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In April, I took a closer look at the universe of UK-listed asset managers. A key piece of research was a (relatively) simple analysis which focused on financial stability & market valuation – this study also offered a useful peer comparison with Argo Group Ltd. (ARGO:LN) (& see this recent post).

Frankly, the numbers (plus the rest of this post) speak for themselves, but let’s have a taste of the main highlights:

 Name   Ticker  Net Cash/Inv as % of Mkt Cap
 F&C Asset Management  FCAM (23)%
 Liontrust Asset Management  LIO 3.9%
 Henderson Group  HGG 6.2%
 Aberdeen Asset Management  ADN 7.9%
 Jupiter Fund Management  JUP 8.4%
 Polar Capital Holdings  POLR 16%
 Ashmore Group  ASHM 18%
 Miton Group  MGR 26%
 Schroders  SDR 34%
 Man Group  EMG 55%
 Impax Asset Management Group  IPX 59%
 Charlemagne Capital  CCAP 64%
 Median  17%
 Argo Group   ARGO 175%

It’s encouraging to see the entire sector now enjoys robust financial health. Only F&C Asset Management (FCAM:LN) is in a net debt position – all other companies sport net cash & investments on their balance sheets. But it’s also clear this healthy financial position is not the key driver of market valuations – for Argo’s peer group, net cash/investments only represents a median 17% of market cap. On the other hand, Argo’s $23.6 mio of net cash/investments amounts to a whopping 175% of its market cap.

[At Argo’s latest GBP 14p share price, net cash/investments still represents an unfortunate 160% of current market cap. To put it another way, you can now buy Argo for 62 cents on the dollar. In reality, the discount’s (far) larger – return all cash/investments to shareholders, and obviously Argo’s asset management business would continue to have some positive market value].

Asset managers would argue cash is needed for: i) financial stability & potential operating needs, and ii) potential fund seeding & investment. However, shareholder value’s obviously the over-riding priority, and asset management is ultimately a capital/asset-light business. The best metric to capture this balancing act for the sector is net cash/investments as a % of AUM:

 Name   Ticker  Net Cash/Inv as % of AUM
 F&C Asset Management  FCAM (0.1)%
 Liontrust Asset Management  LIO 0.1%
 Henderson Group  HGG 0.2%
 Aberdeen Asset Management  ADN 0.2%
 Jupiter Fund Management  JUP 0.4%
 Miton Group  MGR 0.7%
 Polar Capital Holdings  POLR 0.9%
 Schroders  SDR 0.9%
 Ashmore Group  ASHM 1.0%
 Charlemagne Capital  CCAP 1.1%
 Impax Asset Management Group  IPX 1.4%
 Man Group  EMG 2.9%
 Median  0.8%
 Argo Group  ARGO 7.2%

Argo’s net cash/investments amount to 7.2% of AUM, while the peer group works off a far leaner median of 0.8%. There’s no evidence of a size effect either – the smallest companies (MGR, CCAP & IPX) aren’t much different, with an average of 1.1%. Of course, if one briefly reviews individual manager AUMs, it’s quite clear this median level of net cash/investments has proved no deterrent to success in the sector…

There appears to be no impact on market valuations either – on average, I’d expect the sector to (generally) trade on a 2 to 3% of AUM multiple (on an ex-cash/investments basis). Here’s my latest snapshot:

 Name  Ticker Mkt Cap as % of AUM (on ex-Cash/Inv basis)
 Polar Capital Holdings  POLR 4.9%
 Ashmore Group  ASHM 4.6%
 Jupiter Fund Management  JUP 4.5%
 Henderson Group  HGG 2.5%
 Man Group  EMG 2.3%
 Liontrust Asset Management  LIO 2.1%
 Aberdeen Asset Management  ADN 2.1%
 Miton Group  MGR 1.9%
 Schroders  SDR 1.8%
 Impax Asset Management Group  IPX 1.0%
 F&C Asset Management  FCAM 0.7%
 Charlemagne Capital  CCAP 0.6%
 Median  2.1%
 Argo Group  ARGO (3.1)%

In fact, the peer group’s valued at a median 2.1% of AUM – I generally consider the sector to be cheap, and it appears to contain a number of obvious (potential) bargains. Then we have Argo – which has the singular distinction of being awarded a negative value, of (3.1)% of AUM, for its asset management business.

All in all, whichever metric you choose, Argo’s ranking is generally…well, off the charts! This prompted me to send this follow-up letter to a recent meeting with Argo:

May 31, 2013

FAO:    Andreas Rialas, CIO

Cc:       Kyriakos Rialas, CEO

Michael Kloter, Chairman

Argo Group Limited (ARGO:LN)

33-37 Athol Street


Isle of Man


Dear Andreas,

Both Guy [Thomas] & I want to thank you again for meeting with us at the end of April. I’d also like to commend you again for Argo’s admirable focus on costs & profitability in the past several years, in the face of declining Assets under Management (AUM) & performance fees. Our meeting provided welcome reassurance of your continued prudent stewardship of the company, and hopefully the H2-2012 AUM increase & your recent fund launch herald further gains in AUM. I’m now writing with a number of follow-ups:

           i) We welcome your commitment to improve the level of info. & commentary re The Argo Fund (TAF) in future Argo reporting. The current share price implies a substantial discount is being applied to Argo’s investment in TAF – shareholders will obviously welcome the improved disclosure, and I believe it should prompt a general re-evaluation of this unwarranted discount.

           ii) We also welcome your commitment to improve the level of disclosure re changes in AUM. Many of your peers now break-out Gross Subscriptions, Performance & Gross Redemptions in their AUM reporting.

iii) We are both shareholders in Dolphin Capital Investors Ltd. (DCI:LN). I’ve also been a shareholder in Third Point Offshore Investors Ltd. (TPOU:LN). Third Point LLC now has a significant 20.1% stake in Dolphin Capital, an additional investment in their convertible bonds, and they recently nominated a non-executive director to Dolphin’s board. Dolphin now intends ‘to make opportunistic investments in attractive distressed assets or other projects [‘particularly in Greece and Cyprus’] that may be NAV accretive for the Company, and which are intended to generate a significant return multiple on investment’. Bloomberg also recently reported Third Point is launching the Third Point Hellenic Recovery Fund to invest in Greek ‘event-driven corporate situations’.

Noting your own expertise & experience investing in special situations & distressed assets in the region, have you considering meeting with Dolphin Capital and/or Third Point to discuss potential business opportunities?

           iv) Argo last reported $23.6 million of cash & investments, the majority of which is invested in funds you manage. As highlighted at our meeting, you consider this financial strength & fund commitment provides valuable support in your fund-raising efforts. However, I believe this is really a ‘nice-to-have’ – in my experience, an asset manager’s investment in funds they manage is a low-priority in terms of due diligence/RFP criteria for the vast majority of clients. But that’s a subjective opinion – the peer analysis (of UK-listed asset managers, see Excel file attached) I provided at our meeting offers an objective perspective:

Within the peer group, the median level of net cash & investments as a percentage of AUM is just 0.8%. Judging by the multi-billion AUMs across the board, this level of net cash & investments has clearly proved no impediment to their success in raising funds. In contrast, Argo’s net cash & investments amount to 7.2% of AUM, more than nine times the peer median.

It’s worth noting this low level of net cash & investments doesn’t appear to have had any negative impact on valuations either. For the peer group, net cash & investments represents just 17% of market cap, and they trade at 2.1% of AUM on an ex-net cash & investments basis. Argo’s net cash & investments, on the other hand, represents 175% of market cap, while the asset management business itself trades on a negative valuation of (3.1)% of AUM.

I think most shareholders would agree this presents compelling evidence Argo could return the majority of cash & investments to shareholders, and suffer no impairment to its future fund-raising efforts. Targeting this median 0.8% of AUM, Argo could distribute (via share buyback, tender, etc.) almost 150% of its current $14.3 mio market cap. That’s a return of $21 mio to shareholders (with over a third going to you & your brother). Of course, shareholders would continue to own an asset management business with nearly $3 mio in cash & $326 mio of AUM.

Again, we ask that you & the board consider a significant return of capital to shareholders.

I’d like to thank you in advance for your consideration of this letter & contents – if you have any questions, please don’t hesitate to contact me (email: wexboymail@yahoo.com). Please note I intend to publish this letter on the Wexboy blog in due course.

Kind regards,



OK readers, here’s the peer analysis file for your reference:

UK-Listed Asset Managers – Peer Analysis     (xlsx file)

UK-Listed Asset Managers – Peer Analysis     (xls file)

[Please note individual share prices & fundamentals may have changed since this April analysis]. Now, all that’s left is for me to ask: 

If you have a direct/indirect shareholding in Argo Group (large or small), and would also like to see a substantial return of capital to shareholders, please email me at wexboymail@yahoo.com

Thank you!