Author Topic: Fairfax Africa  (Read 29263 times)

elliott

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Re: Fairfax Africa
« Reply #120 on: November 01, 2020, 01:50:23 AM »
Did anyone actually say that?

As I see it, you dont sell something worth $1 for 50 cents it you really think it is worth $1.
I have not followed this drama that  much, but if Helios was "forcing" FAH to sell Atma to close the deal, they you have to think why. Why would they force selling something worth $1 for 50 cents. Well, yes, because they do NOT agree with that valuation.
Another reason FAH may do such a sale is because they think they can turn the 50 cents back into $1. Good luck Wilkerson! Good luck Mr. Watsa!



petec

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Re: Fairfax Africa
« Reply #121 on: November 01, 2020, 02:28:25 AM »
Did anyone actually say that?

This is what I was responding to:

ďIts hard to imagine a scenario where they try to sell their stake at a 50% discount to TBV and there are no takers .Ē

And if it was not clear (tone does not always come across well) my question was a genuine one not an aggressive/rhetorical one. Iím genuinely interested to know why anyone thinks ATMA could have fetched more right now.

It might be worth more later, which might be why FFH remain bullish on its value, but there is room to disagree, which might be why Helios isnít. 
FFH MSFT BRK BAM ATCO LNG IHG TFG

jfan

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Re: Fairfax Africa
« Reply #122 on: November 04, 2020, 11:13:08 AM »
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.

« Last Edit: November 04, 2020, 02:55:55 PM by jfan »

Thrifty3000

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Re: Fairfax Africa
« Reply #123 on: November 05, 2020, 02:45:43 PM »
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.

jfan, thanks for breaking it down. I think one of the main reasons Helios did a deal with Prem was to boost their brand and get a seat at the "Value Investor Legends Club" table - similar to what Charlie Munger did for Li Liu. I'm assuming much of the appeal of associating with Prem is an ability to at least triple or quadruple AUM over the next few years. To be honest I don't know why they'd give up half their future earnings stream in exchange for a group of somewhat crappy, illiquid, assets, if they didn't think associating with Prem would pretty much guarantee at least $12 billion AUM in 10 years (they could have probably pretty easily grown to $6 billion AUM on their own).

I know the payout ratios for future funds will be more favorable for Fairfax Helios. What would the returns look like 10 years out if Helios grows AUM to $10 or $15 billion?

jfan

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Re: Fairfax Africa
« Reply #124 on: November 06, 2020, 08:11:45 AM »
Assuming that they don't achieve scale economics on their current roster of specialists, and other profitability measures staying the same, the fees should increase proportionally to AUM growth.

So from a 3.6B fund --> 10B-15B AUM, the approximate additional growth --> ~ 10-15% on top of the 4-13% that I estimated, for a total of return of 14%-28%. Lots of assumptions obviously, with future fund performance, AUM size, and their skill in managing inflation risk.

It makes sense for Fairfax to salvage their mistake and gives Helios a brand boost.