bluedevil

The prepared remarks from the current conference call team are really terrific. it used to be Prem would give some high level comments and then you would have the CFO give a blizzard of numbers that were already in the written reports. the current team is informative, concise; clear; and nails the high points

Got it, thank you. I think you are right, which is awesome. BX owns 60% and FFH owns 40% of the "true" equity BX owns a large chunk of Class C stock that can be repurchased at an 8% IRR

Can you say more about why Fairfax "effectively" has 40% ownership of Ki? The filings ive seen say that Fairfax owns Class A (20%), while BX owns Class B and Class C (80%), excluding a smaller number of shares for the CEO. See eg the full accounts from 2023. I confess i have not tried to go through the documents with a fine tooth comb, but i haven't seen something that suggests Fairfax enjoys 40% of the economics, nor do i follow why BX being repaid with new shares at the listing price would double Fairfax's economics. Not doubting it, just trying to understand. Personally, I would be very happy if Ki IPOs at a 3 billion valuation, or 3x. Digit -- a very exciting asset -- IPO'd with about 1 billion of premium and IPO'd at a 3bn value.

I believe the upside in Ki is limited by the fact that BX owns most of the equity. Unfortunately, when Ki needed to raise money to launch, Fairfax was capital restrained.

Imagine how valuable BIAL will be in 5 years, when it has expanded to full capacity, and is moving 70 million passengers a year; is connected to the metro system, has expanded highway access, and has a developed real estate campus surrounding the airport that will benefit from this connectivity. And Fairfax India will have 76% of it for about $1.2 billion. A perfect asset for a vehicle like Fairfax India. It requires investors to put in money and not harvest any returns (as it gets re-invested) for a very long time - by 2030, Fairfax India will have been invested about 13 years, and will not have taken out any cash. It probably won't take out any cash until the investment is closer to 20 years old -- after the airport has been fully maxed, based on having two runways, to 90 million or so passengers. But at that point, Fairfax India will have 76% of an extremely valuable asset.

@Viking I don’t if you would call it a moat, but one thing that Fairfax has been exceptional at over the past 38 years is knowing the value of its own equity and selling high and buying low. The latest chapter of that was the 2m shares repurchased in late 2021 and the nearly 2m shares of TRS exposure. These have generated about $2.5 billion for the company, but they are just the most recent examples of highly opportunistic moves in Fairfax’s own equity that have juiced the returns on the stock. Many years ago, i sat down and read every shareholder letter up to that point, and one thing that struck me was how much of “the story” this accounted for - including buying scale on the insurance side by issuing stock at 2X or more of book and using it to buy other insurance company’s at below book.

Thank you!

@nwoodman I have not seen any links or postings with the AGM transcript. Is that something you could share? Thanks!

SJ That is right. My baseline view is something like the last five years is most probable in the next 10 years - 97 CR, 5% investment return, leading to 12% book value growth. While in the past Fairfax has not fired on both cylinders at once, I think history very strongly suggests Fairfax will underwrite well - all its subsidiaries have done so after being under Fairfax management for a while, and the go forward plan is organic growth, as it has been for years now. So I think going forward it will more boil down to how well they invest their sizable (and hopefully growing) investment portfolio. Uncertain, but much higher odds of hitting on both if one side of the equation is a consistent performer.

It is surprising to me that the price of Fairfax or Markel has not responded more significantly to the 100bps rise in interest rates (10y) over the past 3 months. The key asset of an insurance company is the ability to collect premiums now and pay them out later. Given this deferral feature is now worth much more, I would have expected more of a reaction.

Not an expert, but i would assume banks hate having to take possession to manage buildings if there are defaults, etc, and that this portfolio will have some defaults. The edge that KW+FFH have is that KW will be able to directly manage any defauls, whereas it would create stress for PacWest. Also gives PacWest liquidity.

Yeah - this seems like a great, opportunistic deal. The key is that if any of these loans default, KW has the expertise to take over and manage, and with the LTVs being modest, have a very good chance of not losing money. Sounds like the loans are going to run off pretty quickly, but should be very nice while it lasts for the next 2 years.

My own thoughts on Markel versus Fairfax, of which i own both. Both have the same essential building blocks for success -- honest management that puts the focus on increasing intrinsic value per share, a very long-term orientation, good insurance operations, and retention of earnings and thoughtful, long-term oriented capital allocation across a large menu of options. I own both because my thesis is these ingredients will produce good results over the long term. Fairfax today trades more cheaply than Markel on a book per share basis, notwithstanding that it has much more float per share which gives Fairfax the potential for higher returns. Seems like the better buy today in my opinion. That said, Fairfax has a lot higher risk tolerance than Markel. I feel quite confident that Markel will compound in high single digits over longer periods of time so long as Gaynor is at the helm. With Fairfax, i think they will do well, but i also think there is a chance they run into troubles, as they have in the past. Some of the uncertainty has been taken out because they are no longer acquiring big insurance companies and hedging, but they still have much higher risk tolerance than Gaynor, on both the equity side and the fixed income side. On equities, Fairfax is adventuresome (Greece, Africa, India, turnarounds, etc.), and they have home runs and they strike out sometimes too. Gaynor looks for long-term compounders based in developed counties, and dollar costs averages into positions. On fixed income, they take no credit risk and duration match. Fairfax has a huge fixed income portfolio and takes big swings with it. Much of it is based on top-down macro outlooks about macro interest rates and marco credit risk that they have (over the full course of time) a good record on, but that are extremely hard to get right consistently in my opinion. It introduces the potential for large outperformance or underperformance. I like having both!

I was not sure I fully got the point Buffett was hinting at on oil. He seemed to be saying that oil was not a bad business now because while it was dependent on the market price of oil, the odds were the price of oil would stay reasonably high. Because if prices dip, then 5m barrels a day of US shale, which has very short lived production, will roll off the market, causing prices to recover. Did others take away the same point?

It seems this is probably due to the bonds maturing in six months - mostly held by Fairfax, and at a very low interest rate. My bet is Fairfax said it was not interested in rolling the debt again.