Pengana Stock Fund’s Success Drives Fourth Payout in Two Years

The success of Steve Black’s equities fund is forcing him to give money back to investors.

The co-manager of Pengana Capital Ltd.’s Emerging Companies Fund, one of Australia’s largest stock funds investing in smaller companies, is returning about 5 percent of its A$665 million ($526 million) in capital, Melbourne-based Black said in a phone interview. The fund, which only buys industrial companies, has a self-imposed capacity limit of about 0.5 percent of the liquidity-weighted market capitalization of its benchmark, he said.

Black says he and partner Ed Prendergast are giving back cash for the fourth time in two years as the fund increased 12.3 percent last year compared with a total return of negative 3.8 percent for the S&P/ASX Small Ordinaries Index. Small-cap managers across the world often have size limits to prevent them from diminishing their ability to access stocks at position sizes that allow excess performance, according to Morningstar Inc. analyst Kathryn Young.

“A small level of funds under management means we can continue to stay nimble,” said Black. We can “move in and out of positions without pushing the share price around.”

Pengana’s fund, which Black says hasn’t accepted new investor money for four years, is the fourth-largest among 135 Australian small-cap managers tracked by Morningstar Inc.

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