Funds Management Companies

[thereslifeafter87]

True they aren't a pure fund manager but they still collect an ongoing fee.

They have around $3.7b in funds under management, advice and administration. Based on them posting revenue of around $30m for the FY that means they are collecting around 80bps average on this money which sounds about right. If they were only collecting a fee on the inflow they would not get anywhere near $30m revenue. I also note they are forecasting steady growth which to me indicates they aren't reliant soley on inflows for revenue.

On PTM, true fantastic margins and they will need to improve fund performance if they want to maintain that size fee. The funds outperformed in Jan (although still lost money) so will be interesting to see if the outperformance can continue in this tricky market.

Usually fund managers don't take a fee on new inflows, whereas fund advisory firms like FPS may do.

Hence, if inflows fall (ie: people hold back from investing) FPS could be disproportionately affected. Say half of it's 80bps total return is generated due to new fund inflows (a wild guess), if fund inflows stop, it loses half its revenue.

80bps seems extremely high for someone who just passes the money on to someone else to manage. Fund managers only charge slightly more than that - maybe 1-1.5bps?

[mark100]

Hi Dimebag,

I do follow TRG a bit but was quite concerned by the level of outflows they have had this half. I don't want to invest in a fund manager that has net outflows because you never know how far earnings may fall. So until it reverses this trend I will only watch.

I like the look of HFA. It is a 'fund of funds' hedge fund manager that recently merged with its US partner, Lighthouse. This merger now keeps all its fees in house rather than paying some away to Lighthouse. Some may be put of by the hedge fund tag but their performance has been very respectable (much better than PTM funds which are employ some hedging techniques)

HFA has had around $500m of inflow the past year, with positive inflows in every 4 quarters. Fund performance has also been ok with fund losses in the range of -5% to 0% over the past year which is very respectable.

HFA got killed when MFS went belly up because the MFS Alternative Asset fund was holding a large amount of HFA shares and it got margin called. You will see on the chart that HFA got knocked down to 70c that day. It has never really recovered.

HFA is trading on around 11x 08 earnings. For FY09 there should be good earnings growth because FUM have grown and the merger with Lighthouse was significantly EPS accretive. Cash earnings will be much higher than accounting earnings due to the US requirement to ammortise the goodwill acquired from Lighthouse. Based on consensus, HFA is trading on a sub 8 FY09 PE and yield around 10%.

The main negative is they took on some debt to acquire Lighthouse. Not something I'm a big fan of for a funds management business. On the plus side the debt is US denominated (providing a natural hedge against the US earnings) and the interest rate is only around 4.5%. Interest cover is very healthy and debt/equity ratios are still conservative.

I don't hold at the moment. I did trade them a bit in the run up during Apr/May but for the moment I'm just watching it slide away.

[Huang Chung]

Not a fund management company per se, but an LIC......picked up a few Amcil (AMH) shares today.

Trading around asset backing, and well off its highs, this LIC has an interesting blend of blue chips and small caps in a fairly concentrated portfolio. No outrageous management fees either.

Top 5 stocks at the end of June were (in order):

BHP
Queensland Gas
Telstra
Bradken
NAB

Some other stocks in their top 20 that you would not normally see include Oakton (IT Services), Tox Free Solutions (Waste) and Mitchell Communications (Media).

Dividend of 6 cps coming up, which isn't bad when the share price is in the low 60s.

Not expecting big things, but a nice safe harbour to park some funds in these turbulent times.

[Dimebag]

Hi Mark,

Thanks for your thoughts.

I'm not sure that TRG has had huge outflows this half. They had net inflows in 3Q08 and appear to have suffered outflows in 4Q08. It's a bit unclear how these two items balanced out, but for FY08 overall they experienced inflows.

For the six months to the end of June-08 their total FUM was down 18%, which is pretty consistent with the overall market. The data the company has published is a bit patchy, but my understanding was that IM has suffered reasonable outflows in 4Q08, but their other fund managers don't appear to lost much money at all.

Have I missed something here?

PS yes HFA is also one I follow and own. The other negative about HFA is that it is a "fund of funds" manager. It could be argued that the fee-structures these fund-of-funds entail are outrageously high and ultimately unsustainable. On the other hand, the stock is very cheap, particularly when accounting for its entitlement to performance fees which could well resume in FY09, and as you point out, performance has been very good lately and inflows maintained.

Cheers,
Dimebag

[mark100]

Dimebag, a recent report I read on TRG has their inflows for the past 4 quarters as 0.3, 0.3, 0.4, -0.8. So the final quarter was poor. So they will be hoping thats not a continuing trend.

On HFA yes the fees are huge. But at least the performance figures quoted are net of fees so they have been able to preserve the value of investors money while still paying themselves well. Unlike PTM which also charges high fees and has had only minor outperformance (and still very negative absolute performance)

[mark100]

Took a modest position in TRG on the pullback under $5.50. Their latest FUM update was positive so it will be interesting to see how the half year earnings pan out.

Its hard to find value in this sector right now unless you think the market is going to charge ahead to 5500

[mark100]

Not a bad result from FPS. I took a small position late Friday and this morning. NPAT rose 25% to $4.1m of which $2.25m was in the second half. Cost growth was contained while revenue grew 7%. Market Cap is around $43m and they have $9.5m in the bank with no debt

[mark100]

Big result from KAM today and very juicy dividend to go with it. I hold at the moment

[mark100]

Not a bad time to get this thread going again given the bullish nature of markets at present. As mentioned much earlier when the market runs higher fund managers / financial planners generally post earnings growth ahead of the market growth due to expansion of both margins and PE ratios.

The time to be buying was obviously 6 months ago as a lot of the fund managers are already pricing in a lot of earnings growth with FY13 PEs around 20 or higher.

An old favourite of mine, FPS has always been a good play on the markets. It served me well in 2006/07 and then on 2009/10 but you have to be ready to sell when the bear resumes. FPS incurred a few one off costs (to gain future cost benefits) in FY12 which made the result look particularly bad. But the benefits were already evident in the FY13 interim result with EPS rising 50% on basically flat revenue.

In there interim report they say:
“Once the share market turns upwards, the profits of Fiducian should also follow. The company embarked on a series of cost cutting and cost recovery measures as foreshadowed in our Annual Report to shareholders. These have been completed and
have supported the company's profit growth which has also benefited from an improvement in share markets generally.”

In my view the next half should see good growth on the first half simply because markets are higher. Even if you simply annualise the interim result FPS is trading on a PE of 10 and FF yield of 6.4%. Market Cap is $34m and they have $7.5m cash. Those metrics compare well with any of the other fund managers/financial planners on my list. Obviously I hold, having purchased from 80c up to $1.

PFG is another financial planner that is potentially very cheap if they can get their act together. The interim result had one-offs of around $750k which they did not elaborate on. Excluding that they could be trading at a bit over 5x normalised NPAT but you would need to see the FY result to see how they are really tracking.

TRG still looks ok value. Lizard’s favourite, MFG just keeps on stacking up the FUM. If you value it at say 10% of FUM it is still not overpriced. I have traded its recent swings but not taken a long term position.

The EQT/TRU potential merger looks interesting given the potential synergies with the potential for a higher bid.

I recently bought a handful of AEF at $20. It looks expensive but is very leveraged to rising FUM and IFL holds 19%.

BLA and AFV both potentially very cheap but have no decent track record so are only watchlist material at this stage.

Any other suggestions?

[mark100]

I bought a few EZL when it broke through a dollar early Jan. It was one of my picks in the sharetrader comp. I liked the NTA of around 90c backed by its holdings in WIC and OZG. The brokerage firm doesn't need to make a lot of profit to justisfy a higher share price.

Not sure how the mining downturn will affect them. You're right a lot of cash will need to be raised by juniors to stay afloat. If the overall market is strong they just might be able to do that.

Other listed brokers are BFG and WIG. BFG has had a great rise in antipication of higher profits. WIG has forecast a loss for FY13 so can't get excited about them for the moment although there should be a lot of embedded value in their funds management arm. Having worked for WIG briefly I can say they had a massive cost base driven by bull market egos. Not sure if that has all been ripped out yet.