BFC (Big Fat Con?) Performance Fee Rort

Just a reminder to existing and prospective holders that from a very depressed share price (where BFC is now), there is a rather insidious effect on shareholder value due to the structure of BFC's performance fee regime.

This happens because the performance is measured (read: reset) every 6 months and doesn't penalise the investment manager for all value destroyed previously.

It goes something like this:

Say BFC rebounds and ends at 30/06/19 at $0.24 versus $0.15 31/12/18, i.e. a 60% return, and let's say the All Ords accumulation (includes dividends) returns 10% over the same period.

This relative out-performance of 50% will crystallise a fee of about $11m payable to the manager which will be settled  either in stock or rights. The ~$11m is calculated as follows:

17.5% rate x  50% out-performance x Market Cap ($0.24 x 443m shares)

Questionable whose interests were being looked after when this company was floated, because as the share price continues to decline, then provided the company doesn't go bankrupt, there is an increasing chance of outperforming the benchmark in each subsequent period, and by a larger % therein. As a result of having no explicit penalty for destroying value in the formula, it makes the eventual payout more lucrative due to the effect of a sharper rebound off a lower base, and makes for a nasty dilution, likely near the inflection point where things begin to turn around.

The company can buy-out the management fee after 5 years (sometime late 2020), but would get stung here too because it would cost 5% of the market cap.