I read with interest this passage from a big fund quarterly report:
“We sold our smallest holding, Lumine, a small vertical market software business spun off from Constellation Software and still controlled by it. We’ve had trouble getting too excited about these spins from the mothership as we previously sold Topicus, another Constellation-owned business. These spinoffs tend to be nice businesses, but tiny and illiquid. Plus, Constellation continues to control the business economics and voting rights. It makes more sense for us to concentrate our research focus on Constellation.”
Is it fair to say that large funds often face challenges in initiating or maintaining meaningful positions in spinoffs like Lumine or Topicus, particularly due to limited liquidity and the ongoing control exerted by Constellation Software?
Thank you in advance for your insights.
It is a fair statement; shares are thinly traded, certainly and still trade on the Venture Exchange. We are not particularly concerned about CSU's control. We can't really think of a better long term holder than CSU. CSU also (so far) hasn't used its shares as currency and sold any (though this would help liquidity). Despite the issues, both LMN and TOI have done well, up 45% and 29% YTD. The aversion of institutions is actually an advantage for retail investors, making shares cheaper than they would be otherwise. So, while it is an issue for large institutions, it can be a benefit for individuals. In other words, we would not 'avoid' these two just because of this issue.