Great post! Love the analysis. An easier method to get liquidity from this vehicle would be to use dividends as management already owns 44% of FIH right? So from $250M of normalized earning they could pull some out and make it a dividend play. Basically anything except a 2-20 tax on investor. It is a bad idea when you run with other people's capital but insane when you already own 43% of it.
what's a more reasonable fee structure do you think to be able to use the Fairfax name and lean on their balance sheet/cost of capital? 50m/yr off of a ~4bn book they are managing doesn't seem outrageous. Agree that it causes a drag but seems like there's some benefit there too unless I'm missing something.
The fee itself is fine, if it were fixed at $50M or even $50M growing annually with inflation, which would translate to a net present value of all future fees at around $400-500M . The problem is that the fees are based on book value and un-deployed cash, which i expect to compound at a high rate, leading a an NPV of future fees of $2-4Bn, which is a significant drag on the overall value of the company.
Great post! Love the analysis. An easier method to get liquidity from this vehicle would be to use dividends as management already owns 44% of FIH right? So from $250M of normalized earning they could pull some out and make it a dividend play. Basically anything except a 2-20 tax on investor. It is a bad idea when you run with other people's capital but insane when you already own 43% of it.
what's a more reasonable fee structure do you think to be able to use the Fairfax name and lean on their balance sheet/cost of capital? 50m/yr off of a ~4bn book they are managing doesn't seem outrageous. Agree that it causes a drag but seems like there's some benefit there too unless I'm missing something.
The fee itself is fine, if it were fixed at $50M or even $50M growing annually with inflation, which would translate to a net present value of all future fees at around $400-500M . The problem is that the fees are based on book value and un-deployed cash, which i expect to compound at a high rate, leading a an NPV of future fees of $2-4Bn, which is a significant drag on the overall value of the company.
See the calculations here for reference: https://docs.google.com/spreadsheets/d/1ZMy4FDPnmPt-ocPnNQgkGL9d-Vtbr2ntocjI6fP_Gp0/edit