what are you selling today?

[Spekulatius]

Sold most of my KNBE and SU during my lunch break.

[RedLion]

Sold puts expiring next Friday on GOOGL and BRK.B. 

[DooDiligence]

53 minutes ago, RedLion said:

Sold puts expiring next Friday on GOOGL and BRK.B. 

 

I hope you kill it with these. I have stinker bids in on the equity of both.

[StubbleJumper]

Atlas Corp.  The share price has hit $15 today, which leaves a potential upside of about $0.50 plus dividends if you believe that shareholders will ultimately accept the existing $15.50 buyout.  So, the upside at this point is likely the 3.3% buyout premium plus another 3.3% annualized divvy.  If it takes 3 months to complete the buyout, that's not a bad return, but if it takes 6 months it's crap.  And if the deal falls through, the downside from here is probably -10% to -20%.

 

 

SJ

[LC]

Yeah I took another, far bigger bite @ Atco when it was ~14 a few...days ago? Sold it all today slightly over 15. 

[Castanza]

1 hour ago, StubbleJumper said:

Atlas Corp.  The share price has hit $15 today, which leaves a potential upside of about $0.50 plus dividends if you believe that shareholders will ultimately accept the existing $15.50 buyout.  So, the upside at this point is likely the 3.3% buyout premium plus another 3.3% annualized divvy.  If it takes 3 months to complete the buyout, that's not a bad return, but if it takes 6 months it's crap.  And if the deal falls through, the downside from here is probably -10% to -20%.

 

 

SJ

 

Yup I think you're right. Was contemplating hanging around and seeing if the deal gets sweetened with a special divy but with the market down again today their I'd rather not have the cash tied up. Cutting this one lose. 

[RedLion]

On 10/7/2022 at 9:40 AM, DooDiligence said:

 

I hope you kill it with these. I have stinker bids in on the equity of both.

 

Fingers crossed. I'm hoping to build up both positions, and figure I might as well use these weekly puts to try to optimize my entry point and cost basis.

 

Today I decided to do a little bottom fishing, and sold some $25 CG puts expiring next Friday. I think CG is one of the lowest quality ALTs, but it also has the most room for margin improvement, trades at a low valuation, and has a nice yield at $25. Figure it wouldn't hurt to round out my recent ARES/BX purchases.

[StevieV]

2 hours ago, RedLion said:

 

Fingers crossed. I'm hoping to build up both positions, and figure I might as well use these weekly puts to try to optimize my entry point and cost basis.

 

Today I decided to do a little bottom fishing, and sold some $25 CG puts expiring next Friday. I think CG is one of the lowest quality ALTs, but it also has the most room for margin improvement, trades at a low valuation, and has a nice yield at $25. Figure it wouldn't hurt to round out my recent ARES/BX purchases.

 

I thought that CG was headed in the right direction and then their CEO (Kew) left abruptly on a Sunday night.  Kew was seemingly pushed out and it is a bit baffling as to why they'd want to do so.  CG was diversifying away from just PE, were rapidly growing their FRE and so becoming less dependent on incentive income/performance fees.  I think that was the right direction.

 

The exit was not well received.  For example, Bank of America gave a double-downgrade and slashed their from $58 to $33 on the move.

 

The company's original succession planning has now clearly failed as the former co-CEOs are now both out.  Obviously, the CEO hire is important. They need to get that right and then will also need some time to convince the market that things are under control.

 

Of course, the share price reflects a lot of that.  Distributable earnings were $5.01/share last year and the share price is currently $26 (or a bit over 5x earnings).  Earnings are cyclical because of the incentive/performance fees.  At least for now the $5.01 is going to be a bit of a cyclical high.  Still, run rate earnings should be pretty good.  Distributable earnings for the first half of the year were $1.91/share and just over half of that was "stable" FRE.  Perhaps about $2 in FRE this year.

 

I think it's fair to say normalized run-rate earnings should be in the $3-4 range today.  The company was growing assets under management double digits.  Pays a healthy dividend and the room for margin improvement.

 

It will be interesting to see what they do on the CEO front, but regardless of who it is, I think it will be a while until we see if the new hire plays out.

[StevieV]

A couple of price target cuts today, or at least I saw them today.

 

Piper Sandler from $68 ---> $62

 

JMP $60 --> $58

 

Stock closed yesterday around $26.  That puts both reduced price targets 100% plus from today's price.  Not sure whether there is any interesting associated commentary with the target cuts.

[RedLion]

19 hours ago, StevieV said:

 

I thought that CG was headed in the right direction and then their CEO (Kew) left abruptly on a Sunday night.  Kew was seemingly pushed out and it is a bit baffling as to why they'd want to do so.  CG was diversifying away from just PE, were rapidly growing their FRE and so becoming less dependent on incentive income/performance fees.  I think that was the right direction.

 

The exit was not well received.  For example, Bank of America gave a double-downgrade and slashed their from $58 to $33 on the move.

 

The company's original succession planning has now clearly failed as the former co-CEOs are now both out.  Obviously, the CEO hire is important. They need to get that right and then will also need some time to convince the market that things are under control.

 

Of course, the share price reflects a lot of that.  Distributable earnings were $5.01/share last year and the share price is currently $26 (or a bit over 5x earnings).  Earnings are cyclical because of the incentive/performance fees.  At least for now the $5.01 is going to be a bit of a cyclical high.  Still, run rate earnings should be pretty good.  Distributable earnings for the first half of the year were $1.91/share and just over half of that was "stable" FRE.  Perhaps about $2 in FRE this year.

 

I think it's fair to say normalized run-rate earnings should be in the $3-4 range today.  The company was growing assets under management double digits.  Pays a healthy dividend and the room for margin improvement.

 

It will be interesting to see what they do on the CEO front, but regardless of who it is, I think it will be a while until we see if the new hire plays out.

 

Sounds like we pretty well agree on this one, and I know we have similar views on APO and KKR as well and some of the other alts. I've been taking more of the shotgun approach lately with this selloff, trying to diversify between different managers and avoid paying crazy multiples. At this point even the top players are reasonably valued IMHO. 

 

If rates keep going a whole lot higher than 4.5%, I think this could get really ugly for all the alts, as if it doesn't feel ugly enough already. This is why I'm hoping to beef up on some positions that I consider to be more resilient to higher interest rates (like BRK.B/GOOGL and maybe even FFH). 

[Value_Added]

Wrote a few $7.50 puts with Dec. 16 expiration on PCYO to push myself to finish my deep dive before making it a full position.  Will very likely turn this into a full position but I’m still working through everything to ensure I feel comfortable with it.  

[Xerxes]

3 hours ago, RedLion said:

 

Sounds like we pretty well agree on this one, and I know we have similar views on APO and KKR as well and some of the other alts. I've been taking more of the shotgun approach lately with this selloff, trying to diversify between different managers and avoid paying crazy multiples. At this point even the top players are reasonably valued IMHO. 

 

If rates keep going a whole lot higher than 4.5%, I think this could get really ugly for all the alts, as if it doesn't feel ugly enough already. This is why I'm hoping to beef up on some positions that I consider to be more resilient to higher interest rates (like BRK.B/GOOGL and maybe even FFH). 

 

 

@RedLion @StevieV

 

Would you agree that for the bluechip alternative story to truely roll over (beyound just the cyclical aspect of their earning/carry), we need to see their "fund-raising franchise" machine to decline. i.e. lower AUM year over year

 

 

[RedLion]

1 hour ago, Xerxes said:

 

 

@RedLion @StevieV

 

Would you agree that for the bluechip alternative story to truely roll over (beyound just the cyclical aspect of their earning/carry), we need to see their "fund-raising franchise" machine to decline. i.e. lower AUM year over year

 

 

 

If I understand you correctly, I think so. I think these remain attractive investments especially at these prices notwithstanding the cyclical element of earnings/carry, based on the FRE itself provided that they can continue to grow AUM. 

 

Right now a lot of the alts, at least the ones I'm invested in (BAM, APO, KKR, BX, and a smidge of ARES), have a pretty diverse set of businesses to raise AUM, so hopefully they will be able to continue increasing AUM even if the traditional PE funds come in quite a bit lower than the last peak cycle. 

 

So we have a lot of tailwinds for the AUM from pension risk transfer, annuities, retail, opportunistic credit, and maybe private credit I'm not sure. I think the significantly higher interest rate environment is obviously a significant headwind to the traditional PE business itself and maybe real estate/infrastructure private equity at least in terms of fundraising from traditional pensions. Obviously I think time will prove out one way or the other, but my thesis is that these companies on average, should continue to drive AUM growth which should then feed into a long runway of double digit FRE growth and growing cash distributions. 

 

I could always be wrong here though, and I certainly think rising interest rates are the #1 risk to the thesis. So I'm trying to cap my total investment in the alts at 25% of my liquid net worth, and I'm a bit under 20% right now. Also looking at keeping a large position in short term t bills and trying to allocate into other investments which can benefit/survive significantly higher rates. 

 

I've been following the alts since they started going public, and I feel like they always sell off SUPER hard in every downturn, but they have a resilient business model. All of them are great success stories over the last several decades, while most of that history was not publicly traded. I suspect they will provide very nice double digit returns from these prices, but I would expect them to continue selling off harder than the rest of the market. Historically, buying these companies when they're down 30-50% has made a lot of money, but I feel like you have to embrace drawdowns with these investments. 

Edited October 11, 2022 by RedLion

[StevieV]

I generally agree with RL.

 

Incentive fees are interesting.  While all of the alts are trying to move towards an FRE model, the incentive/performance fees are still significant.  Especially for say CG where performance/incentive was more than half of earnings last year.  Market doesn't want to pay for incentive fees, but even lumpy earnings are still earnings so long as they are cyclical and not gone.

 

I think the push into retail is important.  ARES's CEO recently said something along the lines that they could raise their 20%/year on institutional alone, but are building out retail for diversity of funding.  I figure it is good to have multiple sources and better to build out retail before you think you need it.  Could be too late then.

 

I'd be concerned about a decline in AUM growth well before it went negative.  Without looking, I think ARES is probably about the least lumpy AUM growth and is about 20%.  If they did dropped to say 5%, that would be a big deal.

 

As RL says, the alts have had resilient business models.  I think that will hold up.  Unfortunately, if something in that changes, I doubt I'd see it ahead of time.  Put another way, if APO or BX or whichever company did go negative AUM that probably means a big problem and then a drop.  I don't think I'd realize the problem before the market and/or wouldn't see that the AUM trend was broken until the particular company reported it.  So, sure, I think so long as AUM growth holds up they'll do well, but I don't think I'd see a change ahead of the market.

[Spekulatius]

ALT investment have been a way to get returns in a ZIRP environment. If you can get real returns with bonds again, then ALT investment would become less attractive and the big institutions would probably shift some allocation to bonds rather than ALT investments.

 

I think the most likely thesis breaker are sustained higher bond yields.

[Xerxes]

Thanks everyone. 
makes sense. A cyclical drop in earning is one thing (opportunity) but a drop in AUM will be putting the whole “secular thesis” into a cyclical camp and with it the fund-raising franchise. 
 

I only own BAM and two of its subs + small position in Onex that got cut in half but is actually more of an opportunity given that the market never gave credit for its FRE anyways being so small. So one can hinge it against its NAV as oppose to a multiple on FRE.  

[RedLion]

$120 10/21 SUI puts. 

 

$35 11/18 BAM puts

 

$175 10/21 AMT puts

Edited October 12, 2022 by RedLion

[RedLion]

Sold my put spreads expiring on 10/24. I owned QQQ 270 puts and was short the 260 puts. 

 

I sold this put spread for a 50% profit even though QQQ is around 271 today and this expires in a week. I am going to look for a better hedge to put on with a bit more duration, preferably until mid November or so. 

[RedLion]

$115  10/21 MED put

[KPO]

All of the TPZ I bought in the depths of COVID at 22-25% NAV discounts

[RedLion]

$80 10/28 BX puts

[DooDiligence]

Sold about 1/3 of ATT on todays bounce.

It's been dead money for a long time and I don't see that changing.

They unloaded a lot of debt and now they're going to re-lever in a game of catchup.

 

www.fiercetelecom.com/operators/at-t-s-elbaz-says-fiber-deployment-costs-are-getting-better

 

www.reuters.com/technology/att-talks-with-investors-expand-fiber-optics-network-report-2022-10-19/

 

I'll probably put the funds from this sale into BRK, which is what I tried to talk my Mom into doing a long time ago.

[RedLion]

Rolled my MED and SUI puts to 105 and 110 strikes expiring 11/18 for a smallish net credit. 

[RedLion]

I sold a lot of puts for January 20, 23 (91 days) and then bought T-bills maturing January 31 at 3.99 YTM with the options premia. 

 

Sold the following strikes in varying degrees.

BX 72.50 for $3.55

OWL $7.50 for $0.42

CG $23 for $1.25

GOOGL $90 for $3.80

 

I am leaving a lot of money in short term T-bills in anticipation of a large real estate investment, but I figured I might as well generate some returns writing cash secured puts on names I want to own at attractive prices. Other than GOOGL, all of these should yield 5%+ with good growth over the medium to long term. 

 

[Luca]

Sold my stake in Alibaba and shifted the remains into tencent and prosus equally. 

 

I think Tencent will be able to circumvent regulations better than Baba (regulation wise) and has more experience in foreign investments which makes it a bit more protected against political turmoil. 

 

Also has higher Cashflow and more attractive metrics than Baba.