Latest twist: https://www.heliosinvestment.com/uploads/files/HFP-Portfolio-Insurance-Arrangement-Jan-21-2021.pdf
The interesting bit is that Fairfax has underwritten a bunch of the investments that Helios inherited.
I thought the plan for Helios was that partnering with Fairfax will give them more cred in the global market and help them with fund raising at their end . This is just asking Fairfax for money right after the close. and why is Fairfax bothered with Helios' second best ideas ( the first will go to the helios' fund I presume ) . Fairfax can get better exposure by investing directly in Fund 4 of Helios. And Fairfax has to underwrite the ' reference investments' ? why is that... what a mess...
I, too, am a little confused.
It seems Fairfax has underwritten an at the money put option in exchange for $3 million in annual premium and at-the-money warrants. Seems like this just leverages the exposure they currently have to FAH.
If it goes well, they stand to make tens of millions. If it doesn't go well, they stand to lose tens of millions. All around though - not terribly concerning. The $3 million in annual premiums means that the fund has to have a -9% return over the next 3-years before Fairfax is out any cash.
That is certainly possible - maybe even likely - but seems to be giving Fairfax cheap exposure to the upside via the warrants and the downside is finite ($91 million), at a distance (-9% away minimum), and in the future (3 years before Fairfax has to pay the claims).
Seems like a decent way to leverage the exposure, but I'm not certain as to how portfolio insurance typically works or is priced to know how this compares to arms-length transactions.
