Thursday 24 September, 2009

I keep receiving interesting notes on a column I wrote a few months ago on an alternative hedge fund Psource, which lends money to high growth firms in the US. There are two stories at play here - the first is a possible aggregate share price / NAV mismatch while the additional but related story is the funds hugely lucrative holding in a US tech firm called Petro Algae.

To describe this stake has hugely important for PSource is I think understating matters greatly as the following email from a reader demonstrates. (I must mention of course that all the usual caveats about conducting your own research apply, especially for such an illiquid and relatively complicated fund.)

”Did you realise that [PSource] now trades at a discount to the value of its holding in Petro Algae? As Petro Algae is highly illiquid the Board of Psource value it at a 12% discount to its six month volume weighted average price, which last month was $5.95, compared to around $19 where it is today.

This month’s NAV is due out in the next week or so.

“Using the same formula I reckon there could be a rise to around $8.50 a share (adding around 15p to the NAV) but still a big discount to the actual price that Petro Algae trades. In fact, at the current Nasdaq quote, the Petro Algae holding is worth more than the Psource market capitalisation.

So, if investors now want to buy into Petro Algae it is cheaper (and the stock is more liquid) to buy Psource, ignoring the rest of the assets that themselves account for almost the company’s current market cap.”

David Stevenson is also one of the Four Wise Monkeys at the online TV investment programme www.4wm.co.uk

adventurous@ft.com