More than eight years ago I bought a basket of Italian real estate funds based on a simple thesis. As a group the funds were trading at a discount of ~50% to NAV while they were already in the process of liquidating, or were going to liquidate soon, because all the funds had fixed maturity dates. Most of them were supposed to liquidate between 2015 and 2017. Given that I’m still writing about these funds in 2023 shows that the liquidating process hasn’t been the easiest one. Perhaps not too surprising, since these funds were sold to retail investors and sometimes (mostly?) stuffed with crappy assets.
But at the same time, a lot of progress has been made. When I first wrote about these funds there were 24 separate entities with a NAV of more than €4 billion. As you can see above, now only 7 entities remain with a NAV of less than €650 million. Some of that reduction in NAV has been because of write-downs, but most has been achieved by selling assets and distributing cash to shareholders. The average discount to NAV of the remaining funds remains high, almost at the same level as 8 years ago, but I’m less enthusiastic about this investment now than back then. A bit can be attributed to having experienced how long this process is taking, but in general, I’m cautious about what happens in the tail-end of a liquidation. Presumably the properties that are remaining are the least attractive of the whole bunch…
So at this point in time, I have this part of my portfolio in runoff mode, and while I keep an eye on developments, I don’t plan on adding to this basket anymore. Since my initial investment in 2015 I have achieved an IRR of 12% on the basket which I think is quite okay. It’s not a homerun, but anytime you can make a double digit IRR over a long time period I think you should be quite happy. It will probably take many years more before the last fund is liquidated, but because most of the cash has already been returned I expect that the IRR will not change a lot anymore.
Author is long QFAL, QFATL, QFID and QFSOC.
thanks for this. 12% IRR is definitely a decent result, especially given the risk you took, which wasn’t much.
I’ve found liquidation investing to be somewhat disappointing overall, but that could just be my poor stock selection! sometimes the company reverses course and decides not to liquidate. asset sales sometimes don’t fetch the price you’d hoped. at the end, companies often put millions $ into legal reserves for adverse developments and I don’t know if that money ever comes back out (to shareholders).