Author Topic: SYTE - Enterprise Diversified  (Read 239221 times)

andgroup

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Re: SYTE - Enterprise Diversified
« Reply #610 on: November 09, 2018, 03:15:43 PM »
Track records.  I think these guys will compound money.  That will attract capital. 



Spekulatius

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Re: SYTE - Enterprise Diversified
« Reply #611 on: November 10, 2018, 07:49:56 AM »
The fund managers are highly competent, but the SG&A at SYTE for running a public company and the relatively small size of the funds will make growing its book value or sum-of-the-parts valuation over time highly difficult. Plus the share price had already risen far beyond a fair valuation for the company before all of this chaos unfolded. It is hard to see a fair value beyond $5 for the stock (even if you don't take huge writedown hits on the real estate; the internet business is a melting ice-cube that deserves an extremely low multiple; the value of off balance sheet fund rev. sharing agreements are fairly insignificant at this point). The huge premium of the stock above that $5 is essentially the call option premium that investors are willing to pay for value growth beyond the status quo with regard to AUM and performance fees with both funds and optionality that management will add value in new areas in the future.

Running a successful holding company structure is very difficult when you are the size of SYTE. In my experience, it tends to work better when the size of the holding company gets above $75mln, because your fixed expenses relative to the size of the company and investments are more manageable. I wouldn't be amazed if the stock would trade below adjusted book value in the future once a true reset kicks in.

The holding structure does not work well at a small scale like SYTE or PDH, the overhead is just too much. I think SYTE has like $600k overheard. Thatís a very high hurdle  when you are of a $10M scale. People talk about the BRK, but they forget that when BRK became public via the Berkshire takeover, their size was much larger, especially considering these were 1970ís $.
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roark33

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Re: SYTE - Enterprise Diversified
« Reply #612 on: November 12, 2018, 01:30:55 PM »

At the end of the day, you still have three big horses pulling this wagon. 

Steven Kiel, Dave Waters, and Keith Smith.

Everyone makes mistakes, the point when you do, is no thumb sucking, admitting it and getting back to your circle of competence.

Compounding can overcome quite alot, especially when combined with visibility, and even more so when combined with stable forms of leverage.  Who knows what the future holds.

In terms of structure, Buffett did the same thing with Berkshire, so the question is not whether it is PERFECT, the question is whether or not you can find anything better.  If you can, then go there. 

I'll take the long view.  I think these guys are smart enough to have wonderful futures ahead.

http://basehitinvesting.com/buffetts-underrated-investment-attribute/

Thanks,
John

The real ironic thing about this post is you cite a great author/investor, John Huber.  You answer your own question, you can find something better than SYTE--invest directly with John, no double-taxation issue and no corporate drag. 

oddballstocks

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Re: SYTE - Enterprise Diversified
« Reply #613 on: November 12, 2018, 01:35:24 PM »

At the end of the day, you still have three big horses pulling this wagon. 

Steven Kiel, Dave Waters, and Keith Smith.

Everyone makes mistakes, the point when you do, is no thumb sucking, admitting it and getting back to your circle of competence.

Compounding can overcome quite alot, especially when combined with visibility, and even more so when combined with stable forms of leverage.  Who knows what the future holds.

In terms of structure, Buffett did the same thing with Berkshire, so the question is not whether it is PERFECT, the question is whether or not you can find anything better.  If you can, then go there. 

I'll take the long view.  I think these guys are smart enough to have wonderful futures ahead.

http://basehitinvesting.com/buffetts-underrated-investment-attribute/

Thanks,
John

The real ironic thing about this post is you cite a great author/investor, John Huber.  You answer your own question, you can find something better than SYTE--invest directly with John, no double-taxation issue and no corporate drag.

I think the advantage of SYTE is you can invest $100 with SYTE. What's John's minimum, $50k? $100k? Plus you need to be a qualified investor.  The public listing of these things means you can get some exposure even if you're not qualified.

If you are qualified then I 100% agree, invest directly, not in the entity.  But for anyone who isn't they don't have that choice.
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iambagman

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Re: SYTE - Enterprise Diversified
« Reply #614 on: November 12, 2018, 08:48:29 PM »
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.

Hielko

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Re: SYTE - Enterprise Diversified
« Reply #615 on: November 13, 2018, 02:07:10 AM »
SYTE is not only a general partner in the funds, but has also been providing seed money for the funds. Think they put $10 million in the Alluvial Capital fund as limited partners, right? I bet that stake is a order of magnitude more valuable than the GP interest.

I think you shouldn't put too much value on the general partner stakes they have. Alluvial Capital for example has now a bit more than $20M AUM, but half of that money is from SYTE itself. So really they have $10M of outside capital. That fund has a 1.5% management fee and 20% performance fee above a 6% hurdle. So in a 20% year you would make 30K in management fees and 200K in performance fees if they have a 20% stake in the GP (don't know what the deal exactly was?). Right now, even an excellent year barely produces anything meaningful.

Even if they grow the size of the fund to 100M of outside money (at which point it becomes questionable if their strategy works) you are still looking at 300K in management fees and 2 million in performance fees (for SYTE, assuming a 20% stake in GP). And that is at least a couple of years in the future, and probably more than a couple. And of course, that is if they ever reach it! And additionally, this is still a pretty good year even if they managed to reach that scale. So many things have to go right before a stake in a GP starts to become valuable. And then presumably overhead would be increasing as well. To come back to the Alluvial Capital example (which I follow because I do think Dave has a good nose for value), there is already an additional employee that was added this year. I would guess his salary is paid by the GP, and is thus eating into the amount of management en performance fees that are available for distribution as profit.

And then, when that stake does become valuable, how easy is it for SYTE to keep the managers on their platform? People invest in Alluvial Capital because they think Dave Waters is a good investor, not because "Enterprise Diversified" means anything to them. Especially the manager that is managing the fund that grows to $100M plus will presumably be becoming more of a star. If he (or she!) thinks "Enterprise Diversified" is getting a too big piece of the pie they might simply start their 100% own fund and take most of the clients with them.

And even if the fund manager is very loyal to "Enterprise Diversified" I think it's quite problematic that the real value would still be the fund manager. What happens if after 5 or 10 year the fund manager thinks, "Okay, I have had enough of this. I made plenty of money already, I can just as well focus on managing my own money, and quit." Would AUM be sticky? I doubt it. It's not like, that even if a fund reaches a good scale, that you can value it like it will exist into eternity.

Spekulatius

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Re: SYTE - Enterprise Diversified
« Reply #616 on: November 13, 2018, 04:01:09 AM »
^ There is nothing to prevent a successful fund manager from jumping ship / starting a new fund without SYTE. If there is any moat, it is with the manager, not with SYTE.
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Hielko

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Re: SYTE - Enterprise Diversified
« Reply #617 on: November 13, 2018, 04:11:09 AM »
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.

NBL0303

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Re: SYTE - Enterprise Diversified
« Reply #618 on: November 13, 2018, 04:50:18 AM »
If he (or she!) thinks "Enterprise Diversified" is getting a too big piece of the pie they might simply start their 100% own fund and take most of the clients with them.


Good on you, Hielko.

gfp

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Re: SYTE - Enterprise Diversified
« Reply #619 on: November 13, 2018, 05:11:11 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.