Dear Unitholders,
First, thank you all sincerely for placing your trust in me as trustee of the unit trust. Managing outside capital has been a dream job since catching the investing ‘bug’ over half a decade ago now and to finally have the chance to do it, even as a humble sized trust, makes me delighted. Some of the mechanisms I’ve decided to adopt may need an additional explanation.
First, the most important thing to get right at the outset of starting a business, is the business model, as it is the foundation to build on for the future. Not to say that it can’t be allowed to change over time but I there is some things that are hard to change if not implemented at the outset. The unique traits I have put in place include:
1. Myself as manager have realised all my outside investments and purchased 100,000 units in the trust as the initial unitholder. This humbly represents all my investable funds at this stage in my life, and any additional investments made will be filtered through this trust to ensure full alignment with my fellow unitholders.
2. Unitholder’s who choose to add or withdraw money will have their units issued or cancelled at the end of each month, in fact, all administrative functions including incentive fee allotment, distributions and reporting will always be done at month close. This also means that units also get valued monthly and circulated to investors via this exact report.
3. Unit purchases will have a 0.25% premium applied to the unit price to reflect the spread of the underlying holdings, and conversely unit sales will have a 0.50% discount applied to the unit price. The skew is intended to dis-incentivise selling to ensure that existing unitholders are not adversely exposed to any un-intended tax consequences.
4. Incentive Fees are calculated using a 0/6/25 fee structure that was popularised by Warren Buffett which he had used in his partnership ran during the 1950s and 1960s. This means that until the trust earns a 6% return on its capital (~0.49% per month), the trustee gets no remuneration. Amounts above a 6% returned are split in a ratio of 3:1 with the manager receiving a quarter of profits made above the hurdle. To stress is that fees are only re-adjusted if the portfolio value ends the month above both the previous peak (High watermark) and the incentive threshold. But don’t take it from me, here is Warren’s long-time business partner and Berkshire Hathaway Chairman “Charlie Munger” to provide testimony
As a budding Accountant myself who is also trying to scale a taxation offering, I have introduced an incentive for unitholders where 10% of incentive fees can be reimbursed through a credit applied to any invoice for taxation services provided by yours truly. It is my hope that this creates cross-pollination between the two businesses.
Take for example, an investor puts $100,000 of capital into the unit trust, and I manage to generate a $10,000 return in the first year. The incentive fee attached to that would be $1,000 (1/4 of the amount > $6,000). In line with this policy, the unitholder would be eligible for a $100 credit to apply to their invoice.
5. Lastly, Unitholders become automatically eligible for a life-time subscription to the Hurdle Rate Substack (RRP $10 per month). Through this I post frequently the following:
· Weekly One Page Stock Pitch (Available to free subscribers)
· Monthly Deep Dive
· Monthly Portfolio Update
· Occasional Management meetings and other ad-hoc blog posts.
Importantly, these posts will differ to the content conveyed in these updates with no dollar figures conveyed, intended to just be position by position commentary. Information discussed in the Substack may find its way here, but never the other way around.
In terms of investments, opening the various investment and bank accounts took some time, and I placed my first trades on the last day of the month. Note that a single trade can move these investments several % up or down so that is the reason for our slight decline for the month. Volatility will be par for the course going forward.
Following month end, on the 1st of June 2023 more was invested into DSW Capital (LSE:DSW) and there are multiple orders in place to allocate the remaining capital by the end of June. The full history of performance data can be found on the full document.
That concludes the first monthly report for the unitholders of the Hurdle Rate Unit Trust. If you would like to contact me with any questions, suggestions or simply to chat you can reach me through my contact details below.
Yours sincerely,
Tristan Waine
Sole Director of the Trustee of the Hurdle Rate Unit Trust
Phone – +61 426 928 026
Email – Tristan.waine@outlook.com