No mood for five more years of negative returns from Brookfield Soundvest Split Trust

Among Canadian companies, Brookfield Asset Management is one of the largest (market cap of $48 billion), most international (with operations all over the globe) and most successful (shareholders have an annual gain that’s three times what the broader market has achieved over the past five years.)

So why at a time when it, or some of its partly owned entities, is consolidating its holdings into larger entities, is one of its affiliates wanting to extend the ride for a bunch of long suffering retail investors. Indeed, why not use the smarts in the group to develop a better solution?

We are referring to the situation at Brookfield Soundvest Split Trust, a company with a market cap of $9 million, which has been around for about a decade, and which over the past five years has generated a total return of -5.79% or more than 50 percentage points worse than the composite. By any measure, the fund, whose manager and investment adviser is an affiliate of Brookfield Asset Management, is a dog and Brookfield couldn’t confirm if any of its executives have a stake.

Soundvest gets an annual management fee of 1.10%. According to its most recent filing, the management expense ratio for the six months ended June 30 2014, was a mere 24.7%. For the same period one year earlier it was a healthy 37.9%. (The MER includes interest payments.)

But the fund has a lot of retail investors peeved about the recent turn of events. “I was looking forward to being put out of my misery with the preferred shares set to terminate at the end of March,” wrote one pref shareholder who also owns the units.

Now that may not happen. The fund, that went public in 2005 with $180 million in the kitty via the sale of 7.2 million $10 trust units and the same number of $15 preferred securities, has called a special meeting. The reason: to seek approval to extend the term of the preferred shares another five years “following the scheduled maturity date of March 31, 2015.”

To be effective, the proposal requires the support of two thirds of the preferred shareholders who vote. (At last count, there were four million units and the same number of pref shares outstanding.) And a vote is required because when the fund went public, as Brascan SoundVest Rising Distribution Split Trust, investors were told the “trust will terminate and be wound up on March 31, 2015, unless terminated earlier or extended…”

And for pref shareholders the stakes are even bigger. If they approve the five-year extension next month then, according to the circular, the extraordinary resolution will “provide the Trust with the ability, in its sole discretion, to extend the term of the Preferred Securities for subsequent five-year renewal terms.”

The fund’s unitholders – motivated no doubt by the manager’s desire “to provide holders with regular cash distributions and to maximize the long-term total return of the Trust’s portfolio” – aren’t doing that well either. Distributions haven’t been paid since August 2011, the units trade at a deep discount to NAV and there are no redemption rights. The market cap is about $9 million.

Brookfield declined to comment.

Financial Post

Leave a Reply

Read the original at Financial Post - Top Stories.