March 27, 2012

Revelation Special Situations Fund (update)

I previously posted about Revelation (formerly Osmium) Special Situations Fund and the fund's beneficial ownership in the company here. As the only visible name in the stock, it's worthwhile to expend a few brain cells thinking about Revelation from time to time.

Like now. A blog reader made the following comment: "Revelation appears to be in some trouble. 4 key staff quit recently and the fund is seeing redemptions. Caveat Emptor!"

Have staff quit? Yes. Several members of the firm (3 from the market-neutral, event-drive Revelation Special Situations Fund and the head of marketing/IR) left before it was widely reported in December (4 months since publication, 5 months since actual departure).

Seeing redemptions? Likely late last year (i.e., Q4).
  • At March 31, Revelation's firm AUM appears to be about $488MM,
  • At June 30, Revelation's firm AUM appears to be about $564MM,
  • At September 30, Revelation's firm AUM appears to be about $362MM, and
  • As at December 31, Revelation's firm AUM appears to be about $297MM.
Keep in mind how the market moved up and down last year:

I don't find 13Fs to be completely precise, so these figures may not represent the firm and fund's true AUM nor all of its holdings. Also, I don't think Revelation has been sufficiently precise in their filings to include their holdings of Provectus preferred shares and warrants.

AUM goes up and down based on subscriptions, redemptions and market fluctuations. Depending on how the Special Situations operating or investment agreement is written, and depending on notice for redemptions and investor gates (if any), redemptions are more likely to have occurred in the fourth calendar quarter, with the September 30 drop due mainly to the market decline.

In trouble? Hard to tell. Chris Kuchanny founded Revelation (as Osmium), and was a former ABN Amro prop trader. So, the fund has someone who can set the strategy and tactics of the book. There are lots of explanations for staff departures. My favorite is that with the fund underwater and likely having to go some distance before getting above the high water mark before performance fees are charged again, the departing individuals (more so the traders, but also the marketing/IR person) likely did not want to stick around and work for salary (management fees).

Provectus? Revelation's Special Situations Fund holds Provectus' preferred shares and warrants. Its holdings were beneficial and unchanged as of their most recent 13G filing. So, it does not look like 2011 fund redemptions or staff departures was created an impact on their Provectus holdings. The company's most recent 10K filing noted 3.5MM preferred shares remain [unconverted into common stock].

I don't think Revelation has sold any of their position.

Caveat emptor? Always!

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