Author Topic: SYTE - Enterprise Diversified  (Read 239245 times)

Tim Eriksen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 785
Re: SYTE - Enterprise Diversified
« Reply #620 on: November 13, 2018, 10:34:07 AM »
And of course the general concept of Loyalty, Character, etc...

I'm not that pessimistic. The fund manager is important, but so is access to capital. If SYTE grows to have multiple funds, has a marketing department, has the relations with institutions and HNW individuals they would have a big part of what is important as well.

There are a few misunderstandings here and in some of the other recent posts:

1. Unless Sitestar did a stupid deal, it doesn't work this way.  Having sold part of my GP, my agreement clearly does not allow me to close the fund and re-open under a different name to eliminate the fee share. 

2. If the GP hires additional personnel it does not cut into the revenue earned by Sitestar.  Sitestar basically has a royalty. 


Tim Eriksen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 785
Re: SYTE - Enterprise Diversified
« Reply #621 on: November 13, 2018, 10:35:48 AM »
There seems to be some confusion about the actual business SYTE is in with Willow Oak.  As I understand it, a fund like Bonhoeffer has a general partner and limited partners.  The limited partners are the investors.  The General Partner is in charge of the partnership and receives a management fee and an incentive fee (share of profits).  The economics of a general partnership are very favorable if a fund can achieve scale (AUM).  That is why the Forbes 400 is littered with Hedge Fund managers - as they are the General Partners for very large funds.  Willow Oak / Sytestar owns a portion of the General Partnerships for the Willow Oak funds.  With low AUM and poor returns - these GP stakes do not generate real revenue yet.  They are call options in my opinion, but interesting call options as these GP stakes require zero additional capital to grow and they do not show up in the book value of the firm. 

If you think Alluvial or Bonhoeffer can raise real dollars and generate real returns - it can get interesting quickly.  Management fees vary by funds as do the incentive fees and the Willow Oak ownership.  There will also likely be additional funds in the future - so using a generic/hypothetical example - if in a few years, Willow Oak has a fund that has $200M in AUM with a 1% management fee and a 20% incentive fee of which they own 20% of the fund - in a year where the underlying fund generates 20% returns - the Willow Oak portion would be in round numbers $400K in management fees (20% of 1% of $200M)  and $8M in incentive fees (20% of 20% of $40M).  Now the number of funds that reach $200M is small and in a flat or down year the economics are far worse - my point here is they are building call options in Willow Oak that are very asymetric.  Depending on your opinion of the magnitude of success of the underlying funds - may make the current $30M market cap seem quaint or not.

Under your scenario it would be $1.6 million not $8 million for incentive fees under the revenue share.  $8 million is gross.  $1.6 million would be 20% of the 20%. 

Hielko

  • Hero Member
  • *****
  • Posts: 1143
Re: SYTE - Enterprise Diversified
« Reply #622 on: November 13, 2018, 12:21:23 PM »
And of course the general concept of Loyalty, Character, etc...

I'm not that pessimistic. The fund manager is important, but so is access to capital. If SYTE grows to have multiple funds, has a marketing department, has the relations with institutions and HNW individuals they would have a big part of what is important as well.

There are a few misunderstandings here and in some of the other recent posts:

1. Unless Sitestar did a stupid deal, it doesn't work this way.  Having sold part of my GP, my agreement clearly does not allow me to close the fund and re-open under a different name to eliminate the fee share. 
I of course don't know what's in the agreement, but it almost has to be possible in some way or another. Sure, closing the fund and re-opening another one next day, maybe not. But it's probably also not the case that if you want to quit and then you can never ever ever start a fund again for the rest of your life. Hope no-one signs something like that ;)

Tim Eriksen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 785
Re: SYTE - Enterprise Diversified
« Reply #623 on: November 13, 2018, 12:45:00 PM »
And of course the general concept of Loyalty, Character, etc...

I'm not that pessimistic. The fund manager is important, but so is access to capital. If SYTE grows to have multiple funds, has a marketing department, has the relations with institutions and HNW individuals they would have a big part of what is important as well.

There are a few misunderstandings here and in some of the other recent posts:

1. Unless Sitestar did a stupid deal, it doesn't work this way.  Having sold part of my GP, my agreement clearly does not allow me to close the fund and re-open under a different name to eliminate the fee share. 
I of course don't know what's in the agreement, but it almost has to be possible in some way or another. Sure, closing the fund and re-opening another one next day, maybe not. But it's probably also not the case that if you want to quit and then you can never ever ever start a fund again for the rest of your life. Hope no-one signs something like that ;)

I have a five year restriction.  Not sure why you would hope no one signs something like that.  On a $10 million fund commitment, the manager gets a management fee of $100 k per year plus incentive fees (in addition to scale for a one person shop).  Not sure how that is a bad deal for a young manager.

In deals where the manager gets significant cash up front it is not unusual for inclusion of future earnings should for example, a manager close his/her small fund and be hired by a bigger fund.  It's a legal agreement both sides should protect themselves.

Hielko

  • Hero Member
  • *****
  • Posts: 1143
Re: SYTE - Enterprise Diversified
« Reply #624 on: November 13, 2018, 02:50:33 PM »
Yeah, I agree that should make it pretty hard to just leave and setup something new on your own.

gfp

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1825

Foreign Tuffett

  • Hero Member
  • *****
  • Posts: 1021
Re: SYTE - Enterprise Diversified
« Reply #626 on: November 14, 2018, 05:33:47 PM »
Q is filed
https://www.sec.gov/Archives/edgar/data/1096934/000143774918020863/syte20180930_10q.htm

"Of the 194 units held for investment, 100 of the units are occupied or available to rent, 85 of the units are vacant units being prepared or to be prepared to market to tenants, and nine of the units are vacant lots."

Not hard to see why management was concerned about Mt Melrose: that's a lot of vacant houses!

fishwithwings

  • Full Member
  • ***
  • Posts: 115
Re: SYTE - Enterprise Diversified
« Reply #627 on: November 15, 2018, 03:06:41 PM »
I know people mentioned the sum of the parts being close to the  current price at close to 2x BV. I don't see it...  In its current form, with this structure and overhead, the comoany would earn nowhere near what it would earn if it's segments were private. I'm guessing a lot of the premium is due to current management. I struggle to see how the share price moves up meaningfully in 2-3 years.

gfp

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1825
Re: SYTE - Enterprise Diversified
« Reply #628 on: January 17, 2019, 07:18:05 AM »
Arquitos letter may be interesting to some here -

https://seekingalpha.com/article/4233904-arquitos-q4-18-commentary-long-enterprise-diversified-mma-capital-westaim

Congratulations Bonhoeffer / Keith / Packer for reaching $14m AUM and rising

roark33

  • Hero Member
  • *****
  • Posts: 615
Re: SYTE - Enterprise Diversified
« Reply #629 on: January 17, 2019, 11:37:55 AM »
 "I believe the company is worth far more than book value. Book value is understated for a variety of reasons, chief among them
is that it does not take into account our relationships with a number of talented money managers."

He goes on to give an example of the potential of Keith and Bonhoeffer Fund.  No offense to Keith, but it seems like in a 2018 letter, the better example would be the negative value of the relationship with the Jeff and the failed real estate fund.  It isn't a fait accompli that the Bonhoeffer Fund will even exist in a few years give the track record so far.  If everything works out well, Keith will do great, in the same way that if everything worked out well, Jeff and his real estate fund would still be operating as a part of Enterprise Diversified, but that is no longer the case.