Funds Management Companies

[mark100]

Does the same rule apply to hfa? Their upgrade is due to perf fees.

KAM's Market Cap (A$188m) as a percentage of FUM (A$870m) is very high, around 21%. HFA's ratio is around 1.3% (A$113m/A$8,700m).

While fee structures vary, KAM needs its funds to make a very good return before it can earn enough fees to justify its market cap. HFA on the other hand only needs to skim a very small percentage in order to justify its market cap. Therefore I regard HFA's revenue as more sustainable. HFA also benefits from the falling AUD as most of its FUM is in USD.

I don't regard either as a great long term investment as both have a poor track record at present but that doesn't mean you can't make money from them

[mark100]

KAM's Market Cap (A$188m) as a percentage of FUM (A$870m) is very high, around 21%. HFA's ratio is around 1.3% (A$113m/A$8,700m).

While fee structures vary, KAM needs its funds to make a very good return before it can earn enough fees to justify its market cap. HFA on the other hand only needs to skim a very small percentage in order to justify its market cap. Therefore I regard HFA's revenue as more sustainable. HFA also benefits from the falling AUD as most of its FUM is in USD.

I don't regard either as a great long term investment as both have a poor track record at present but that doesn't mean you can't make money from them

The other point I would note is HFA has around A$5m of amortisation in the half year result which is non-cash. So in effect HFA's cash earnings are around 65% higher than Statutory

[mark100]

AEF had a great report. NPAT 3% above the top end of the guidance range and up 150%.

Unlike many other wealth management plays at present AEF's FUM is not just going up from market movement, it actually has net fund inflows as well.

Given FUM is up 13% on where it was at the start of FY14 I expect the second half to be at least as strong as H1. That potentially gives underlying EPS of at least 273cps, ie FY14 PE of 11.5x current share price.

Discl. AEF is one of my largest holdings and it's very illiquid

PFG was poor. I had sold down a third after the AGM and dumped the rest in the first few minutes after the result. They just can't seem to get their sh!t together. The stock appears cheap but there is no growth, they need to do a massive goodwill write down and then that could make the debt ratio look a bit uncomfortable. If the market keeps flying they may do well at some stage but I think it's just a poor business at the moment

[mark100]

Posted this on hc. Careful though there appears to be a big seller lurking

The more research I do on HFA the more I think it's a bargain at current prices.

Obviously profit can swing around a bit due to performance fees. Looking back to pre GFC times the performance fees were much higher than they are today which shows the potential that is there for much higher profits.

In 2006 $13.5m of performance fees with year end AUM of $2.6b.
In 2007 $39m of performance fees with year end AUM of $3.9b. What a year!
In 2008 $9.4m of performance fees with year end AUM of $9.4b.

Since 2008 performance fees have been miserable at less that US$5m pa however H1 2014 was the first half since 2008 that showed some promise in this area.

I'm sure the future share dilution due to the conversion of the convertible notes is hindering the share price but in terms of reported profit, in around 2 years it will be boosted in the order of $9.2m pa when the management rights are fully amortised. They have been amortising at a rate of $9.2m pa and as at Dec 2013 have been amortised down to $22.9m.

Looking at a pro-forma FY14 estimate that includes full amortisation of the management rights and full conversion of the convertible notes:

H1 2014 NPAT - US$6.9m
H2 2014 NPAT estimate - US$5m (allowed for reduced performance fee)
Total reported FY14 NPAT - US$12m
Add Management rights amortisation - US$9.2m
Add interest saved on conversion of convertible notes - US$2.5m
Total Pro-forma 2014 NPAT - US$23.7m
Fully diluted shares on issue following C.N. conversion - 208m
EPS - US$0.114
EPS - A$0.124

So at $1.00 the proforma PE is in the order of 8x. In addition the fully diluted market cap is $208m with net cash in the order of A$25m.

What PE should a debt free global hedge fund manager with in excess of $8b AUM trade at? I would argue 15x is not hard to justify, giving a price target around $1.85. This target should rise as AUM grow and HFA's cash pile builds.

Obviously I hold...

[Lizard]

AFV - Market Cap $7.5m, $2.5m net cash. OCF for 6 months to 31 Dec of $0.55m. FUM $620m up from $480m 6 months ago.

Very illiquid. I've held since low 30s. KBC has been increasing its stake

What is happening at AFV? Huge drop in FUM last couple of months, now down to $229m... doesn't appear they've explained it well to the market either. Hope you are out, Mark!

[mark100]

What is happening at AFV? Huge drop in FUM last couple of months, now down to $229m... doesn't appear they've explained it well to the market either. Hope you are out, Mark!

Hi Liz, on 17 Feb they had a 'Mandate Announcement' which was going to cost them $220m of FUM. That was enough for me. I bailed at 65c. Strangely it was easy to sell because KBC was sitting in the market buying everything on offer at 65c!

Then on 19 Feb they announced a responsible entity change which cost more FUM. So I expected to see a large drop in FUM but I was still surprised to see they were down to $230m today.

Oddly enough through all this KBC has been buying bring their stake in AFV up to 20%. I had been looking at buying into KBC as a discount to NTA play but when I saw they were spending cash buying AFV while all this was happening I promptly changed my mind!

In the wealth management space I'm only in AEF, FPS, HFA and MFG at present. And GBT as an IT/wealth combo. Of the 3 wealth managers, I consider AEF to be the best buy at present, trading at around 11x underlying FY14 and possibly under 10x FY15. 2014 will be a record year for AEF yet it is trading at a 40% discount to its ATH. Just shows how mad 2007 was when the PE was almost 30. I'm still happy with FPS while HFA probably has the most embedded value but it could be a long process before the market takes notice

Edit, also holding a few CGF. KW's post a while back prompted me to take a closer look. The chart looks good

[Lizard]

Thanks Mark. You seem to have done very well with the Funds Management strategy. MFG seems to keep trucking along for me, but I've never taken on any of the others and stuck with the smaller platform providers in the financial services sector (PPS, RFL). AFV an interesting example of what happens when a manager loses popularity.

[noodles]

Thanks Mark. You seem to have done very well with the Funds Management strategy. MFG seems to keep trucking along for me, but I've never taken on any of the others and stuck with the smaller platform providers in the financial services sector (PPS, RFL). AFV an interesting example of what happens when a manager loses popularity.

Lizard, Mark100.

Do either of you have an opinion on hub24? They recently presented at the piefunds small cap conference. I was quite impressed. The share price of late is not impressive.

[mark100]

Lizard, Mark100.

Do either of you have an opinion on hub24? They recently presented at the piefunds small cap conference. I was quite impressed. The share price of late is not impressive.

noodles, I had a look when Pie got involved but as they weren't profitable and I couldn't see when they would be I didn't look any further. If I think a profit is within 12 months I will be more interested. There is also an upcoming IPO, www.managedaccounts.com.au that is a similar type of business I think. Priced at 39x FY15 NPAT. A bit steep for me particularly when the forecasts are questionable.

[Joshuatree]

I'm taking up my 1 for 3 CAF @ 32c and applying for more. Mkt likes the news and I'm believing in the turn around story and low entry looks good but DYOR. hows all the other FMA's performing for you all?