SafetyinNumbers

The structure is exceptional. It’s why the returns are high and it’s not well understood.

It’s possible market structure will change but I wouldn’t bet on it. I think premium/discounts drive the narrative but flows drive price. With FIH not being in any benchmark there are no passive flows to get ahead of which keeps most flows out. I think the discount to IV is probably as wide as its ever even though the discount to book is tighter than average. I think it’s a result of investors trying to get in ahead of BV growth based on the IPO. At what discount will the buyers show up post IPO is a reasonable question if they don’t have the IPO catalyst to look forward to.

Maybe. I think E-L Financial thought that too and were surprised the discount didn’t close much after they bought half of the free float back. They also paid over 25% of the starting share price in special dividends, raised the regular dividend 30x and split the stock 100-1. ELF’s portfolio is closer to 80% public stocks and ETFs too so in theory should lead to a smaller discount.

Share price is just supply and demand. Fairfax and OMERS aren’t sellers.

I don’t think there is a fixed number they have disclosed but how much more than their float do they need to own in bonds at the insurance subsidiary level. That’s where the allocation decision to switch to equities would happen if there was a dip to buy.

I don’t think over. 1% of the float is peanuts.

FIH was active on the buyback last month.

They probably own $6b or more in fixed income then they need to so there is lots of dry powder to buy dips in equities if there is a major market dislocation.

I think Prem’s contract expired at the end of last year so I’m curious if they will be making any changes going forward.

I think so too but I also think Fairfax does whatever they can to defer reserve releases.

A lot of reserves were released in Q1 for wildfires. I’m not sure if we get as much as you think.

I think it’s worth 2x right now. What are you looking for? Relative valuation vs other airports suggests it’s worth that. A DCF with more normal discount rates would get you there as well.

This shouldn’t be hard to do for the accounting equity returns. They give us the asset mix, the coupon on the fixed income portion and the gains/losses on bonds are separated from the equities.

I think most investors would be served to not project their investment style on Hamblin Watsa. Historic returns were very strong pre 2010 and unsurprisingly declined with interest rates. Now that interests are more normal returns are up. If they can stay above 6% (about 8% for the equity portfolio) one can see how ROE can stay above 15%.

It seems like BDT has a relationship with the CEO/founder so presumably whatever they are telling Fairfax has made them decide it’s worth a bet. I think expecting them to be wrong a third of the time is fair.

Maybe take private with the CEO and BDT or just has confidence in the turn. It’s cheap if margins can go up.

That started rolling up BIAL’s valuation last quarter, I assume that continues for all of the private holdings. Just like the mothership, the longer they own things it becomes harder to hide the returns. The INR is less of an impact in Q4 as well. I do find it a bit surprising that the INR doesn’t do better given how much gold Indians own. Most of it happened last quarter.

Some pictures to put into context the move since the last book value was struck at the end of Q325.

They write the same thing every year. It’s discretionary as always.

Each minority shareholder is making their own decision to sell and at what price. It seems like under your framing, FFH is the bad guy if shares are bought back or not.

I think they tend to stack reserves as much as possible period but especially after they do an acquisition. It’s interesting how the response from market participants is that they made another bad acquisition because the combined ratios jump after buying something as opposed to them choosing to increase reserves to defer income (and taxes).

I don’t think there is much benefit to get very granular on the subject. Float provides leverage that grows and provides a return if the combined ratio is below 100. I think if one can buy Fairfax at a big discount to book value + float that provides margin of safety. I’m not looking to sell if the discount closes unless my forecast for forward ROE goes below 10%.

Is this how you think about FIH? The intrinsic value isn’t there because it’s not reflected in book value? I’m trying to understand the empty shell reference. If they were creating less value than the fee, then I get it. I have been in some net nets like that.

Probably in a similar way. They via one of their subsidiaries are the GP of the funds that have LPs which would make the investment in the fund paying fees but I’m not a Brookfield expert. Onex does it similarly. They co-invest with their funds that have LPs.

A lot of investors avoid Fairfax India because of the management and performance fees paid to FFH. If you’re in that camp but also own FFH, do you think that it paying fees to WEF to own GFR and SCR or to KW, BDT etc… is a bad capital allocation decision?