Thanks for taking the time to post. It is always great to have a different perspective to question current thinking, that is the only way we can improve. I had read your Magellan post and had taken down $PX and $DBRG to research more, any broader insights would be great. I watch Kudu investments (not listed) who invest similarly to PAC in US/UK and European markets. The following is based on a bit of history and I am not sure how far you have researched PAC.
How to value? I like to look at Net Assets. Each boutique on the Balance Sheet is valued at 50% of its sale price, examples follow: 1. In GQG, 2020=$95.214M, 2021=$115.275M and after IPO Pre-Tax $230M @$2 per share, now $173M @$1.46 per share at June 30. This all from an initial investment in 2016 of $USD2.7M (60 times return pre-tax). There has been a fall since, however this still represents a very good return. 2. In Aperio (23.38% ownership), investment in January 2016 was $USD31.8M and the business sold for $USD73M in late 2018. Balance sheet value in 2018 was not decipherable. Blackrock ended up buying the whole business for $USD1.05B in late 2020 (PAC's share would have been $USD235M pre-tax). 3. Current businesses that are likely to increase if sold are Victory Park Capital (own 25%), ROC Partners (own 30%), Banner Oak (own 35%), Proterra (own 16%), Aether (own 25%) and Astarte (own 40%). These business have been growing FUM in the double digits each quarter. VPC in particular grew FUM by 66% last year and I personally believe the business should sell for over $1B to a Blackrock or $APO:NYSE (who VPC manage money for in Private Credit Strategies).
The current reported Net Assets is $10.26 per share and this should increase based on liquidity events by approximately 20-30%, IMO.
But as has been pointed out by others, we do have to apply discount for overheads (commissions not yet covering all employee costs) and potentially the loss of Franking Credits in the future.
What is the advantage of buying boutiques in US/UK? CEO/CIO/Sales Team are based primarily in the US and know that market well. The number of opportunities that come up with high growing boutiques is significant. The other aspect is the level of growth able to be achieved. GQG was a once in a lifetime opportunity (happy to have more) and demonstrated what being a success in US can achieve, $USD90B and growing in 6 years now. Growth hasn't stopped and the Total Addressable Market for FUM means GQG could grow to a $USD500B in the next 5 to 10 years. This is similar to other asset classes, although not of the same magnitude as equity markets.
Believe the investment strategy is more nuanced, PAC look to invest capital in high growing fund managers (medium and small sized boutiques), where the boutique requires capital to grow and are in alternative asset classes. An example is the recent Banner Oak investment. No one wanted to invest in them despite having one very large client, Teachers Retirement System of Texas with $AUD9B in FUM. PAC invested with very good terms and is expected to return 15% approximately per annum through preferred shares. PAC will use their Sales Distribution Team to reduce single client risk over the next few years and we should own a decent little boutique (that will be undervalued on the balance sheet).
One good point on the investment in Banner Oak was PAC are generating cash Flow similar to the whole investment in GQG. Smaller boutiques tend to have to pay higher dividends to get access to capital.
In terms of PAC's balance sheet, they are looking to borrow up to $USD50M to invest in one or two boutiques (PAC management have said boutiques under $USD30M are offering better returns on invested capital). Have the companies that you own borrowed funds to invest in boutiques? Do you see any pro's or con's to do with this?
On a final note, whether you invest in PAC or not, it would be great to hear your perspective. Alternative assets and the popularity of them as an investment in the US provides great opportunity for growth.
Best of Luck Lost
PAC Price at posting:
$7.42 Sentiment: Buy Disclosure: Held
(20min delay)