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None of us here has a better insight into the value of Torstar than Paul Rivett. If Torstar is such a dud, why would Rivett want to have anything to do with it at the risk of his personal funds?

 

On the other hand if he has a plan to reinvent Torstar, why didn’t he put it in place while Fairfax was still paying him for his expertise?

 

None of us does, but plenty of people at Fairfax do. It is quite possible that they simply disagree (which in turn would make agreeing a path forward impossible).

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Back to the other bidders.....why not Fairfax itself.

 

;D

 

Dear lord can you imagine the reaction on this board if Fairfax took Torstar private?! Prem can't admit mistakes! Declining industries! Good money after bad! Liquidity! Leverage! AAAAAAAAAARRRRRRGGGGGHHHHH.

 

Couple of (serious!) points:

1) What makes you believe Torstar did not test the market before agreeing this deal?

2) If there was a better deal to be had, why would Fairfax not have taken it?

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Did Prem got the best return for his shareholder (I.e fiduciary duty) under the present condition for Tor Star.

 

The optics looks weird with Paul but if the answer to the above is Yes, than we are all good.

At least in my simple mind. 

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Back to the other bidders.....why not Fairfax itself.

 

;D

 

Dear lord can you imagine the reaction on this board if Fairfax took Torstar private?! Prem can't admit mistakes! Declining industries! Good money after bad! Liquidity! Leverage! AAAAAAAAAARRRRRRGGGGGHHHHH.

 

Couple of (serious!) points:

1) What makes you believe Torstar did not test the market before agreeing this deal?

2) If there was a better deal to be had, why would Fairfax not have taken it?

 

3) Anyone can still make a bid.  The break-fee seems to be only $2+1.5m on a deal that is currently valued at $52m.  If somebody figures that this is a bargain and comes in and offers, say, $75m later this week Torstar BoD wouldn't have much choice but to recommend that the offer be accepted and simply pay the break-fee.  Any offer above $55.5m ($52+3.5) would be a no-brainer for shareholders, right?  Probably not going to happen...

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Hang on....no need to ratchet up the conspiracy theories.  I’ve worked on a number of deals, at the most senior levels in the insurance sector, in the retail sector, in media etc.  One in the insurance sector was a multi country deal concluded in ten days start to finish.

 

So, if we’re going to speculate here, try this plausible scenario (plausible because I’ve seen it happen).  Buyer starts talking to Prem and co about their desire to buy out Torstar and take it private.  Prem says, who’s going to run it?  They say we have a few people in mind.  Prem says, what about Paul, he knows the business, is brilliant at what he does and is looking for a position that keeps him closer to home. Could be a terrific fit.  The rest is history.

 

McLuhan said it best....if I hadn’t believed it I wouldn’t have seen it.

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Agree with Daphne!

 

You guys need to think about the long-game when it comes to Fairfax...not the short-term.  I have no idea exactly what the reasons were behind Paul making this deal and Fairfax supporting it, but I can think of something that would be in the interest of Fairfax shareholders long-term.  And Prem would not do a deal if it hurts Fairfax shareholders in the slightest...he just doesn't operate that way, and he has no vested interest to do so.  Do you really think Paul would pull the wool over Prem's eyes?  Paul would never put himself ahead of Prem either!

 

Here's my view:

 

Paul wanted to slow things down.  He semi-retires from Fairfax, but still sits on Recipe's board.  He then acquires Torstar with Jordan Bitove, through their wholly-owned LP.  Torstar has not worked out for Fairfax.  Now Paul and Jordan have to turn it around or play with the underlying assets and gain some value.  While presently Nordstar is wholly-owned by the Bitove and Rivett families, does anyone in their right mind here believe that they will never raise outside capital for Nordstar once Paul decides...ok, I've played enough golf and I'm done with family time after 3 months of quarantine...I need to exercise my brain again!

 

Prem is getting older...the Hamblin Watsa old guard is getting older...Buffett made this mistake with the double-T's...good, but not Buffett and not Lou Simpson.  Who is going to carry the investment load...most likely Wade Burton and Lawrence Chin.  But you could allocate capital to other's you trust over time...Nordstar...Francis via Chou Funds or Stonetrust...Atlas Corp...Vito Maida and Patient Capital...etc.

 

For now, Prem gets rid of Torstar, as they weren't going to spend their time turning it around, plus tax losses to offset gains.  Paul turns it around with Jordan, and they have their vehicle.  Prem can always consider injecting capital into Nordstar or a turned around Torstar later.  You really think Paul or Jordan would reject capital from Prem at some point?  Cheers!

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Is Rivett any good at investing? He’s a lawyer by background. IIRC he was in charge of Fairfax’s private investments and that didn’t go well.

 

I'm constantly confused by this comment about how Fairfax's "private" investments have not done well.  Before, the criticisms used to be how their insurance businesses were awful...but since they are all writing below a 100% CR, now everybody says how awful their private investments are.  Are they great...no...but if you look at the entirety of Fairfax's private investments (including insurance and non-insurance businesses), they have done perfectly fine over time based on the target they are trying to hit on annualized investment return.  Cheers!

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Is Rivett any good at investing? He’s a lawyer by background. IIRC he was in charge of Fairfax’s private investments and that didn’t go well.

 

I'm constantly confused by this comment about how Fairfax's "private" investments have not done well.  Before, the criticisms used to be how their insurance businesses were awful...but since they are all writing below a 100% CR, now everybody says how awful their private investments are.  Are they great...no...but if you look at the entirety of Fairfax's private investments (including insurance and non-insurance businesses), they have done perfectly fine over time based on the target they are trying to hit on annualized investment return.  Cheers!

 

Lumping insurance and non-insurance together merely obscures what Fairfax is good at, and what they're not.

 

Their record on the insurance side is outstanding. They have done wonderfully in Lombard, First Capital, Gulf, probably Digit, and others. This is why I disagree with SJ on the "shithole countries" investments. Brazil in particular may grow to be another home run. In fact if I have any criticism it's that they don't do more - for example I would think Digit's model could be exported to Africa, Latin America, and the rest of Asia, and Fairfax has the footprint to do this.

 

However, their record on the non-insurance side appears to be dire. There is basically no reporting, so it is hard to tell. But in aggregate the private businesses that are consolidated appear to be lossmaking (IIRC they report ebitda and interest costs and they sum to a negative). Past realisations have shown a couple of wins (Arbor, Ridley), but I don't recall anything that really moved the needle. The only big one (APR) was done at carrying value, which I think had been written down a little. I have (faint) hopes for Quantum, Boat Rocker, Praktiker, and maybe a couple of other little things, but I don't see any evidence of progress overall and there may be some real duds. As far as I can tell Fairfax have conspicuously failed to build a third (insurance, float, private) source of cash flows at a reasonable cost, as Markel and Berkshire have done. I would be delighted by evidence to the contrary, but without it I interpret the monetisation plan as an admission of failure. While I like the admission, the failure needs to be acknowledged.

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Is Rivett any good at investing? He’s a lawyer by background. IIRC he was in charge of Fairfax’s private investments and that didn’t go well.

 

I'm constantly confused by this comment about how Fairfax's "private" investments have not done well.  Before, the criticisms used to be how their insurance businesses were awful...but since they are all writing below a 100% CR, now everybody says how awful their private investments are.  Are they great...no...but if you look at the entirety of Fairfax's private investments (including insurance and non-insurance businesses), they have done perfectly fine over time based on the target they are trying to hit on annualized investment return.  Cheers!

 

Lumping insurance and non-insurance together merely obscures what Fairfax is good at, and what they're not.

 

Their record on the insurance side is outstanding. They have done wonderfully in Lombard, First Capital, Gulf, probably Digit, and others. This is why I disagree with SJ on the "shithole countries" investments. Brazil in particular may grow to be another home run. In fact if I have any criticism it's that they don't do more - for example I would think Digit's model could be exported to Africa, Latin America, and the rest of Asia, and Fairfax has the footprint to do this.

 

However, their record on the non-insurance side appears to be dire. There is basically no reporting, so it is hard to tell. But in aggregate the private businesses that are consolidated appear to be lossmaking (IIRC they report ebitda and interest costs and they sum to a negative). Past realisations have shown a couple of wins (Arbor, Ridley), but I don't recall anything that really moved the needle. The only big one (APR) was done at carrying value, which I think had been written down a little. I have (faint) hopes for Quantum, Boat Rocker, Praktiker, and maybe a couple of other little things, but I don't see any evidence of progress overall and there may be some real duds. As far as I can tell Fairfax have conspicuously failed to build a third (insurance, float, private) source of cash flows at a reasonable cost, as Markel and Berkshire have done. I would be delighted by evidence to the contrary, but without it I interpret the monetisation plan as an admission of failure. While I like the admission, the failure needs to be acknowledged.

 

Their investment results since inception...from the 2019 Letter:

 

                        Compound

                          Growth in                    Average              Average Total

                            Book                      Combined                Return on

                      Value per Share                Ratio                  Investments

 

1986-1990              57.7%                    106.7%                    10.4%

1991-1995              21.2%                    104.2%                      9.7%

1996-2000              30.7%                    114.4%                      8.8%

2001-2005              (0.7)%                  105.4%                      8.6%

2006-2010              24.0%                    99.9%                    11.0%

2011-2016                2.1%                    96.0%                      2.3%

2017-2019              12.0%                    99.8%                      5.6%

 

Ok, fine...I'll compare both insurance and investments.  As you can see, in the earlier years, Fairfax was getting great investment returns but insurance was not profitable.  Insurance increased book value and float, but the quality of the insurance businesses needed improvement.  Later, as investments didn't do as well, Fairfax had improved their insurance businesses dramatically. 

 

So overall, Fairfax's investments have actually done very well...lackluster in the last decade, but really quite good overall.  Whereas their insurance business has improved massively and is writing consistent business during that last decade plus.  If they keep insurance underwriting where it is and modestly improve their investment results compared to the last decade, they are going to have tremendous growth in book value per share.  Cheers!

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We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

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So let’s get down to the nuts and bolts.

 

I would suggest that no one really cares what Fairfax did 10, 20 or 30 years ago. That’s history. We can quote figures portraying Fairfax as a great company, and I believe it has great potential, but the bottom line is that very few appear to agree.

 

In 2016 Fairfax share price was pushing $800 CDN. In fact, it was in that area as recently as June 2018.  Two years later the share price can’t seem to reach half that amount. And that is not even factoring in gains the general markets have made in the meantime.

 

This certainly doesn’t seem to indicate much respect for Fairfax’s performance. We may believe it is a great company but few seem to agree.

 

Fairfax used to have a large core of longtime shareholders but it would appear that a lot of those longtime shareholders have simply become fed up with the company’s performance and dumped their shares.

 

The question is: What is Fairfax doing to attract investors, what are they doing to boost the share price?

 

I ask this because I really don’t think Fairfax management gives a damn.

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So let’s get down to the nuts and bolts.

 

I would suggest that no one really cares what Fairfax did 10, 20 or 30 years ago. That’s history. We can quote figures portraying Fairfax as a great company, and I believe it has great potential, but the bottom line is that very few appear to agree.

 

In 2016 Fairfax share price was pushing $800 CDN. In fact, it was in that area as recently as June 2018.  Two years later the share price can’t seem to reach half that amount. And that is not even factoring in gains the general markets have made in the meantime.

 

This certainly doesn’t seem to indicate much respect for Fairfax’s performance. We may believe it is a great company but few seem to agree.

 

Fairfax used to have a large core of longtime shareholders but it would appear that a lot of those longtime shareholders have simply become fed up with the company’s performance and dumped their shares.

 

The question is: What is Fairfax doing to attract investors, what are they doing to boost the share price?

 

I ask this because I really don’t think Fairfax management gives a damn.

 

 

 

No, the exodus of longtime shareholders occurred when Prem decided to reweight his multiple voting shares so that the Watsa family could retain full control of FFH despite having only a 7% economic interest.  That sad story took an interesting twist when Prem decided at the last minute to extend the voting period, presumably because he needed some more time to convince a few shareholders to vote in his favour.  Since that time, the FFH board of directors has been stacked with two Watsa children who have mediocre qualifications, and Prem seems to have created a job for one of the kids by hiving off a chunk of our investment portfolio for him to manage.  Long-time shareholders are not impressed by the governance abuses, and the investing results haven't been good enough for them to keep their shares while holding their noses.

 

There is a reason why a considerable portion of minority shareholders withhold their director vote for select FFH directors.

 

 

SJ

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Before wading into today's discussion on Fairfax's poor record on its private market investments and the reasons for Fairfax's poor performance; I thought it worthwhile to post an article from today's Financial Post which features comments from both Rivett and Bitove on their recent Torstar acquisition:

 

https://business.financialpost.com/news/burning-cash-for-years-pair-acquiring-torstar-eye-growth-while-vowing-to-keep-progressive-values

 

Two points covered in the article are worth noting:

 

- Rivett/Bitove will not be engaging in a massive cost cutting exercise at Torstar.

- Fairfax will not be involved in any way going forward.

 

Its a good article and I wish them well. Too bad their enthusiasm and efforts for a turnaround were not applied during the course of the almost 10 years that Torstar shares were held by Fairfax.

 

 

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The question is: What is Fairfax doing to attract investors, what are they doing to boost the share price?

 

I ask this because I really don’t think Fairfax management gives a damn.

 

 

Quite right too. Let them focus on running the company.

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I think a dispassionate appraisal of Fairfax, assuming a continuation of the last decade’s performance as your base case, lands you somewhere in the neighborhood of:

 

- normalized earnings of $25 to $30 USD per share

- with earnings growth exceeding the pace of share dilution by a couple percentage points.

 

I’m certain Prem assumes a (much) higher growth rate. And, I’m intrigued by some of the new strategies in progress to achieve faster growth. Structuring specialized investment and management teams around targeted geographies and business models is interesting - and will create multiple channels for deploying capital to the highest return opportunities. For example, if Africa sucks while India thrives we’ll see much more capital concentrated in India than Africa over time (while many on this message board will be overlooking India and whining about Africa. Haha).

 

The Fairfax insurance operations are a cash machine, minting something like a hundred million dollars a month that has to be re-deployed. That’s not the world’s worst problem to have. If you or I had to deploy a hundred million a month for the next 10 years we’d probably make some billion dollar mistakes too.

 

The main questions are:

 

- are you comfortable with the baseline assumption

- if so, then what’s $25 to $30 per share - and growing - of passive, look-through, earnings worth to you (what will it likely be worth to others down the road)

- Are there better alternatives

 

The short answer is Fairfax is probably worth a good bit more than $270 USD.

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We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

 

 

 

 

 

 

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We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

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We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

 

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

 

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

 

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

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We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

 

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

 

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

 

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

 

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

 

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

 

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

 

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853

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We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

 

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

 

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

 

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

 

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

 

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

 

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

 

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853

 

Industry difficulties create some of the best opportunity for long term capital allocators like Fairfax. If you’re a restaurant company flying solo then you are nothing but terrified right now. If you are a restaurant company backed by an insurance company with a $40 billion dollar portfolio printing $100 million of cash monthly, you call up Prem and say “hey we might have a cheap acquisition opportunity pretty soon. It will be a total dog during Covid, but after that your family will make a killing for as long as humans still like eating.”

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We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

 

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

 

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

 

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

 

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

 

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

 

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

 

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853

 

Industry difficulties create some of the best opportunity for long term capital allocators like Fairfax. If you’re a restaurant company flying solo then you are nothing but terrified right now. If you are a restaurant company backed by an insurance company with a $40 billion dollar portfolio printing $100 million of cash monthly, you call up Prem and say “hey we might have a cheap acquisition opportunity pretty soon. It will be a total dog during Covid, but after that your family will make a killing for as long as humans still like eating.”

 

We will have to agree to disagree on the future for Recipe as a result of Covid......even if/when a vaccine is available the cost structure of dine in restaurants such as those offered under the Recipe umbrella are no longer economically viable as a result of the permanent changes imposed on the restaurants (and many retailers) as a result of Covid....

 

Restaurants, many retailers and numerous other businesses only make economic sense if they are crowded. The permanent social distancing including severe limits on crowd sizes simply make the fast casual restaurant segment uneconomical. It is for this reason that I believe landlords are not willing to provide rent relief or rent deferrals now.....they do not believe they will be repaid in the future. Just my take on things.

 

 

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Share on other sites

We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

 

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

 

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

 

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

 

I think this is exactly right.

Link to comment
Share on other sites

We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

 

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

 

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

 

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

 

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

 

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

 

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

 

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853

 

Industry difficulties create some of the best opportunity for long term capital allocators like Fairfax. If you’re a restaurant company flying solo then you are nothing but terrified right now. If you are a restaurant company backed by an insurance company with a $40 billion dollar portfolio printing $100 million of cash monthly, you call up Prem and say “hey we might have a cheap acquisition opportunity pretty soon. It will be a total dog during Covid, but after that your family will make a killing for as long as humans still like eating.”

 

We will have to agree to disagree on the future for Recipe as a result of Covid......even if/when a vaccine is available the cost structure of dine in restaurants such as those offered under the Recipe umbrella are no longer economically viable as a result of the permanent changes imposed on the restaurants (and many retailers) as a result of Covid....

 

Restaurants, many retailers and numerous other businesses only make economic sense if they are crowded. The permanent social distancing including severe limits on crowd sizes simply make the fast casual restaurant segment uneconomical. It is for this reason that I believe landlords are not willing to provide rent relief or rent deferrals now.....they do not believe they will be repaid in the future. Just my take on things.

 

Then the dine-in assets of Recipe will be starved of new capital and will dwindle. In the meantime they may find ways to capitalize on the continuing demand for food preparation. A capitalist with cash flow has options.

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Share on other sites

We are talking about different things.

 

I agree about the overall record - that's why I'm a shareholder.

 

What I am criticising is their record in non-insurance private/control investing.

 

I think there is a difference in skillset between the various sources of value creation at Fairfax:

1) building and running (and sometimes selling) insurance companies

2) public market bond investing

3) public market equity investing

4) private/control equity investing

 

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

 

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

 

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

 

Retail Segment

 

-Golf Town/Sporting Life

-Toys R Us Canada

-Kitchen Stuff Plus

-William Ashley

-Praktiker (in Greece)

 

Other Segment

 

-AGT Foods

-Peak Performance (Bauer and Easton brands)

-Boat Rocker

-Rouge Media

-Davos Spirits

-Farmers Edge

 

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

 

My thoughts on the list of private investments:

 

-very heavily focus on retail

-none large enough to move the needle at the overall Fairfax level

-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings

-Praktikar (in Greece)---really---why bother?

-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide

-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?

-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

 

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

 

Thoughts/comments of others?

 

I agree.

 

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

 

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

 

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

 

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

 

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

 

I think this is exactly right.

 

High five!

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