idea #3 NGPC

NGPC has been written up on VIC twice when commodities and
energy prices were trending higher, pre-2008. 
Both ideas centered around the NAV of the underlying assets, some of
which had public markets.  Both write-ups said
NGPC should trade at a slight premium based on (1) reputable management with access to small/midsize companies and (2) that it will pay higher yields as they become fully invested.  At the time, they were holding a large % of treasuries. They compared them to similar BDCs (not
necessarily in the energy market).    They argued that investors
weren't fully aware of BDCs and their unique tax advantages, so no one was paying attention.

 
The real bear case is that they have high expenses, similar
to a hedge fund, structured like 2/20 fees, and the investments they pursue don't pay enough to over come the expenses if even one of their portfolio investments doesn't pan out.  Overall, their fees including administration and incentives have averaged between 5% and 8% of
total assets per year.  That is a lot of headwind of expenses to push so I tend to agree that they don't deserve to trade at a premium unless perfect results from their investments are guaranteed, and/or they can make more than their targeted yields.  Their "targeted yields" on their investments are high (15% or so), and they do say all the right
things about being highly selective in choosing what they invest in (they buy 1out of 30 ideas they look at), but 1 bad investment brings the averages down,and they've had bad investments. 

 
If they make 25 investments with their capital and 1 investment is a complete failure, then it drags their returns down 4%.  Each failure takes it down 4%.   A huge negative event in the energy markets would take down more than 1 or 2 of their investments, whereas huge positive events wouldn't offer the investor much more return. 

 2 additional things
turn me off about this investment that don't get mentioned in VIC world:

 

They
have a lot of analyst coverage.  
Why do they have so much coverage? 
they have hinted they want to raise more capital, and indeed have
raised capital.  The bigger the
fund, the more money they make. 
Raising capital means selling shares to public.  To sell shares to public you need
coverage.  I don't want to be sold
stuff.  That being said, they are
incentivized to get this stock trading close to book value or higher so
they can rightfully keep raising capital. 
   

  

Natural
Gas Partners, the reputable company that started them, is a private equity
company that feeds the BDC fund most of the opportunities, (NGPC, the
tradeable BDC holds mainly bonds of these private companies).  I'm sure there are a lot of plusses to
them having the relationship with NGP, as their name and reputation may be
worthy, but we'll ever know where management's true allegiance lies since
NGP doesn't report.

 

 

 

Question remains:

 

Abandon this name entirely because of high expense fees.   It'll never be a great long term asset. 
It's not a great business, prone to blowing up.  While
their targeted ROI is high, it will not be consistently achievable.  

 

Or

 

Keep paying attention to it because of their unique access
to a certain market, experienced management team and consistent dividend.  There is much to be learned from listening to
their conference calls.  The guy is dry,
but candid.  Paying attention to their
nav and their market price will likely lead to more gains.  Don't buy anywhere near their nav or when
they are fully invested.  The investment
bankers covering this stock know more than me.