Author Topic: JEF - Jefferies Group  (Read 599206 times)

jay21

  • Hero Member
  • *****
  • Posts: 1217
Re: JEF - Jefferies Group
« Reply #850 on: August 08, 2014, 12:06:26 PM »
We invested a further $332.5 million in our Leucadia Asset Management platform, including a follow-on investment in Topwater Capital, a new investment with Mazama Capital Management and an initial investment in the Global Equity Events Opportunity Fund, which historically was part of Jefferies. At June 30, 2014, total capital invested in our asset management affiliates and associates was $461.5 million. Almost all of this represents seed capital invested in liquid securities managed by focused investment teams in which we have significant confidence. We expect a reasonable return on our invested capital and to earn an incremental return from our participation in the results of the related management companies.

http://seekingalpha.com/pr/10706945-leucadia-national-corporation-announces-second-quarter-2014-results

I've been thinking about this a bit, and I have to say I'm getting more and more uncomfortable with all these seed capital deals.  Obviously, distributing capital to different managers didn't work out too well last time, and I'm not so sure investing in the management firms mitigates the potential downside risks.

I'm also not too crazy about this "reasonable return" + "incremental return" business.  What exactly are their target returns here?

I don't know the specifics, but these are the type of deals I think make a ton of sense for LUK.  There is so much room to scale up the management cos of the funds.  I don't think they would invest in a company that they didn't think they could net 8+% on their investment after fees and a total of a 15% RoE.  It's also right in their core competency as a financial service company (which may result in synergies from trading etc.?). 

I don't think these asset management companies are BRK-type quality deals and there are risks, but the potential returns should more than compensate for additional risk.  And their sizing is small relative to BV.  These are also less risky than the Pershing Square deal if i recall the details correctly.
@jay_21_


dwy000

  • Hero Member
  • *****
  • Posts: 603
Re: JEF - Jefferies Group
« Reply #851 on: August 08, 2014, 12:33:55 PM »
Got to say I'm with TXLAW on this one.  I manage my assets.  I pick to put some in Leucadia - who is essentially a manager of assets.  They then put it into another manager of assets.  Who finally puts it in investments that earn a return (hopefully).  There are a lot of layers in there of fees and people who need to be paid.  I far prefer when they make direct investments - if I wanted to invest in a managed fund I don't need Leucadia to do it for me.  Where is the value add for LUK here? 

txlaw

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3081
Re: JEF - Jefferies Group
« Reply #852 on: August 08, 2014, 12:49:36 PM »

I've been thinking about this a bit, and I have to say I'm getting more and more uncomfortable with all these seed capital deals.  Obviously, distributing capital to different managers didn't work out too well last time, and I'm not so sure investing in the management firms mitigates the potential downside risks.

I'm also not too crazy about this "reasonable return" + "incremental return" business.  What exactly are their target returns here?

If you looked at Leucadia as a concentrated bet on Jefferies and investment banking and then saw this as a continuation of those activities as opposed to with a lens towards the past how would you view this?

Actually, that's exactly how I'm increasingly viewing LUK. 

And that gives me pause because it means there is no longer any reason for me to own LUK.  I admired the LUK of old, but perhaps that is gone for good now that C&S are no longer together and Handler is running the show.

Nothing against Handler or Jefferies (I like much of what they're doing).  It's just that I already have plenty of exposure to the investment banking/merchant banking biz.     

BG2008

  • Hero Member
  • *****
  • Posts: 1067
Re: JEF - Jefferies Group
« Reply #853 on: August 08, 2014, 03:04:08 PM »
I think that the seeding model is very different than being a plain generic LP in a fund.  As long as Leucadia picks managers who generates a reasonable rate of return, i.e. 10%, the upside comes from the ability to gather assets and achieve an institutional investor base.  After X number of years, the ownership in the GP can generate revenue that is larger than the initial seed investment.  The seed investment also does not have to stay at the managers forever.  It can be pulled after a few years leaving behind an attractive annuity stream that can be held for the cashflow or monetized. 

Picking managers is a whole different conversation.

topofeaturellc

  • Sr. Member
  • ****
  • Posts: 318
Re: JEF - Jefferies Group
« Reply #854 on: August 08, 2014, 03:11:17 PM »
yeah - except picking managers to seed is insanely hard. Much much harder than picking managers to be an investor in which it self is very hard - especially at startup.

 Even the best returning seeding funds have like one home run, one or two OK investments, and lots of strike outs.

Now granted - you only need one fund to hit. But its a VC biz, and like other VC funds, returns over time for the asset class are unlikely to be great.

scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1775
    • scorpion capital
Re: JEF - Jefferies Group
« Reply #855 on: August 08, 2014, 04:43:54 PM »
I thought the idea of Leucadia merging with Jeffries was so that LUK could cherry pick the best real world investments discovered by Jeffries engagement with investment banking clients. It seems like a totally opposite angle for Jeffries or LUK to be going out and seeding capital to managers to find investments.

topofeaturellc

  • Sr. Member
  • ****
  • Posts: 318
Re: JEF - Jefferies Group
« Reply #856 on: August 08, 2014, 04:57:07 PM »
I'd be pretty bummed if I owned LUK to see my capital being used to seed a JEF prop desk.  Almost none of those spins have worked.

scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1775
    • scorpion capital
Re: JEF - Jefferies Group
« Reply #857 on: August 08, 2014, 05:11:06 PM »
Perhaps their angle is we are not a bank holding company so we can do prop trading for advantage. Their argument was we did not take government money and can take more risk. The funny thing though is
 a)  they have the lowest leverage ratios in the industry despite the un-regulated advantage and
b) is it an advantage to pile on the leverage more than your competitors  even if you can?
The fact that they don't makes it meaningless that they are not regulated for leverage and prop trading.

topofeaturellc

  • Sr. Member
  • ****
  • Posts: 318
Re: JEF - Jefferies Group
« Reply #858 on: August 08, 2014, 05:13:38 PM »
I think they are actually spinning the prop desk off balance sheet - that's how I parsed it.  So even that doesn't apply.


BG2008

  • Hero Member
  • *****
  • Posts: 1067
Re: JEF - Jefferies Group
« Reply #859 on: August 08, 2014, 06:21:01 PM »
Does anyone have a list of the deals that they've done in the last few years and how they have panned out?  It would be interesting to compile the list and try to calculate an all-in return for their seed capital.  If they have 2010, 2011, and 2010 seed vintages, we can probably figure out how the funds have performed and how AUM have ramped during that time.  Maybe, we will be surprised to learn that they're hitting 0.400 and it's actually really great ROI.  The upside could be in the future when the annuity stream grows larger as the funds go from $50mm to $1.0bn.