SEC - Senvest Capital

[misterkrusty]

Schwab - from the Senvest Master Fund filing as of 2/16/16, those positions total about 14% of the total.  Not enough to extrapolate, even if that 13F listed every long they own.  Foreign-listed stocks are not required to be disclosed on a 13F, so there could be more longs we don't know about.  And again, we don't know what the short book looks like. 

[randomep]

ok Hielko- 

 

if you want to cite specific examples of excessive comp and explain clearly why it's excessive, I'll gladly listen and respond.  Otherwise I've got better things to do.

How hard is it to understand that if you pay 5%+ of NAV annually in fees, salary, etc that you are paying an excessive amount?!?! I rather pay 2+20, and that is actually a fee structure that is excessive for almost every hedge fund manager except for the very best...

 

 

 

Where do you get the 5% from? Look at the annual report, there is no part of it

that pays 5% to RIMA.

 

2014 was a good year so you are saying that RIMA would get 5%?

 

From the 2014 annual report:

 

The Company consolidates the RIMA Senvest Mangement LLC,

entity that serves as the investment manager of Senvest Partners

and Senvest Israel Partners. The portion of the expected residual

returns of the entity that does not belong to the Company is

reflected as non-controlling interest on the statement of financial

position. This non-controlling interest is owned by an executive

of the Company and totalled $83.7 million as at December 31,

2014 from $64.9 million as at December 31, 2013.

 

 

So if RIMA which is Mr. Mashaal, is taking 5% or anything close to that we should see abnormal growth in the statement of change in equity.

 

2013 equity:

minority: 64.9, shareholders: 565

2014 comprehensive income: minority: 30, shareholders: 170

distributions: minority: 11, shareholders: 0

 

 

So: 64.9 + 30 -11 is how you get the 2014 minority interest at 83.7

and 565 + 170 = 738 is the shareholders equity.

 

So if RIMA didn't get any fees they would expect gains that are in porportion to the 2013 equity ratios: 564/64.9 = 8.7. But comprehensive income ratio: 170/30 = 5.7. Ok it seems like RIMA got more than it porportion, but how much? ok, 170/19.5=8.7, so 19.5 seems right, so it looks like RIMA got about 11M more than its share, that's its 40% share of the fees.  But 11M out of

total NAV about $1.4B is 1%. And there is 31M of employee expense.  So overall,

it is about 4% for all the employees on a year when the fund gained 20%.

 

Seems like shareholders and fund holders are both pay about 1.5/20 fees.

 

But of course the shareholders are paying 53% of equity.

 

 

 

[Guest Schwab711]

Schwab - from the Senvest Master Fund filing as of 2/16/16, those positions total about 14% of the total.  Not enough to extrapolate, even if that 13F listed every long they own.  Foreign-listed stocks are not required to be disclosed on a 13F, so there could be more longs we don't know about.  And again, we don't know what the short book looks like.

 

http://www.nasdaq.com/quotes/institutional-portfolio/senvest-management-llc-675634

 

As you mentioned, we don't get to see the foreign investments or short positions.

[Hielko]

ok Hielko- 

 

if you want to cite specific examples of excessive comp and explain clearly why it's excessive, I'll gladly listen and respond.  Otherwise I've got better things to do.

How hard is it to understand that if you pay 5%+ of NAV annually in fees, salary, etc that you are paying an excessive amount?!?! I rather pay 2+20, and that is actually a fee structure that is excessive for almost every hedge fund manager except for the very best...

 

 

 

Where do you get the 5% from? Look at the annual report, there is no part of it

that pays 5% to RIMA.

 

2014 was a good year so you are saying that RIMA would get 5%?

 

From the 2014 annual report:

 

The Company consolidates the RIMA Senvest Mangement LLC,

entity that serves as the investment manager of Senvest Partners

and Senvest Israel Partners. The portion of the expected residual

returns of the entity that does not belong to the Company is

reflected as non-controlling interest on the statement of financial

position. This non-controlling interest is owned by an executive

of the Company and totalled $83.7 million as at December 31,

2014 from $64.9 million as at December 31, 2013.

 

 

So if RIMA which is Mr. Mashaal, is taking 5% or anything close to that we should see abnormal growth in the statement of change in equity.

 

2013 equity:

minority: 64.9, shareholders: 565

2014 comprehensive income: minority: 30, shareholders: 170

distributions: minority: 11, shareholders: 0

 

 

So: 64.9 + 30 -11 is how you get the 2014 minority interest at 83.7

and 565 + 170 = 738 is the shareholders equity.

 

So if RIMA didn't get any fees they would expect gains that are in porportion to the 2013 equity ratios: 564/64.9 = 8.7. But comprehensive income ratio: 170/30 = 5.7. Ok it seems like RIMA got more than it porportion, but how much? ok, 170/19.5=8.7, so 19.5 seems right, so it looks like RIMA got about 11M more than its share, that's its 40% share of the fees.  But 11M out of

total NAV about $1.4B is 1%. And there is 31M of employee expense.  So overall,

it is about 4% for all the employees on a year when the fund gained 20%.

 

Seems like shareholders and fund holders are both pay about 1.5/20 fees.

 

But of course the shareholders are paying 53% of equity.

Now, but they have to pay the employee expenses and other fees.

 

Total expenses in 2014: 31,616 (employees) + 62 (shares) + 7,572 (transaction costs) + 10,316 (other operating expenses) = 49,566 in total costs. And don't forget income tax expense of 21,274 as well for total running costs of: 70,840!

 

Average equity in 2014 was: (738,006 + 565,057) / 2 = 651,531

 

Total expense ratio (excluding interest expense) is 70,840 / 651,531 = 10.8%

 

If we (extremely naively!!!!) assume that 50% of those costs are shared with outside investors you are already looking at an expense ratio of mare than 5% which is EXTREMELY HIGH.

 

But in fact it is a lot higher, but unfortunately it is a bit difficult to calculate it exactly since they don't disclose anymore how much management fees they receive from outside investors. But we can take an sloppy guess. Equity of the parent would have increased by (821,740+31,616) / 630,362 - 1= 35.4% if they wouldn't have had employee expenses (other costs are mostly shared I think, and Victor doesn't have to pay the 2+20 management fees himself). If non-controlling interests would have increased with the same 35.4% it would have gone from 65,305 to 88,422 which is actually more than the reported 83,734 which implies to me that the amount of management fees received most be quite small.

 

But perhaps you can pinpoint this number in more detail for me!

 

But no matter how you are going to slice and dice it, I don't think it is possible to get an expense ratio lower than 7% for 2014.

 

I actually calculated these numbers for 2012 and 2013 on my blog, and found a 5.2% and a 7.0% expense ratio (and looking back I actually seem to have missed the tax costs!!). See: http://alphavulture.com/2015/03/05/senvest-invest-in-a-great-hedge-fund-at-a-big-discount/

 

Senvest is just a terrible structure IMO that deserves to trade at a huge discount

[randomep]

But in fact it is a lot higher, but unfortunately it is a bit difficult to calculate it exactly since they don't disclose anymore how much management fees they receive from outside investors. But we can take an sloppy guess. Equity of the parent would have increased by (821,740+31,616) / 630,362 - 1= 35.4% if they wouldn't have had employee expenses (other costs are mostly shared I think, and Victor doesn't have to pay the 2+20 management fees himself). If non-controlling interests would have increased with the same 35.4% it would have gone from 65,305 to 88,422 which is actually more than the reported 83,734 which implies to me that the amount of management fees received most be quite small.

 

But perhaps you can pinpoint this number in more detail for me!

 

But no matter how you are going to slice and dice it, I don't think it is possible to get an expense ratio lower than 7% for 2014.

 

 

You didn't read my post because you didn't account for $11M that Victor Mashaal took from the company as distributions.  It's all there in the financial statements.

 

Your calculations are missing the minority interest share. The minority interest has to pay its share of the rent and bloomberg terminals. 

 

I don't know where your coming from, but in a year where the NAV went up by 35% hedge fund holders would have to pay 8.5% anyway. If you are not happy with the HF structure then that's a separate topic you can pick on the pershing square thread.  They have some $20M in non-employee costs because they trade often and probably pay the highest rents in NY. But I am only responding because there because you seem to think there is misaligned interests, well then by that argument any HF has misaligned interest.

 

 

[writser]

@Hielko: both taxes and employee compensation depend on performance. You are comparing a year in which their flagship fund was up 22% after fees to a flat cost structure. Apples vs. oranges. For 2015, a year in which the fund was down, expenses were 38m using your methodology. Let's say that equity holders bear 75% of these costs - then you are looking at a flat fee of 1.9% over average equity. The employee performance bonus (and taxes, more or less) are defined as a variable percentage of comprehensive pretax income - they only get a big bonus if shareholders make money.

 

I should probably make some corrections for the minority interest but the accounting is a big clusterfuck and I'm too lazy to dig into it at the moment. It's just not as bad as you make it sound. Whether the current structure is fair or not is another question.

[oddballstocks]

Schwab - from the Senvest Master Fund filing as of 2/16/16, those positions total about 14% of the total.  Not enough to extrapolate, even if that 13F listed every long they own.  Foreign-listed stocks are not required to be disclosed on a 13F, so there could be more longs we don't know about.  And again, we don't know what the short book looks like.

 

There used to be a shareholder who'd email out the monthly letter that had a LOT more details on all their holdings.  The company found out about this and told them to stop.  It was good while it lasted..

[randomep]

 

 

For your interest, the following is a Q&A with a long short fund manager...... gave me a bit more insight into what Senvest could be doing

 

[Guest Schwab711]

But I am only responding because there because you seem to think there is misaligned interests, well then by that argument any HF has misaligned interest.

 

Don't mean to speak for Hielko, but that is exactly what I'm arguing. I think it's a major flaw in the publicly-traded HF stocks. I'll let the argument go unless someone is interested in defending publicly-traded HFs. Good luck with this investment.

[randomep]

 

 

Yesterday, the company website reported the master fund is down 4%, yet the stock is holding up at CDN$142. In fact it has unusually high volume.  Am I missing something or is this just the madness of the market.

[Hielko]

You're missing that it is possible to reasonable estimate the performance of their fund real-time, so no surprise.

[randomep]

You're missing that it is possible to reasonable estimate the performance of their fund real-time, so no surprise.

 

You are wrong. I did consider that and I have the data to estimate it myself.

 

The volume and the spike indicates something, something is a surprise which surprises me.  For 2 days before and after the news, the volume is 10x the average. Now the spike is undone. It is back to about CDN$136. Maybe the volume data is false!

 

 

[writser]

Decent update by Andrew Walker: http://www.yetanothervalueblog.com/2018/05/senvest-could-be-hitting-inflection.html . Andrew correctly points out that over the past few years shareholder equity has risen (from 738m in 2014 to 956m in the MRQ) and external capital has grown as well (from 541m in 2014 to 932m in the MRQ) so in theory fixed costs (as a percentage of equity) should go down - if they brothers don't start paying themselves much more.

 

Anyway, I'm not sure I am entirely convinced yet (the 60% of 1.5% doesn't move the needle super hard and I think their fixed costs are increasing as well) but it's a good read. Still any holders here who want to chime in?

[Foreign Tuffett]

Decent update by Andrew Walker: http://www.yetanothervalueblog.com/2018/05/senvest-could-be-hitting-inflection.html . Andrew correctly points out that over the past few years shareholder equity has risen (from 738m in 2014 to 956m in the MRQ) and external capital has grown as well (from 541m in 2014 to 932m in the MRQ) so in theory fixed costs (as a percentage of equity) should go down - if they brothers don't start paying themselves much more.

 

Anyway, I'm not sure I am entirely convinced yet (the 60% of 1.5% doesn't move the needle super hard and I think their fixed costs are increasing as well) but it's a good read. Still any holders here who want to chime in?

 

Don't they need to perform pretty well for the return on equity to even approach 10%? What would the ROE look like if you assume (1) outside AUM remains at the current level and (2) the fund's future performance matches the long term S&P 500 average? Probably not that great. Of course, at 2/3 of TBV I guess ROE doesn't have to be exceptional for the investment to work out well.

 

There's also the "active manager investing in an active manager" issue. Senvest's performance as a business will probably largely correlate to an investor's "business" of trading publicly listed investments. In other words, if your portfolio is down big one year, there's a good chance Senvest's intrinsic value will be down big too. I think this makes portfolio and risk management problematic.

 

 

[writser]

Yeah, hard to figure out baseline expenses .. In 2015 employee costs and other operating expenses were 28m and they had a 6m tax expense. During the year their master fund was down 17%. Also, they stated that recently they have incurred higher fixed costs due to expansion in the US. So I'd say fixed expenses are around 30-40m. Fee income could be 10m this year if I'm generous. So, fixed costs are roughly 3%? Not sure what variable costs would be long-term. This is all super ball-park and I could be off.

 

There's also the "active manager investing in an active manager" issue. Senvest's performance as a business will probably largely correlate to an investor's "business" of trading publicly listed investments. In other words, if your portfolio is down big one year, there's a good chance Senvest's intrinsic value will be down big too. I think this makes portfolio and risk management problematic.

 

Indeed. Not a 'robust' investment, but a 'win more' investment.

 

I don't have a position but I owned some shares in the past and I still can see this being attractive given their historical returns and the discount to book.  On the flip side I have some doubts about their ability to generate alpha going forward (and they need to generate quite a bit of it for shareholders to be better off than owning an index fund). Are they really good? Or just basically leveraged long small caps? Also, they're getting bigger. For now I'm on the sidelines. Maybe I'm too skeptical about their abilities but that's an error I don't mind making that much.

[oddballstocks]

Yeah, hard to figure out baseline expenses .. In 2015 employee costs and other operating expenses were 28m and they had a 6m tax expense. During the year their master fund was down 17%. Also, they stated that recently they have incurred higher fixed costs due to expansion in the US. So I'd say fixed expenses are around 30-40m. Fee income could be 10m this year if I'm generous. So, fixed costs are roughly 3%? Not sure what variable costs would be long-term. This is all super ball-park and I could be off.

 

There's also the "active manager investing in an active manager" issue. Senvest's performance as a business will probably largely correlate to an investor's "business" of trading publicly listed investments. In other words, if your portfolio is down big one year, there's a good chance Senvest's intrinsic value will be down big too. I think this makes portfolio and risk management problematic.

 

Indeed. Not a 'robust' investment, but a 'win more' investment.

 

I don't have a position but I owned some shares in the past and I still can see this being attractive given their historical returns and the discount to book.  On the flip side I have some doubts about their ability to generate alpha going forward (and they need to generate quite a bit of it for shareholders to be better off than owning an index fund). Are they really good? Or just basically leveraged long small caps? Also, they're getting bigger. For now I'm on the sidelines. Maybe I'm too skeptical about their abilities but that's an error I don't mind making that much.

 

I owned it, made money, then got out.  BUT... it's something to keep an eye on.  If this fell a lot in a downturn I'd probably pick up shares again.

 

I agree on compensation and fixed costs.  I'm not entirely convinced that the accounting change was regulatory only, it really obscured what they're doing, and that's to the brothers' advantage.

 

This is a "buy low, sell high" type investment.  If you are willing to jump in and out there's money to be made, but I wouldn't be a long term holder.

[writser]

Senvest going activist:

 

https://www.prnewswire.com/news-releases/senvest-management-sends-letter-to-nre-board-of-directors-300718305.html

[Hielko]

They should try going activist on their own company...

[writser]

Heh, true, I was thinking the same thing. It's ironic that most of the issues they have with NRE also apply to Senvest:

 

- trades at a significant discount to NAV for many years.

- lacks scale: G&A expenses exceed peers.

- reliance on an external manager: Richard Mashaal taking home 40% of all fee income.

 

As a result, we believe that the Board should immediately change its "investment guidelines" as established under the terms of the Management Agreement and begin selling assets and return the net cash proceeds to investors by way of stock buybacks or dividends.

 

[..]

 

Of course this strategy will cause the total NAV of NRE Senvest to decline over time.  Under the Management Agreement, CLNY Richard Mashaal earns a management fee based on the Company's aggregate net asset value.  Since the net asset value would eventually decline to zero in this strategy, the management fee paid to CLNY Richard Mashaal will similarly decline to zero over time.  As a result, CLNY Richard Mashaal may not support this approach [..]

[no_free_lunch]

Does anyone have an estimate of current NAV?  I don't think they report annual results for another month.  It seems possible they are quite undervalued right now.  I haven't crunched all the numbers but they are heavily invested in US small caps and they have bounced back nicely.  I think they are around 1/2 of NAV, maybe even below that.

[no_free_lunch]

This is old news but Senvest reported Q1 earnings awhile back.  They reported earnings of $20/share and are now sitting at just over $900M book or around $340/share vs today's price of ~$170.

 

There lay out their thesis on a few small caps.  This includes VAC which is their largest holding. 

 

Relatively new core holding,timeshare operator Marriot Vacations (“VAC”),has become our biggest position. It  was  also  our  largest  gainer  for  the  quarter  rising  over  30%.VAC  is  the  exclusive  worldwide  developer, marketer, seller and manager of timeshare resorts under the brand names Marriott and Ritz-Carlton Destination Club.  The company was spun out of Marriott International (“MAR”) in November 2011 and in September 2018 completed a transformational merger with a former core holding, ILG, Inc (“ILG”).  This merger added the Westin,  Sheraton  and  Hyatt  brands  to  create  the  largest  portfolio  of  upper-upscale  and  luxury  brands  in  the timeshare industry, in addition to the second largest exchange network in the world, Interval International.With a combined loyalty program of about 100 million members, on a unified basis with ILG, VAC now has a better opportunity  to  penetrate  this  customer  base  further  as  it  has  a  combined  membership  of  only  about  2  million following the ILG deal.

 

https://www.senvest.com/documents/FG/senvest/reports/597385_Senvest_Capital_Final_English__Mar_31__2019_May_13_2019.pdf

[writser]

Had a quick peek at this today. Their holdings are down ~10% in June. I peg 'live' book value around C$300. Today's price of C$168 implies a discount of ~43%. Huge, but pretty much in line with where this has traded the past few years. Also note that the master fund is pretty much flat since the beginning of 2014. That stretch is getting a bit embarrassing. Senvest shares are still trading at 2014 levels too.

 

Whether the current discount is justified or not is an interesting question that has been discussed at length in this thread. I tend to think it is maybe a bit too large but a wide discount is justified given the fee structure and tax- and corporate overhead. I also have my doubts about their ability to generate significant alpha. I'll keep following Senvest but I'll pass for now. If you believe they can make 20% p.a. and will attract lots of external money it is obviously too cheap. Andrew Walker made a good argument for the bull case (link). I'm a perennial pessimist though.

 

As has been mentioned before, these guys should go activist on themselves rather than on their portfolio companies. But apparently they don't give a shit about how their own shares are trading and they write angry letters complaining that their portfolio companies are trading at a 40%+ discount to NAV and should fire their external manager and liquidate while their own vehicle is suffering from exactly the same problems. They don't exactly practice what they preach ..

[no_free_lunch]

A late response but I tend to agree writser.  Still, I watch them and hold a small position.  They have generated alpha in the past maybe they will again and at that point perhaps the discount closes.

 

I have to say their performance since Q4 2018 has been horrible.  They just posted earnings and I don't think they are back to where they were a year ago.  I think they are basically just tracking small cap indices.  They have a large short position but it didn't seem to help at all so I have to question the benefit.

 

Below is a link to the latest earnings release.  $8 per share in earnings for the Q ended sept 30.  Not bad but I still don't think they achieved alpha.

 

https://www.globenewswire.com/news-release/2019/11/12/1945798/0/en/Senvest-Capital-Inc-Reports-Results-for-the-Third-Quarter-Ended-September-30-2019.html

[given2invest]

I bought some of this in December.  They had a very good Nov and Dec and I estimate book value now >360 so it's trading at 50% TBV which is the most it's ever traded at before last year.  Usual discount was 25 to 40%.  If they put up a good 2020 they will be above high water mark too (I think just need 10% more from here or so). 

 

Not hard to see this stock at 250 pretty quickly.

[writser]

I looked at it on and off over he past few years. I have this record of historical discounts (approximations using Google sheets):

 

9-Apr-2015 45%

21-Apr-2015 42%

19-May-2015 37%

10-Jul-2015 35%

27-Aug-2015 40%

10-Dec-2015 43%

31-Mar-2016 46%

27-Mar-2017 43%

31-Mar-2017 47%

29-May-2018 41%

4-Jul-2019 44%

10-Jan-2020 50%

 

Regarding your usual discount: are my numbers off or are you looking at a longer timespan? I agree that the discount is on the high side but I don't find the 'discount closing thesis' super compelling. It strikes me as wrong that these guys pretend to be activists while they seem to absolutely not give a fuck where their own shares are trading. Ok, ok, they do a few small buybacks. Maybe I am being too negative. I see your thesis but I find it hard to get super excited.

 

I assume you saw the Andrew Walker blogpost from a while ago? Decent bull case.