This2ShallPass

I prefer short on duration and strike closer to my buy. The premium for Jan 25 45 puts will be high and also downside will be greater than the upside which is only $7. So I pass. But I'm a noob in merge arb and it's not an active part of my strategy..

I started looking into this after seeing @giulio post, definitely a good merger arb oppty. In Tapestry's earnings call they say transaction expected to close in calendar '24, nothing specific. I only do these arbs with long puts, so timeframe is imp to get decent return.

Agreed. If they deferred payment that would have been something but will take this. 82M fees still very high, 5% of market cap. I would like to think all my complaining helped Surely someone there is reading a board dedicated to Fairfax..

There's no outcry because MF / ETF don't charge performance fees and rarely trade at a discount since most assets are mark to market. Here's my simple way of looking at it. Let's say I come to you with a plan of making you lot of money and in turn you give me 20% of profits. 3 years later, I come back and tell you I made you $1M (just take my word for it) and my fees are $200k. You pay me the $200k and turn around to sell your shares to get the $1M profit. But you find out no one is willing to buy at the price and the real profit you can get is $300k. But you have already paid me $200k and net is only $100k. So, I used your money, 100% of risk is yours and made more money than you did! That's what is asinine to me. Let's not even get into the fact that I screw you even further by getting my $200k in heavily discounted shares. To say there's no conflict of interest in using BV also makes no sense. Tomorrow if Fairfax increases BIAL valuation by 50%, with say fancy accounting, what's your recourse? Let's go back to how Fairfax can show they treat minority investors fairly. Very simple, they can say they didn't envision this scenario of 40% discount and they agree it's completely unfair for them to calculate performance in BV and get paid in discounted shares (double whammy). The least they can do to rectify is get payment in cash or go above and beyond and say they'll defer payment until the discount is closed. That would be setting a high standard, not that hard to do and the fees from this is peanuts for them. They could easily afford to defer payments.

I disagree we should choose a metric to pay fees that management can control, in fact that introduces a significant conflict of interest. At a very basic level, if I charge you for performance fees, you should be able to cash out at the said price levels where the performance fees were charged. To bring it back to the original discussion around Fairfax not treating minority investors fairly, this is another example. You can give them a pass if it was a one off. Fairfax India will always be tied to Fairfax's reputation, in fact that's why they named the fund with their name on it. If the fund trades at a premium because of their brand or association with them, then I don't have a problem with paying more fees...again as long as I get the benefit of cashing out at said price levels. Most closed end funds trade at a discount to NAV not at a premium, which Fairfax knew.

True. Look at Fairfax India, they came up with an agreement to charge performance fees on BV and not on the current price. As if that was not egregious enough, Fairfax gets paid in discounted shares, so they will get 60% more than they would deserve. Actually, they deserve nothing as no one would be able to cash out at this "performance" they claim to have achieved. Part of the reason for the big discount is the association w Fairfax. More than happy to pay them the fees when their terms are aligned with everyone. The least they could have done to narrow the gap and reduce the shares they get is announce a SIB to close the gap somewhat..

This is a really good post, worth reading a few times! Overanalyzing (e.g. the recent discussion about Fairfax moat) leads us to make bad investment decisions. Fairfax is now in the "sit on your hands" phase, only time to revisit is if Prem & co make a big impact the company bet..

This seems like something is in the works and to help BB through that period, I wouldn't read too much into it. If they still had hope for BB, it would have been extended for a couple more years. John Chen's contract was not extended and no one does a 3 month extension + if needed (i.e. deal doesn't close on time) another 3 months. All signs point to a sale. The sale price won't be >$6 or they would have wanted to extend full amount and it must be for a small premium to their current price. You heard it here first:)

I sold 20% yesterday. Maybe this is the catalyst you all needed It was opportunistic as Seritage (SRG) had some positive news that I discuss more on that board and decided to add to that position. This is a reminder to me also why writing helps (I don't do it as much). As I wrote down my thoughts it was clear FF could get 60% more shares and that convinced me it's very unlikely for the discount to close.

It definitely helps:) Thanks for that info @glider3834 I'm still hoping to see some gesture from Fairfax, acknowledge they probably didn't envision a scenario of 40% discount to shares and willing to do the right thing (the extra money or shares will not be a big difference to them). The more I think about it, I'm wondering if I should switch my FF India to FF. Next 2 years are going to be great for Fairfax. FF India though needs that one catalyst (IPO) and with India Canada spat, approvals might be delayed. So maybe worth a chance and even when the IPO is announced the stock might not move up quickly, giving enough time to get back. Thoughts?

Performance fee is much worse. Calculated with BV and paid in discounted shares. For this perf period, Fairfax is going to get 60% more shares. Say Fairfax should get $1M in perf fee as an example - they should have got only 47k shares but will get 77k!! Minority investors are getting fleeced, no way around it. Either they should start a SIB before Dec to close the gap somewhat (not going to happen) or this adds to the other cases of them treating minority investors poorly.

Distraction to me is taking time away from what's important. The extension of your argument is they can analyze a 1000 companies. What's the upside case for Jaynix, quantify in terms of per share impact to Fairfax India. The risk is very high by their own admission. So does this upside scenario adequately compensate for the risk? More importantly, what is their strategy? Why buy small one year and go really big the next? If you read their quarterly report, it's clear they have bunch of smaller companies that are middling at best. Sanmar, their other large holding, is not doing that great ($34M reduction in valuation this q). One of the IIFL companies was reprimanded for fraud by SEBI, looks like they are now rebranded as 360 One. I feel due to the halo effect of parent Fairfax and BIAL, we're giving a pass to overall Fairfax India portfolio. Why am I still here? I'll be honest, it's a lot of FOMO and waiting for Anchorage IPO. I'm afraid of waiting patiently since the beginning and missing out just before BIAL valuation starts to really take off (this quarter it's up >10%). I'll be out of Fairfax India soon after the IPO..

I have no idea what the strategy for Fairfax India is. Last year they bought 2 <$50M companies and this year going for a whale like IDBI. Jaynix is a total distraction, how long will it take for a 1.5% grower sub $50M investment in a highly risky sector to move the needle..

"the company estimated the fair value of its investment in Jaynix using a discounted cash flow analysis based on multi-year free cash flow forecasts with an assumed after-tax discount rate of 28.2% and a long term growth rate of 1.5% (December 31, 2022 - 21.6% and 1.5% respectively)." Why bother investing in a sector where you need to have a 30% discount rate and 1.5% growth rate? That too invested only $32M (though fair value now is $45m). These small investments are a head scratcher and is a distraction for management.

"company estimated the fair value of its investment in Sanmar common shares using: (i) a discounted cash flow analysis for Sanmar Egypt, based on multi-year free cash flow forecasts with an assumed after-tax discount rate of 11.0% and a long term growth rate of 3.0% (December 31, 2022 - 13.2% and 3.0%, respectively); and (ii) the unadjusted bid price of Chemplast's common shares. At September 30, 2023 the company held a 42.9% equity interest in Sanmar (December 31, 2022 - 42.9%) and its internal valuation model indicated that the fair value of the company's investment in Sanmar was $301,293 (December 31, 2022 - $337,846)" From Q3 report. Sanmar = Sanmar Egypt management valuation + Sanmar India market valuation. As of Sep 30, 23, market value of Fairfax's 43% Sanmar India share was $396M. Based on above, then looks like Egypt is valued at -$95M. Is this correct?

Based on some deep fundamental analysis, I can confidently say it's going to be a shtload more

Thanks, I started getting a little worried that Ki was that big % for Fairfax..phew. Btw, are the 23M shares without the swaps, so in reality it's like 21M? They killed it with the duration, 4 years I haven't increased my position since ~$500 but today it might be an even better opportunity. Thinking of adding to my already large but <30% position..

This would be a good indication of how they think about minority shareholders. 287M in cash, no reason not to do a SIB and take out 10% of shares. But, if they buyback at significant discount, wouldn't BV increase which means Fairfax gets even more performance fees? Is omers and Markel not willing to participate (even at this discount) a cause for concern?

If you look at my earlier post, I said Fairfax India made 8.5% using BV in 8.5yrs and MINDX is 14% in 10 years. So even if you compare at NAV, they're doing bad. Btw, most closed end funds trade at a discount. So, in practical terms, we need to think 20% discount and if you do that it looks even worse. Everybody wants to invest in India now and even with that tailwind discount has not closed, granted it came off the lows. I don't know how you're saying Fairfax destroyed Matthews. 8.5 yrs is a long time, soon they have to figure out a way to surface value, we're not here for moral victories. What's taking so long w Anchorage? With every performance period, where parent Fairfax calculates performance on BV and gets stock at market value, minority shareholders are getting screwed. Adding salt to the wounds..

The one major India focused MF is 13.8% CAGR in 10 yrs. In USD. https://global.matthewsasia.com/funds/mutual-funds/asia-growth/india-fund/ Let's do a 5 yr comparison, MINDX is 8.3% CAGR, 48% cum vs. -11% for Fairfax India. Discount or not, they're getting lapped. FFXDF is a one trick pony, until they can replicate the success of BIAL it's hard to say they're great management..

Not sure about this. BIAL was great. But one of the IIFL has been recently called out for securities fraud (or something pretty bad), how did management miss something like that. Sanmar was loaded w debt when they bought it, an IPO helped but really what makes it a high quality company? Last year, they made two investments <$50M and now I guess they'll swing at a whale like IDBI, what's the investment strategy here. Are we giving too much of a pass to Fairfax India because of how well Fairfax management has done? If you look at performance, even looking at BY, it's doubled in 8.5 years (~8% cagr). Average at best. I'm holding on due to BIAL but the Anchorage IPO keeps getting delayed.

Isn't this a big deal? Looks like some serious errors by IIFL securities...poor quality management, not sure how FIH didn't see the signs before.

Ok, I misunderstood. When I saw the premiums I decided not to look at them further. I'm only interested in buying puts on insurance companies with similar exposure to Fairfax. That's a simple and direct hedge and my goal is to limit loss exposure. To clarify further, not worried about regular hurricanes (that's part of doing business) but a once in 50 or 100 yr storm..

Generac is a no go, premiums too high. https://www.propertycasualty360.com/2022/03/10/naic-top-25-pc-insurance-companies-of-2021/?slreturn=20230519161646 I looked at premiums for some comparable companies to Fairfax in this list. Criteria - ~15-20% OTM puts, Nov 17'23 expiration (or extrapolated) Generac - 7% put premium Hartford - 1.25% AIG - 1.5% Markel - 1.9% WR Berkeley - 3.2%

This is exactly what I'm planning to do, since we cannot do it on Fairfax want a couple of close proxies. I'm not overthinking it, my exposure to Fairfax is really large and paying cheap insurance is worth it (for me). I'll look at Generac. Any other insurance companies? Or any relevant source that shows hurricane exposure by company, I'll try to do some research and post here as well.