January 25, 2021
3iQ’s mission is to help investors gain price exposure to digital assets such as bitcoin and ether in a passive and transparent manner through regulated, exchange-traded funds. We are honored to be the digital asset manager of choice for Canadians who have entrusted us with over C$1 billion of assets under management. Thank you to all of the unitholders who have been with us since the beginning and to those who have joined along the way.
Since November of 2020, there has been an overwhelming demand for fund units. In order to facilitate this demand, we conducted offerings in various formats. The recently announced At-The-Market (“ATM”) program seeks to achieve the best execution of unit offerings to the benefit of existing unitholders while allowing us to meet current demand.
An ATM offering is a daily offering of units into a trading market at publicly available bid prices on the Toronto Stock Exchange or marketplace. ATM offerings attempt to optimize the offer price by permitting units to be sold in the market over an exchange at prevailing market prices as opposed to negotiated prices with institutional investors. The benefits to unitholders of the ATM program include the accretion of bitcoin per unit, lower market impact, lower cost, and increased transparency of offerings.
Accretion To Unitholders
When units are sold at a market price higher than the Net Asset Value per Unit (“NAVPU”), i.e. trading at a premium, this is accretive to existing unitholders. Each unit sold above the NAVPU increases the bitcoin per unit value for all outstanding units. As outlined in the chart below, the distribution of units through the ATM have largely increased the bitcoin per unit since the inception of the program. In accordance with 9.3(2)(a) of NI 81-102, the issue price of a unit will not, as far as reasonably practicable, be a price that causes dilution of the NAVPU.
Acting in its capacity as the investment fund manager, 3iQ seeks to utilize the ATM offering to suppress market fluctuations. When the premium to the NAVPU is elevated, the ATM offering is utilized. When the premium to NAV compresses or potentially trades at a discount, the Manager will likely not use the ATM offering. These levels assist in normalizing market performance to better track the price of the underlying digital asset. The ATM offering requires no commitment of any kind with respect to the number of units sold, the price, or the timing. The Manager retains the right to sell, suspend or terminate the offering at any time. The Agency agreement provides us with full discretion on the price, amount, and timing of sales.
Lower Market Impact
The ATM offering distributes units into the natural trading flow of the markets. During times of outsized demand, units are sold at the prevailing market price. Prior offerings conducted including the fund re-opening in May and the various overnight offerings in November, presented challenges due to the timing and magnitude of the offerings. The ATM offering seeks to alleviate these challenges by spreading out offerings over time and seeks to achieve the best execution by continuously checking the market for the highest bid. In contrast to large agency offerings targeted to institutional investors with negotiating power, the Manager can provide regular offerings in the open market at various amounts to achieve enhanced price discovery on a real-time basis.
Lower Cost
The ATM offering seeks to reduce the costs associated with offerings. Placement agents on fund re-openings and overnight offerings incur costs of marketing, diligence, and coordination on these large transactions. As such, these fees are charged to investors participating in the offerings which can affect the fees charged. The ATM offering seeks to decrease and minimize fees so that the price in the open market is beneficial to both new and existing unitholders. Agent’s fees and commissions associated with the ATM offering are typically lower compared to fully marketed offerings.
Increased Transparency
As seen in our prospectus supplement and the press release, the ATM offering requires an increased level of transparency to investors. The Manager must disclose the number of units sold, average price, gross and net proceeds raised, and aggregate commissions paid to the Agents of the offerings. This data is disclosed in our quarterly and annual filings.
Our primary objective as a passive asset manager is to track the price of the underlying digital asset and provide value to unitholders. 3iQ will continue to monitor these offerings and take all reasonable measures to ensure that unitholders continue to benefit from the growth of our funds.