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40 Percent or 40 Cents?


Santoli's track record is enviable compared to many money managers and you get it for $0.40 per week online.


Gotta agree with Minyan Michael Santoli again, this time on Affiliated Managers Group (AMG). His work often leads him to un-crowded ballparks where we like to be among the few scouts, so this is not the first time we've collided.

Needless to say Fortress' (FIG) IPO led to many back of the napkin multiplying this weekend around the world after slipping them out from under expensive wine that just got more affordable. I wouldn't be surprised if another big hedge fund was already exploring a similar path, but this new math may lead to more napkin requests.

This newly public firm is now fetching roughly 40% ($12 billion market cap for $30 bln in assets under management (AUM)), on the open market. That number shocked me. I have seen many valuations based on revenues and earnings, but considering how delicate the "stickiness" of those assets will be to one group's performance numbers, I think the great trade there was made on the offer side. I trust that buyers of this IPO recall they were on the other side of some pretty good traders.

I think what Santoli offers might be a better deal. Here are a few other numbers to consider when thinking about the valuation that Fortress is being priced at on its $30 billion under management. Now, keep in mind its fees can be substantially higher than traditional money managers, which AMG owns only a portion of (typically about 60-65% of the firms). So a premium may be warranted but...

  • AMG firms managed $246 billion at year end.
  • AMG saw $46 billion of AUM growth in 2006.
  • Since 2003, net inflows total $30 billion.
  • Since 2003, performance alone added another $60 billion.

AMG holds stakes, typically 60-65% of each firm, in 25 money managers and is on the prowl for several more. The company's big horses are Tweedy Browne, Friess Assoc, Third Avenue, First Quadrant, AQR, and Genesis.

I posted a buzz on AMG three weeks ago after its stellar earnings. It is a stock my firm has owned since 2005, and sits on the corner of an intersection I like quite a bit. The crossover of years of centralizing on Wall Street is now turning, in my view, to decentralizing as talented traders and money managers have fled some of the largest firms and created their own. And most of them are getting older, some without succession plans. Enter AMG, which offers a partnership and liquidity for principals, and the ability for the firm to remain private.

The Fortress deal could lead to other IPO's but I think it hastens one of my Bizarr07's, where I guessed that a few of the largest banks and brokerage firms who lost in-house money management will attempt to acquire a big-name hedge fund. The ante just went up quite a bit.

Santoli's track record is enviable compared to many money managers and you get it for $0.40 per week online.

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Position in AMG
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