hidden value in the shrinking violets

HFA Holdings (HFA) 25.5c CRITERION: Tim Boreham From: The Australian December 10, 2009 12:00AM

CRITERION'S rule of thumb is to write about companies in the news rather than keeping a low profile, although there's often hidden value in the shrinking violets.


Could this be the case with the out-of-vogue hedge fund? We pose this as a question because we don't really know, but to some interested observers, HFA's silence sent out a megaphone-strength message. "The intrigue is that management has gone very quiet on the market outlook for the company. If I was into conspiracy theories this one appears ripe for a management buyout," an HFA watcher said. Management owns 23 per cent of HFA, making the best beachhead since Normandy for an assault.

Your columnist is not so keen on conspiracy theories. Still, if management wants to move it's the time, with HFA recovering.

HFA had a bummer of a year, having taken a $600 million on-cash hit on the value of its acquired US fund manager, Lighthouse Partners. HFA, the umbrella entity for a network of absolute return managers, also said its fund under management shrank 34 per cent to $6.1 billion.


HFA shares have almost halved from August's peak of 42c, but the shares are still well up on January's low point of 5c.

Behind the thumping headline loss of $573m, HFA made decent EBITDA of $58m. HFA has also got its debt under control and didn't do a dilutive capital raising.

At its October 26 AGM, exec chair Spencer Young declared the crisis had passed and markets were "slowly returning to more levels of functionality and performance". He said that, "pending unforeseen events", the trends would continue but he shied from specific earnings guidance.

In the meantime, the Delaware St Capital Markets Fund has upped its holding from just over 5 per cent to 15 per cent and Bank of America has ratcheted up from 5 per cent to 8 per cent. HFA is a speculative buy: buyout or no buyout, the stock looks undervalued. But no, we don't know what a hedge fund does, either.

http://www.theaustralian.com.au/hfa-holdings-hfa-255c/story-e6frg8zx-1225808804215