Did a brief scan over the management circular for the upcoming transaction with Helios. Petec summarized the transaction in a prior post quite succinctly. Thought I would add a few rough details and a bit of math.

Helios generated ~ $3.6 million in base management fees (aka excess fees) on 3.6 billion of AUM. Their net profit margin margin was ~ 14% with a ~$5 million after expenses (they paid no tax).

Of the 4 fund vintages (I, II, III, IV), they have closed out I completely on Sept 2020, and sold 2/8 positions from II. Fund I, had an initial value of $303M. Fund II, had an initial value of $908M.

The carried interest on Helios Holdings Limited (HHL)was $11M. This amounts to 50% of total carried interest generated from the funds of which the other 50% is earned by the investment team. The hurdle rate was 8% and the performance fee was 20%. The exited positions (by my rough approximation) probably had an original capital contribution from investors at an amount of $532 M ($303M + 2/8*$908M). By my math, their achieved CAGR over a ~12 year period was 8.7%.

For Helio Fairfax Partners (HFP), they will pay a base management fee of 1.5% of NAV for deployed capital and 0.5% on undeployed capital. They will have a 5% hurdle rate with a 20% performance fee.

Assumptions:

- if Helio's AUM stays at 3.6 Billion, running ~ 3 x $1 billion funds at any point in time

- tax rate of 26% for HFP

- current price of FAH being $3.50/share on 59 M shares

- 9% dilution with the deal spread over 10 years

1) Total fee generation after-tax will be ~ $7.4 M (at current market price --> gives a 3.6% return)

2) With the $391 M of current FAH equity in Helios' hands compounding at 8.7% into the future, the 10-year future value after carried interest payout will be $847 M. (at current market price gives a 15% return from NAV growth)

3) 1.5% drag due to base management fee

4) 1% stock dilution drag due to one-time stock dilution over 10 years

5) African inflation ranging from 3-12%

Total personal return will be 3.6% + 15% - 1.5% - 1% - (3 to 12%) =

4 - 13% annual return.