Dhandho Holdings!

[petey2720]

Petey2720,

 

Are Canadian investors allowed?

 

Cardboard

 

Cardboard, sorry for the slow response.  The answer is I don't know if Canadian investors are allowed.  I have not seen the offering docs.  Looks like Sanjeev has seen the docs, and can maybe answer this for us?

[twacowfca]

But the other question I have is that Pabrai may have to change his strategies if he were to invest the float like Buffet. In from 2008 to 2009, he had 65% mark to market loss at one point, which I believe is more than sufficient to wipe out an insurance company.

But if he invests like MKL, and only use 50-70% of float to buy stocks, I think it will be fine.

Thoughts?

How did Buffet invest so much into equity and not worried to be wiped out by MTM losses?

 

 

Let's say you just have an insurance company and nothing else in your holding company -- you'd better be pretty damn cautious about MTM losses on equities.

 

Now, instead suppose you also have a few very high quality (and wholly owned) companies surrounding it -- companies that just throw off tons of cash....

 

Two things just happened by adding the very high quality wholly owned cash machines:

1)  insurance ratings went up on the insurer, ultimately leading to better underwriting results (charge more for higher ratings)

2)  You can invest the float a bit more aggressively given the huge amounts of earnings power across the consolidated entity

 

I believe the insurance businesses within Berkshire would earn lower ROE as entities outside of Berkshire.  The structure boosts intrinsic value.

 

Similarly, I think an aircraft carrier is better off travelling in a convoy of destroyers.  Buffett is playing a little game of fleet admiral here.

 

That's a very good perspective, Eric.

 

Warren had squeezed cash from BRK to buy NICO which meant that a company with lousy returns was joined to a controlled insurer with a huge pile of cash and marketable securities. BRK's ownership of NICO gave Warren optionality; if NICO had got in trouble with high intrinsic value but low market value equity holdings on its BS Warren could have squeezed or even liquidated BRK with its remaining working capital to provide relief to NICO.

 

Things weren't all rosie.  Warren's investments were such a spiderweb of cross holdings that the SEC took interest and was about to bring suit around that time.

 

I think the key reason he took the plunge into investing almost all NICO's assets in equities was that equity holdings of insurance companies didn't have to be marked to market then.  If his regulator questioned those holdings which were likely carried at purchase price, Warren could have pointed to how solid the underlying businesses were.  NICO had been a homegrown Omaha success.  I suspect that the regulator of that local business was not unfriendly or activist.  :)

 

I agree that operating businesses, which throw off tons of cash are very good things to possess… I think this is self-evident!

But don’t forget that until the mid-90s’ almost 90% of the increase in BV for Berkshire was achieved thanks to insurance + investing. And during the 80s’ Berkshire practically only grew through insurance + investing.

Even if today marked to market accounting, like twacowfca suggests, limits the amount of equities an insurance company can purchase, without running too much risk, and therefore what Berkshire achieved during the ‘80s is no more replicable, I think Dhandho Holdings might still do pretty well. Think about Markel: Mr. Gayner is surely a smart investor, but he is no outlier, nor he has a better track record than Mr. Pabrai… actually, his track record is only slightly better than the S&P500. Yet, MKL has compounded BVPS at more than 16% for the last 20 years.

Dhandho Holdings imo is going to be a very good vehicle for compounding capital, even without owing operating businesses… This, of course, doesn’t exclude the fact Mr. Pabrai could very well decide to buy entire businesses in the future! :)

 

Gio

 

So in the old days, Buffet's company was allowed to use 100% of float to buy stocks? How did he deal with the volatility?

 

I think the insurance float was about the last source of funds he put into the 1973 - 1974 bear market.  Within a few months, the market turned and those stock purchases were no longer under water on a MTM basis. In any case they were still carried on the books at cost which was generally allowed then for calculating regulatory surplus.  His regulator probably didn't give NICO a second look because many other insurance companies were approaching insolvency then.

[Kraven]

I was thinking about this and realized I didn't quite understand what all the fuss was about.  I then consulted my own latticework of mental models and realized it's what I would call the Superfan bias.  It's when someone is so enthusiastic for someone or something that they become obsessed with it and will stop at nothing to possess even a small part of it.  It reminds me of when I was a kid and your favorite band would put out a new album.  Everyone would line up at the local record store to be among the first to get it.  Once you had it in your hot, sweaty little hands, you'd run home or go to a friends and play it.  This would be the first time you would have heard any of the songs so you had no idea whether it was good or not.  Yet it didn't really matter.  You wanted it no matter what.

 

To some extent I think the same thing is going on here.  Many people seem willing to invest sight unseen.  Don't get me wrong, Pabrai is a great investor, but there are a lot of unknowns here.  Here are some questions I came up with:

 

- What's the valuation going to be? 

 

- This will be an insurance company.  Who is going to be leading the underwriting? 

 

- How will Pabrai's investment style work in a regulated entity? 

 

- To my knowledge his AUM is in the $500-600 mil range.  How will adding hundreds of millions more or possibly billions change his style?  How will it limit the opportunities available to him? 

 

- How will he allocate investment opportunities between the fund and the insurer?  This is a huge deal for managers of different vehicles and there will be insurance regulations that impact allocations.

 

I ask this more rhetorically than anything.  I am not expecting anyone to have the answers, but I thought the questions should be raised.  I truly hope it works out well for him and anyone who invests, but I would not be someone chomping at the bit to invest at the beginning.

[onyx1]

I was thinking about this and realized I didn't quite understand what all the fuss was about.  I then consulted my own latticework of mental models and realized it's what I would call the Superfan bias.  It's when someone is so enthusiastic for someone or something that they become obsessed with it and will stop at nothing to possess even a small part of it.  It reminds me of when I was a kid and your favorite band would put out a new album.  Everyone would line up at the local record store to be among the first to get it.  Once you had it in your hot, sweaty little hands, you'd run home or go to a friends and play it.  This would be the first time you would have heard any of the songs so you had no idea whether it was good or not.  Yet it didn't really matter.  You wanted it no matter what.

 

To some extent I think the same thing is going on here.  Many people seem willing to invest sight unseen.  Don't get me wrong, Pabrai is a great investor, but there are a lot of unknowns here.  Here are some questions I came up with:

 

- What's the valuation going to be? 

 

- This will be an insurance company.  Who is going to be leading the underwriting? 

 

- How will Pabrai's investment style work in a regulated entity? 

 

- To my knowledge his AUM is in the $500-600 mil range.  How will adding hundreds of millions more or possibly billions change his style?  How will it limit the opportunities available to him? 

 

- How will he allocate investment opportunities between the fund and the insurer?  This is a huge deal for managers of different vehicles and there will be insurance regulations that impact allocations.

 

I ask this more rhetorically than anything.  I am not expecting anyone to have the answers, but I thought the questions should be raised.  I truly hope it works out well for him and anyone who invests, but I would not be someone chomping at the bit to invest at the beginning.

 

I have a few questions as well.

 

If I read correctly, the Insurance Co. surplus will double from $30mm to $60mm.  It's a tall order to double the book and do it profitably.  What is the growth mandate and how much stress will it have on the underwriting performance?

 

Insurance is hyper competitive and my experience is that small niche insurers do not have a competitive advantage and often are at a significant disadvantage to the larger more established firms who have the benefit of extensive long-term relationships and decades of frequency/loss data at their disposal to identify risk factors.  Who will this insurance company compete with, where will they underwrite, and what type of policies will they emphasize?

 

 

[Palantir]

Does anyone have access to Mr Pabrai's track record to date and is willing to post it on here? Interested in seeing the risk (standard deviation) as well.

[twacowfca]

Does anyone have access to Mr Pabrai's track record to date and is willing to post it on here? Interested in seeing the risk (standard deviation) as well.

 

Monish had the best record of about 3000 mainly equity hedge funds some organization compiled from about Y2K through about 2006.  Then, his main fund lost about 2/3 of it's NAV/SH from his 2007 high water mark to about the market bottom. 

 

To his great credit he didn't close his funds even though he was far from receiving incentive payments after the crash.  Instead, he persevered and slowly made back the losses.  recently, he is reported not only to have made back the losses, but to have gotten above his annual hurdle which I think is 6% and once again be eligible for incentive payments.

 

I don't know the details.  I hope those who are more familiar with them will correct me if I'm wrong .

[Parsad]

Does anyone have access to Mr Pabrai's track record to date and is willing to post it on here? Interested in seeing the risk (standard deviation) as well.

 

For his oldest fund, PIF2, it's about 16.7% annualized since October 1, 2000 to December 31, 2013.  S&P500 TR did about 3.9% annualized during the same period.  Cheers!

[Guest]

Does anyone have access to Mr Pabrai's track record to date and is willing to post it on here? Interested in seeing the risk (standard deviation) as well.

 

For his oldest fund, PIF2, it's about 16.7% annualized since October 1, 2000 to December 31, 2013.  S&P500 TR did about 3.9% annualized during the same period.  Cheers!

 

Sanj,

 

In his videos he talked about compound at almost 26%. Is he referring to his personal account or something? Maybe the 26% is before fee and 16% is after?

[Palantir]

I meant the year by year returns, plus data for standard deviation etc.

[Vish_ram]

I really wonder what his money weighted returns are. We know his time weighted returns starting inception. if he had 40-50% returns in initial years and lousy ones later one, then very few benefited from his returns that he is claiming.

 

He really had some half a dozen stocks that lost more than 99%, and with permanent capital losses. some examples are cryptologic, delta financial, pncl, compucredit, TMM etc. Some others like HNR he lost 50+%.

 

Kudos to him for bouncing back. Some lesser mortals would have been psychologically devastated.

[twacowfca]

I really wonder what his money weighted returns are. We know his time weighted returns starting inception. if he had 40-50% returns in initial years and lousy ones later one, then very few benefited from his returns that he is claiming.

 

He really had some half a dozen stocks that lost more than 99%, and with permanent capital losses. some examples are cryptologic, delta financial, pncl, compucredit, TMM etc. Some others like HNR he lost 50+%.

 

Kudos to him for bouncing back. Some lesser mortals would have been psychologically devastated.

 

I think Monish is probably a much better investor now than he was before the crisis.  That was the first time he had to experience the full effect of the credit cycle on low quality and leveraged companies.

[OracleofCarolina]

If you go back to his personal account, it's 25.7% annually

 

http://m.gurufocus.com/news_read.php?id=225066

 

 

[mhdousa]

Coming to this discussion a little late, but how much of the success of this endeavor depends on the quality of the particular insurer that he's buying?

[ASTA]

Lets see whats going to happen with this sucker :D Time has past and lets see how much he collects and what the future holds :D

[Parsad]

Lets see whats going to happen with this sucker :D Time has past and lets see how much he collects and what the future holds :D

 

Collected over $148M in the first financing.  Is seeking only one other $2M investor...otherwise done.  Expects the insurance acquisition to close in several months based on state regulators.  Looking for another acquisition target...probably another insurer with part of the remaining capital.  Will list in 2015 and do the IPO with Pabrai Funds putting in $70M if pricing is good.  Cheers!

[siddharth18]

http://www.sec.gov/cgi-bin/browse-edgar?company=dhandho&owner=exclude&action=getcompany

[berkshiremystery]

I'm still well & alive,... just lurking  :)

 

Here are some introduction videos from Mohnish about Dhandho Hldgs!

 

http://vimeo.com/user17730987

 

 

 

 

[ERICOPOLY]

Mohnish is the man!

 

San Juan, Puerto Rico will be awesome!  Much better than going to Omaha.

[Parsad]

Mohnish is the man!

 

San Juan, Puerto Rico will be awesome!  Much better than going to Omaha.

 

And he's on the prowl for another business.  Congratulations on 15 years at Pabrai Funds as well!  Cheers!

[Guest hellsten]

Mohnish is the man!

 

San Juan, Puerto Rico will be awesome!  Much better than going to Omaha.

 

Congratulations. Did Mohnish hire you for one of these positions ;)

http://dhandho-holdings.com/wp-content/files_mf/dhandhoholdingscfojobdescription87.pdf

http://dhandho-holdings.com/wp-content/files_mf/dhandhoholdingsadminasstjobdescription45.pdf

 

There is not much public information on Dhandho Holdings. I wonder how many of the documents you can find with this Google query were intended to be private:

https://www.google.com/webhp?q=site%3Adhandho-holdings.com#q=site:dhandho-holdings.com

[Guest hellsten]

The advisory board:

Mr. Navneet S. Chugh is the Managing Partner of The Chugh Firm. He is an attorney-at-law, a

Certified Public Accountant, and holds a MBA. The Chugh Firm provides corporate, tax, litigation,

immigration, employment, media & entertainment, M&A, and business strategy services to emerging

growth and mature companies. The Chugh Firm has a staff of 250 employees with 116 attorneys and

CPAs, and has ten offices in Los Angeles, Santa Clara, Iselin (New Jersey), Atlanta, Washington DC,

Bangalore, Chennai, New Delhi, Mumbai and Chandigarh. Mr. Chugh is an elected member of the Indus

Entrepreneurs (TiE) Global Board of Trustees. In 1997, he founded TiE Southern California and later

served as President. In 2003, he was the founder and president of the North American South Asian Bar

Association, a nationwide body with 27 chapters in North America. Mr. Chugh is co-chairman of

Pratham, LA, and President of Sikh Center of Orange County. He is on the board of HAB Bank, Ignify

Consulting, India Community Center, and Premier Media, Inc., the publisher of India Journal. He was

also on the board of Asia Society of Southern California (2006-11); and American India Foundation

(2005-10). He is a member of the World Presidents’ Organization.

 

Mr. Terry Adams is a Director and Executive Vice President of SA Recycling. Originally

started by Terry’s father in 1973 as a small junk yard with a handful of employees, the company today

operates over 55 facilities in California, Arizona and Nevada. The list of facilities includes two deep

water ports and six automobile shredding plants. The company has 1,300 employees. Mr. Adams has

served many roles at SA Recycling including in his current capacity in acquisitions and strategic planning.

Over the past thirty years Mr. Adams has developed an extensive background and expertise in the

recycling, processing, shredding, and management of all types of metals and waste streams, including

hazardous, reactive and radioactive materials. In 1993, Mr. Adams helped form one of the first lithium

recycling companies in the world and was the chief design engineer of a lithium battery recycling plant

located in Trail, British Columbia for Retriev Technologies, one of the largest multi-chemistry battery

recyclers in the U.S. and Canada. Retriev Technologies is currently finishing construction of a new

Department of Energy (DOE) sponsored facility at one of its plants in Ohio. When completed in 2014,

this plant is expected to be the first dedicated electric vehicle battery recycling operation in the U.S. Mr.

Adams served as the president of Retriev Technologies from 1999 to 2011, and is currently the Chairman

of its Board. Mr. Adams also serves on the boards of Foundation Board Children’s Hospital Orange

County (CHOC); Vice Chair, Orange County Boy Scout Council; and the USC Viterbi (School of

Engineering) Board of Councilors. Mr. Adams received his Bachelor of Science in Mechanical

Engineering from USC (1981) and a Masters in Business Administration from Cal State Fullerton (1985).

 

Guy Spier is the founder and Managing Partner of Aquamarine Fund (1997), an investment

partnership inspired by, and styled after the original 1950’s Buffett partnerships. Guy Spier previously

worked at Braxton Associates in London & Paris from 1988 – 1990 and at the Forward Studies Unit of

the European Commission in Brussels in 1991. Mr. Spier graduated from Oxford University (Brasenose

College) with a MA, BA (Honors), first class in Politics, Philosophy & Economics in 1988. He received

his MBA from Harvard Business School in 1993. In June 2007, Mr. Spier and Mohnish Pabrai bid for and

won a charity lunch with Warren Buffett.

 

Duan Yongping is an electrical engineer, inventor, entrepreneur and philanthropist. He is the

founder of both the Subor Electronics Industry Corporation and BBK Electronics Group. Mr. Yongping

entered Zhejiang University in 1978, majoring in wireless electronics engineering. Later, he studied at

Renmin University, where he majored in econometrics. In 1989, he joined a company in Zhongshan and

rose to become CEO. In less than 6 years, he created a very famous brand in China called Subor (Xiao

Ba Wang). At the outset at Subor, the company only had twenty workers, 3,000 RMB in cash and over 2

million RMB in debt. Under Mr. Yongping’s leadership, after he was named CEO, Subor quickly

became the top producer of the “learning computer.” It also produced video-game facilities, which made

a profit of more than 200 million RMB in 1994-1995. In 1995, Mr. Yongping resigned from Subor, and

founded BBK Electronics Industrial Group in Guangdong Province whose main product was DVD

players. Today it is a well-known brand in mobile phones and stereo devices. In 2006, he cooperated

with William Ding Lei and donated US$40 million to Zhejiang University. This is the biggest endowment

in recent years for higher education in mainland China. Mr. Yongping moved to the San Francisco Bay

area a few years ago and his present activities are focused on value investing. Due to his success in the

stock market, he has the nickname, the “Chinese Buffett.”

 

The advisory board members don't seem like value investors ;D Spier spent $650,100, and Yongping $620,100, on one lunch with a celebrity.

[Valuebo]

It's for charity and I wouldn't underestimate the value of all the publicity those guys got ...

[Guest hellsten]

This is the first time I heard of Duan Yongping. Yongping made a lot of money on Netease and UHAL:

http://economy.enorth.com.cn/system/2006/07/25/001366453.shtml

 

"I have carefully studied the Netease, found it when the share price of 0.8 U.S. dollars, the company has more than 2 per share in cash, of course, facing a lawsuit, it may be delisted, there is some uncertainty, which need to do more consultation. to the lawsuit, I consulted some of the legal profession, and asked a similar lawsuit what is the most likely outcome, the conclusion is not very serious consequences, because their error is not particularly outrageous. very important, The company does not have a big problem in the operation. "Duan Yongping said," do your homework, I basically put all the money I can spend spend, and buy its stock. "

Some people think that, Duan Yongping dare to buy a large number of Netease's stock is that he knew Ding, Ding is with the relationship. But Duan Yongping disagree, "I know more than the boss, if I know a buy one, and that the more things to buy, the most important thing is to spend enough time business, the company, the products have a deep understanding of . "

 

"I bought in the United States to do a car rental business, the company, when its stock fell $ 5, I spent half a year to investigate and found that the company net assets per share of 50 dollars. I have calculated account, even if the net assets to 5 fold, and 25 U.S. dollars, the end we bought more than 100 million shares, the stock had more than 100 U.S. dollars up to. "

 

…and some more info:

http://usa.chinadaily.com.cn/epaper/2011-06/13/content_12683330.htm

http://www.wantinews.com/news-8268663-Duan-Yongping:-I-understand-the-value-of-investments.html

http://www.denverpost.com/ci_6551825

http://losaltos.patch.com/groups/business-news/p/chinese-investor-buys-john-chambers-home

[Gamecock-YT]

http://www.insurancejournal.com/news/southcentral/2014/07/31/336332.htm

 

Stonetrust Commercial Mutual Insurance Holding Company has entered into an agreement to be acquired by Dhandho Holdings, and Dhandho Holdings Qualified Purchaser, based in Irvine, CA.

 

Stonetrust is a Louisiana-domiciled mutual insurance holding company and the parent company of Stonetrust Commercial Insurance Company which provides workers' compensation and employers' liability insurance coverage to over 5,100 policyholders in Louisiana, Mississippi, Arkansas, Oklahoma, and Texas.

 

The $35 million cash acquisition will include Stonetrust Commercial Mutual Insurance Holding Company, Stonetrust Commercial Insurance Company, and Stonetrust Realty, LLC, as well as Stonetrust Management Services, LLC, the independently owned managing general agent.

 

As a result of the transaction, the Stonetrust companies will become subsidiaries of a new stock holding company created by the Dhandho partnership. Stonetrust operations will remain unchanged and continue to be headquartered in Baton Rouge, Louisiana, under current President and CEO Tim Dietrich.

 

The transaction, which has been unanimously approved by the Board of Directors of Stonetrust Commercial Mutual Insurance Holding Company, is expected to close within 90 days. The Plan of Conversion will require approval of policyholders and the Louisiana Department of Insurance. Proceeds of the transaction will be paid to eligible policyholders.

 

Dhandho has further agreed to infuse an additional $30 million capital contribution into Stonetrust Commercial Insurance Company, thereby doubling total surplus to over $60 million and providing an immediate boost to its premium to surplus ratio. Stonetrust anticipates the additional capital will facilitate its expansion plans and aid the company in achieving its goal of an "A" rating by the global credit rating agency A.M. Best. Stonetrust is currently rated "B++".

 

"Our plan is for continued profitable growth, added insurance line development, and geographic expansion in the central and southeastern regions of the U.S. This transaction with Dhandho provides us with a substantial source of capital enabling us to take advantage of new business opportunities whenever they should arise," said Tim Dietrich, President and CEO of Stonetrust.

 

"Stonetrust is a wonderful business with an exceptional management team led by Tim Dietrich. I am excited that Dhandho's first acquisition is Stonetrust," said Mohnish Pabrai, Dhandho's managing partner. Pabrai, a private fund manager with over $850 million in assets under management, has raised over $150 million for the Stonetrust acquisition and the future acquisitions of other companies. Pabrai expects to take Dhandho public within a year.

[oddballstocks]

So this makes me wonder what the mechanics of the IPO will be.  We have a mutual insurance company, the most straightforward path is to demutualize, raise capital from policy holders and outside individuals.  This is something other insurance companies have done many times.  Or maybe they try to create a MHC structure where the holding company is public, but the insurance company is mutually owned.

 

If they demutualize the easiest way to buy into the IPO at a fair price is to get a policy with the company.