Friday, February 15, 2013

Artio Shows You The Assets

Four short months ago, Artio was discussed on this site as a potential value investment. As the stock continued to fall, three short months ago I tweeted the following:

"Cash-flow positive money-manager Artio now trades for LESS than its net cash and investments"

One short day ago, Artio accepted an offer to be bought out for almost 15% more than its book value, which is about 50% higher than where it was trading at the time of the tweet. This was a kind of situation from which only a value investor could make money, thus offering a few lessons.

1) Assets Matter

Artio's business was going nowhere. Profits were barely postive, as clients continued to withdraw money and lose money due to poor financial performance. But what Artio did have was assets, which Mr. Market in his quest for earnings consistently ignores. Following the article in which I stressed Artio's liquid assets which were in excess of the company's market value, here is a sample of some of the comments I received:

"Is this not cash that investors can withdraw at short notice, if so it is pointless considering it as an asset."

"Declining AUM and according to their strategy in the international equity fund I don't believe it will produce great return"

"Any idea on what a catalyst might be for...a return to profitability?"

2) Falling Knives are okay!

Artio's business was performing poorly, but it's share price was falling even faster. Considering its assets were staying relatively stable, this resulted in a continually improving valuation. Mainstream investors avoid situations where price is falling, but to me it is because they are mistaking price for value. Artio's value was not falling at nearly the rate as was its price, and therefore investors willing to catch this falling knife made out like bandits in a very short time period.

3) You Don't Need A Catalyst

Once a catalyst is present, the value is mostly gone. At the same time, sometimes price is its own catalyst. If you focus on buying a business for less than its worth, you remove a lot of the subjectivity and risks inherent in buying securities with potential catalysts.

Artio becomes the latest company to join the Value In Action page. Enjoy the market's rise; it won't last forever!

Disclosure: No position


Anonymous said...


Disclosure: No position
Why you sold if it's cheap ?

Saj Karsan said...

Hi Anon,

I sold it yesterday after the buyout offer. The value has been realized.

Anonymous said...

I think that Artio has $140 million in cash, hardly any debt, and they are selling to Aberdeen for $175 million. So, they are selling the company for effectively $35 million. Artio has AUM of $14 billion. So Artio is effectively selling for 0.25% of AUM. I know that AUM has continued to decrease. However, do you think that the value has been fully realized? Are you happy with this deal price?

bjsubbs said...

October 24 the stock was at around $2.30. Even with two dividends that's still like $2.22. How is the appreciation 50%?

Saj Karsan said...

Hi Anon2,

It may have sold for too low from that perspective, but of course the firm is also losing money as clients run away, and yet is getting a premium to book value. To answer your question, I am relatively happy, but only because I bought very low and added as it fell to its bottom. If I bought from a higher price, I would probably feel that value wasn't realized. Separating emotion from evaluating what's fair isn't easy!

Hi bj,

The 50% was calculated from mid-Nov, at the time of the tweet (as per the article), when shares were down below $2.

Anonymous said...


I am wondering, Has a publicly traded U.S. mutual fund asset manager ever sold for less than 1% of AUM? Has a publicly traded U.S. mutual fund asset manage of that size ($14 billion AUM) ever closed or gone bankrupt. I have heard of hedge funds closing, but never mutual fund asset managers. My basis was $4.25. I am not happy with the sales price. I could not really average down much more without the position becoming too big. I feel like remaining independant and having AUM at $7 billion in ten years would be a better result than selling now. Just my two cents.

Thanks for writing these articles. I enjoy reading what you have to say.

anon2 :)

Saj Karsan said...

Thanks, Anon2!

There are many who believe that industry is not going to see the type of fee structure it has in the past, and hence doesn't command the kind of price premium you would like to see. I don't know whether that's true or not, but I understand why you are frustrated.

bjdubbs said...

Yeah, saw that. Thanks

John Huber said...

Excellent post Saj. I think the same thing regarding catalysts. Much of the investment world overhypes the need for a catalyst, when sometimes value is its own catalyst.