in Blue Sky funds and are charged irrespective of the performance of the underlying investment."

Read more: Blue SkyAUMJohn KainGlaucus ResearchGlacus
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