Hunter Hall becomes the hunted

It was anything but a relaxing Christmas for the team at Hunter Hall International. Through a flurry of ASX announcements one of the stranger stories unfolded, and due to the quiet holiday news cycle it also played out in News Corp and Fairfax papers.

Peter Hall, charismatic Chief Investment Officer and founder of Hunter Hall, for his own reasons has resigned. Hall oversaw the management of five unlisted unit trusts and one listed investment company (LIC) totalling a combined funds under management value of approximately $1.1 billion.

The strangest twist to the story is Peter Hall selling 19.9 per cent of HHL to Washington H Soul Pattinson (SOL) for $1 per share. At the time the shares were approximately $3.10.

Soul Patt's is now potentially going to buy out the rest of Hall's stake at $1 per share as well.

Any guesses as to why Hall would sell for less than a third of the price the shares last traded at is open to speculation, and what the future holds for the listed fund manager and LIC is also speculation.

When listing in 2004 the LIC had a 25-year contract with Hunter Hall as the investment manager. This does not change. What does change is that Peter Hall will no longer be managing his component of the portfolio.

I had the chance to speak with the newly appointed interim CIO, James McDonald. McDonald has been with Hunter Hall since 2003 and has been the portfolio manager of the LIC since October 2014.

McDonald noted that Hall managed approximately 48 per cent of the LIC portfolio, of which 16 per cent was in cash. With Hall's departure the investment team will sit down and look over the 32 per cent of Hall's portion that was invested.

As when any analyst leaves a funds management company there will be stocks the team will agree on and feel comfortable to keep, while others will be shown the door. This is not a bad thing. You do not want the team continuing to hold companies they are not 100 per cent across.

In the video below, I discuss the recent happenings at Hunter Hall with analyst Philip Bish in more detail.

To get a good picture of the style of McDonald compared to Hall, you might want to take a look at two of Hunter Hall's unlisted funds. The Global Equities Trust is managed by McDonald and the High Conviction Equities Trust was managed by Hall.

Hall was more bullish on gold and resources companies as well as Sirtex. Even HHL Chairman Kevin Eley was quoted as saying the rest of the investment team was more risk averse than Hall.

It is interesting to note, when Peter Hall sat down with us in November that he specifically made mention to the amount of shares the LIC has bought back over the years to very little effect.

He said he religiously believed paying consistent fully franked dividends was the only way to keep the share price close to the net tangible assets (NTA). Three hours after the announcement of Hall's resignation the board of HHV announced a share buyback.

Right now the LIC sits approximately at a 6 per cent discount to NTA. We have no reason to believe it won't be business as usual for the LIC, perhaps minus a couple of its larger holdings.

If Soul Patt's bid for the rest of the shares is successful it has stated it will not look to change the investment operations, people or culture of the business. Making up a third of funds under management, the LIC is a vital component of the Hunter Hall business.

That being said, the HHV shareholders may feel differently.

Investors should keep in mind any shareholder with 5 per cent or more of shares on issue is able to call an extraordinary general meeting.