Blue Sky Limited [ASX:BLA] shares have dropped by nearly 20% today. Currently trading at US $8.47, down from $10.40 on 28 March.
The investment fund’s share price plunged by 9% before it went into a trading halt on Wednesday, 28 March — from $11.43 to $10.40.
Blue Sky Limited is a fund manager that invests in alternative investments, which can be outside of the stocks and bonds market.
Why the share price decline?
Blue Sky requested a trading halt on Wednesday after a report emerged from Glaucus Research Group — a US short seller — giving them time to prepare a response.
Glaucus alleges that Blue Sky is overstating the value of its assets, return on investments and its management fees, as reported by Business Insider.
According to the opinion report, Glaucus estimates that Blue Sky’s shares are worth $2.66, 77% below the last closing price.
The report suggests that Blue Sky inflates its assets under managements — the total market value of assets that Blue Sky manages on behalf of investors — and charges its clients outrageous fees.
‘By overstating its fee earning AUM, we believe that Blue Sky not only defies standard reporting practices followed by major publicly listed asset managers, but it unjustly inflates the Company’s stock price.
‘Not only are Blue Sky’s ludicrous upfront fees an abusive practice that gouges the very investors Blue Sky claims to serve, but Blue Sky’s revenues will continue to shrink as it runs out of suckers to pay such exorbitant fees.’
What’s next for Blue Sky Ltd?
Blue Sky resumed trading today, after yesterday releasing an announcement in response to Glaucus, saying the report ‘includes analysis of the financial position and performance of Blue Sky and its investments that is fundamentally flawed and inconsistent with market practice’.
The company also held a live teleconference this morning discussing the response, which will be made available on their website.
As to what will happen next to Blue Sky remains unclear. Although if their announcement yesterday is anything to go by, it looks as though they won’t go down without a fight.
For Money Morning
PS: Blue Sky Limited has had quite significant growth over the past couple of years — although still has potential to soar. Sam Volkering, Money Morning Editor, argues that the biggest potential gains can be found in the sector with the biggest potential risk, small-cap stocks. If you’re interested in learning more, check out his free report ‘Top Three Aussie Small-cap Stocks’. You can download this free report here.