Extract/ Investment Portfolio Performance to 30th September 2016...

Extract/

Investment Portfolio Performance to 30th September 2016 & Market Insight In the month of September NCC entered into one new position, being funds management firm Contango Asset Management (ASX: CGA). Contango Asset Management represents the first listing of an asset management business since Magellan Financial Group (ASX: MFG) and Blue Sky Alternative Investments (ASX: BLA).

The listing of CGA sparked our interest as we believe there are some interesting benefits from the listed asset manager model with regard to potential scalability and alignment of interests, which CGA may be able to leverage. CGA is currently cash flow breakeven, with a far smaller AUM than other listed asset managers. Given the potential scalability of the asset management model to grow AUM without significantly increasing costs, CGA are well-placed to generate significant positive cash-flow post-listing. In addition, the listing of CGA helps to significantly align interests with shareholders.

As most, if not all of key management personnel are shareholders this means they are clearly aligned to drive the profitability of the business through growth in AUM, which can be directly influenced by the performance of the underlying funds. If CGA can prove that their products can outperform the market, then the funds under management will increase over time. If we look back to MFG when it first listed it was not a profitable business for a number of years but ultimately the time and money spent on distribution capability, coupled with product performance, allowed the funds under management to grow significantly in a short period of time.

As with all NCC investments a major consideration is the ability of any potential investment to achieve our desired internal target return of 20% p.a. over a 3-5-year period. If we take a three-year view and believe that CGA can increase their AUM level from the current $750 million to $2.5 - $3 billion, even if downward fee pressure occurs then the revenue base could increase from the current $5.4 million to circa $15 million, with a potential NPAT of $5 million.

Using the P/E’s of current listed peers this still delivers an annualised return over three years of ~22% p.a. With the benefit of an existing product track record, a proven Managing Director, and meaningful employee alignment we believe this has the potential to achieve and exceed these figures over our long term investment horizon.

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I want to swear. Every one of these points applied while it was INSIDE CTN! In fact, you could offer them shares in CTN for their bonus and it would be 10 x more liquid than inside this new vehicle

In addition, the listing of CGA helps to significantly align interests with shareholders

In addition, the listing of CGA helps to significantly align interests with shareholders

In addition, the listing of CGA helps to significantly align interests with shareholders

What, do you mean the CTN shareholders who USED to own this? Those shareholders?