Valuation Risks and Liquidity Challenges Loom Despite AIQ’s Strong Half-Year Performance

Strong Financial Performance Amid Challenging Markets

Alternative Investment Trust (ASX – AIQ) has delivered a striking half-year financial performance for the period ending 30 June 2025. Profit attributable to unitholders soared by 183.28% to $6.657 million, compared to $2.35 million in the prior corresponding period. This surge was underpinned by a 13.6% increase in net tangible assets (NTA) per unit to $1.84, reflecting solid portfolio gains despite headwinds from foreign exchange fluctuations.

Notably, the Trust did not declare an interim distribution for the period but returned $1.27 million in capital to unitholders, continuing its cautious approach to balancing income and capital preservation.

Portfolio Composition and Investment Activity

The Trust’s portfolio remains heavily weighted towards international absolute return funds managed by Warana Capital Pty Limited. Significant distributions were received from Warana’s 2018, 2019, 2021, and 2023 Funds, including a notable $4.2 million distribution from the 2021 Fund driven by a sale at a premium to net asset value.

During the half-year, AIQ strategically acquired additional interests in the Warana 2018 and 2019 Funds at discounts to adjusted NTA, reflecting a disciplined approach to capital deployment in the secondary market. The Trust also increased its cash holdings to approximately 8% of NTA, investing in ultra-short-term bond ETFs to optimize returns amid rising interest rates.

Capital Raising and Future Distribution Plans

In a significant development post-period, AIQ announced a non-renounceable 1-for-1 rights issue priced at $1.47 per new unit, targeting gross proceeds of approximately $44.6 million. This capital raise aims to bolster the Trust’s capacity to capitalize on secondary market opportunities and support ongoing investment in its diversified portfolio.

The Trust also signaled an intention to increase annual distributions to 10% of Adjusted NTA starting in early 2026, doubling its current payout target. This move is expected to enhance income returns for unitholders while leveraging carried-forward tax losses to maintain tax efficiency.

Risks and Governance

The Responsible Entity, One Managed Investment Funds Limited, alongside Warana Capital, continues to manage inherent risks related to valuation uncertainties of illiquid assets, liquidity constraints, reliance on third-party managers, regulatory compliance, and foreign exchange exposure. The Trust maintains robust internal controls and risk management frameworks, with no significant failings identified during the period.

Management fees are structured with rebates to ensure alignment with unitholder interests, and performance fees are carefully deferred or waived to reflect realized gains, underscoring a conservative and transparent fee approach.

Looking Ahead

With a strengthened balance sheet and fresh capital from the rights issue, AIQ is well-positioned to navigate ongoing market challenges and pursue value-accretive opportunities in the secondary market. The planned increase in distributions and continued focus on capital preservation will be key metrics for investors to watch in the coming months.