|Shares Out. (in M):||80||P/E||N/A||N/A|
|Market Cap (in $M):||800||P/FCF||N/A||N/A|
|Net Debt (in $M):||173||EBIT||0||0|
|Entry||04/28/2012 10:55 AM|
Although I state that AAA is a partnership, I incorrectly and sloppily write about "shares". There are no "shares", there are publicly traded "units" in the partnership. These units have no substantive voting rights. Consequently, an activist could not taker over the fund.
|Entry||04/28/2012 10:30 PM|
Sorry forsounding jaded but there is a huge universe of closed end funds of various types trading at huge discounts to NAV. Why do you believe this one is superior or worth investing in if there appears to be no catAlyst such as a liquidation, etc?
|Entry||04/29/2012 01:31 PM|
There are several reasons why this should work versus other closed-end ideas, although none of them are conclusive.
1) As described by Marc Rowan in the 2/10/2012 conference call, AAA was conceived of as a way for small investors to put money into APO's leveaged buyouts without having to go through a fund-of-funds and incur an additional level of high fees. With $1.5 billion of assets, AAA is 2% of APO's assets under management. It is not attractive for APO to have its abilities trade at a 45% discount to NAV. APO is in the business of raising funds which carry high management and incentive fees. Why have a publicly traded vehicle which trades at a 45% discount to new money investments.
2) In futherance to point # 1, most closed-end funds are managed by companies for whom the funds and their associated fees are of great importance. This is not the case with APO's management of AAA. APO's 2011 revenues were $618 million. AAA's fees to APO are nice but not significant.
3) APO, in its presentation, has established parameters for buybacks. New investments need very high expected rates of return to better the rate of return offered by buybacks at a large discount to NAV. Therefore, as long as the discount is large, I expect buybacks to continue to utilize available cash. On the other hand, if great investment opportunities arise, shareholders of AAA will participate in them at a discount to their cost. APO did not become sucessful by making mediocre or bad investments.
4) The portfolio will liquidate over time. Cash will be available for investments or buybacks. With a large discount, buybacks easily improve NAV. They are shareholder friendly. Prospective investors in APO products can see how APO investors are treated. Buybacks are good for APO's business.
5) The people at APO are smart. They own about 8,000,000 shares of AAA worth $80 million at market and $152 million at NAV. Increasing NAV and narrowing the discount is a pretty easy way to make money. As rich as the principals of APO are, $72 million is a lot of money.
6) I think that Athene may be a very good investment. As the liquidation of other positions occurs, and if the proceeds are used for buybacks, the Athene position becomes even more meaningful. I like getting a leveraged position in Athene by buying AAA at a discount to NAV and a decreasing share count. I would be happy if all the other positions were liquidated and the proceeds used for share repurchases.
7) Every dog has its day. The last 5 years have been brutal for the LBO business. At some year in the future, investors might actually want to own an LBO fund at NAV or even a premium to NAV. Stranger things have happened.
8) Nothing is ever certain. The best that I can do is try to get the odds of sucess stacked in my favor. I think that AAA at a 45% discount to NAV does that.
I hope that this answers your question. Let me know if it does not, and I will try harder to do so.
|Subject||RE: fair value|
|Entry||05/03/2012 01:36 PM|
I thinks that the odds are that they are "fair". Here is the volatility of NAV over time.
3/31/07 - $22.06
3/31/08 - $20.73
3/31/09 - $7.30
12/31/09 - $13.65
3/31/10 - $14.81
12/31/11 - $16.41
Clearly, they change their marks. In considering the above, it is important to remember that since 2009, debt has been reduced by $500 mil, the Athene investment increased by $200 mil, $100 mil spent on share repurchases, and another $50 mil share repurchase on offer. Real money has moved around, and all of it has gone into lower risk investments or out of the fund.
I believe that closed-end funds that are raising capital may have a desire to mark their portfolio as high as possible, particularly when the fund is a major source of income to the manager. Here that is not the case. AAA is 2% of APO's assets under management. The fees from AAA are about $17 mil out of $620 mil. of fees that APO took in last year. APO, as manager, is actively reducing its fees by repurchasing shares. As I stated in my write-up, if you are in the business of raising 2% & 20% money, why have a vehicle in the market that trades at a 40+% discount to NAV.
Everything in the fund, with the exception of Athene, is being liquidated. All of the Capital Markets investments have been substantially reduced and are scheduled for full liquidation. Of the $903 mil of private equity on 12/31/2011, $303 mil was in listed securities, $295 was in securities with S-1s outstanding (this includes $80 mil of Rexnord stock which has since gone public), and only $276 mil was held in a still private equity. As a consequence, the vast majority of the portfolio is pretty easily valued.
Last, the principals of APO, Leon Black, Josh Harris, and Marc Rowan, hold well over $1 bil of APO stock at current market. The largest outside investors in APO are CALPERS and the Abu Dhabi Investment Authority. APO is not a rinky-dink firm, and I do not think that they have any interest in fudging the numbers at AAA and risking their francise for an insignificant amount of money.
|Subject||Upcoming Spin-Off of Athene?|
|Entry||08/02/2012 03:39 PM|
Ele - what do you make of their talk on the call about the Athene spin off? Seems like if Athene trades where they are marking it the remaninder of AAA would have a substantially larger discount to the NAV - and much more so if they contribute assets pre-spin.
Back of the envelople math looks like if they achieve their current p/b multiple in trading and contributed their direct capital markets positions they could get ~9 or 10 per share just for the spun out asset (with very large leftover portfolio).
|Subject||RE: Upcoming Spin-Off of Athene?|
|Entry||08/03/2012 02:31 PM|
I have no idea what AAA will do with Athene, and I suspect that management does not either. They will take the most profitable route when they feel the time is appropriate.
The big news is that they are acquiring Presidential Life (PLFE) for $415 million. PLFE is smallish annuity underwriter. AAA is paying $14.00 a share. PLFE has a book of $28.00. If AAA can increase the earnings on the PLFE book, there is excellent leverage on the upside.
It is interesting to note that AAA's investment in Athene was almost complete when the 2011 financials were published. The PLFE deal is a major increase in the size of Athene and represents a very opportunistic investment.
AAA's June 30,2012 financials have just been published. I will review them and post any thoughts that I have.
|Subject||RE: Upcoming Spin-Off of Athene?|
|Entry||08/04/2012 03:58 PM|
I have lightly gone through the June 20,2012 financial report.
NAV per share was $18.88. With the stock at $11.05, the discount to NAV is 41%.
As expected, there were a number of sales and liquidations in line with their stated objectives. Shares outstanding were reduced to 80 million from 90 million, borrowings were reduced to $360 million from $402 million while cash and equivalents declined by only $10 million to $220 million from $230 million. Net assets, due to better market conditions, increased from $1.503 billion to $1.539 billion. This is really very good progress in my view.
There was one new investment - GA Data Holdings which is a real estate joint venture redeveloping a data center in the UK. AAA invested $4.1 million in the venture so far and has committed to invest another $3 million, so it is quite a small position. Interestingly, AAA is to receive a 15% preferred return before Apollo's carried interest kicks in.
Under "Subsquent Events", the BOD authorized the repurchase of up to $50 million of shares in the open market. The authority is good through June 30, 2013.
The remaining committment for funding Athene is listed at $42.857 million. However, on July 13, 2012, it was announced that Athene Holding is to acquire Presidential Life (PLFE) for $415 million. Book value for PLFE was $797 million on March 30,2012 so the purchase is for about 50% of book. Clearly, this is a major change of plans. So far, I have not seen any news from AAA on how the purchase will be funded. The deal is not contingent on financing and is expected to close before the end of the year.the transacion is not addressed in the "Subsquent Events" section of the June 30 report.
PLFE has a $3.8 billion portfolio which produced $46.5 million of investment income for the 3 months ending March 31,2012 - 4.85% on an annualized basis. I believe that the Athene management should be able to improve upon that return. Certainly, the purchase of an annuity insurer at 50% of book should provide Athene with a opportunity. It will take a couple of years for results. However, this purchase will provide AAA with an excellent investment opportunity as it liquidates its mature portfolio.
|Subject||RE: RE: Upcoming Spin-Off of Athene?|
|Entry||09/18/2012 01:32 PM|
The purchase of PLFE is a twist, from my understanding of your initial thesis. Have your views of the PLFE investment developed since your Aug 4 message?
Is it reasonable to conclude that Apollo believed that PLFE at 50% of book presented a higher risk-adjusted return than AAA at 55-60%? If that were the case, it would surprise me based on what I know of both, so I'm curious about the incentives involved.
The discount to NAV has closed recently, is there any reason other than the market anticipating that NAV has appreciated?
Thank you for the idea and for your follow up messages.
|Subject||RE: RE: Update / Athene?|
|Entry||02/26/2013 03:29 PM|
Urban and lvampa1070, I apologize for the delay in updating.
As you no doubt know, AAA has had a transformative change. In Oct AAA agreed to contribute all of its assets to Athene. The securities were transferred to Athene at 77.5% of their 8/31/12 valuation. AAA received 48.3 mil shares of Athene, $82.9 mil of cash, and a note for $115 mil. AAA then paid off all of its debt and has commenced a tender for $100 mil of its stock at a price of $15 to $16 a share. The tender is scheduled to close tomorrow but has been extended several times. At the conclusion of the transaction, AAA owned 77% of Athene. AAA is expected to pursue all of its options in regard to the disposition of its shares of Athene including a distribution of the shares through a tender offer for AAA shares, sale, or merger.
Athene, after the above transaction, had $11 bil of assets under management and $1.5 bil of capital. The assets are high grade, rated 1 & 2 by NAIC.
On Dec 21 Athene announced that it was purchasing the US life and annuity businesses of Aviva PLC. These businesses have $56 bil of assets under management. The purchase price is $1.55 bil which is about 60% of statutory capital surplus. To finance the transaction Athene raised $621 of new capital. The combined companies will have $3.5 bil of statutory capital and $67 bil of assets. The cost of these assets (what the insured gets) is estimated to be 3.5% - 4% while Athene has been able to get investment returns of 5.5% - 6%. That is a very profitable spread on a sizable chunk of business which is leveraged.
After the last capital call, AAA owns 72% of the stock of Athene.
Interest rates are as low as they have ever been. It is extremely difficult for traditional money managers to get a high enough rate of return on their assets to stay in business. As a result, Apollo, Guggenheim and other non-traditional managers have been purchasing companies which have assets tied up for a long time
AAA stock is $16.00. Its book value on 12/31/2012 was $20.73, so it is trading at a 22.8% discount to book. If and when rates ever rise, Athene should make a lot of money. Until then, they will be making a good deal of money and positioning themselves for the future.
Hope that this helps.
|Subject||RE: RE: RE: RE: Update / Athene?|
|Entry||05/02/2013 01:33 PM|
I did not know the answer to your question, so I did not try to answer it. Happily, the answer is contained in the April 19th issue of Grant's Interest Rate Observer. At the Grant's Spring Conference Jody LaNasa of Serengeti Asset Management made a presentation on Apollo Global Management (APO) and AP Aternative Assets (AAA NA) / Athene. He is bullish on both. I'll quote Mr. LaNasa here:
"now this is where insurance company accounting comes in," LaNasa went on. "These purchases - at large discounts to book value - will more than double Athene's book value to $3.5 billion without Athene having to issue any more equity. Let's talk about that. Why is that? One is the bargain purchase-price discount, and two is because of a complicated insurance law that allows you, the acquirer of these assets, to recognize unrealized gains in the acquired investment portfolios that the seller is unable to recognize.
"By buying AAA, how cheaply are you creating Athene (AAA NA)? Today, before the Aviva transaction closes, AAA trades around $17 to $18 (now $20) a share and the NAV of Athene was valued at book value today at about $21 a share. So you are creating it at about a 15% (now 5%) discount to its business before folding in the Aviva transaction. When you fold in the Aviva transaction and the accretion to book value, it creates for Athene and, hence, for AAA if Athene was just to trade at book value, it would be worth $35 per share. Pro forma the Aviva transaction , Athene will be earning about $6 of EPS. That means that looking through Athene, which is a different price than AAA, you are creating Athene at $35 per share at only five times earnings, and it is growing faster than its peers and earning a lot more than them. If Athene were to be worth 1.5 times book value, which by the way is only seven times earnings multiple, then the stock would be worth $47 per share before factoring in any growth in earnings, and again you are creating it at $17 (now $20). I am buying something at $17 or $18 (now $20) that arguably is worth more than $47 in two years when this gets listed on an exchange. Seems pretty interesting."
Hope that this helps.
|Subject||RE: RE: RE: RE: RE: RE: Update / Athene?|
|Entry||05/17/2013 01:33 PM|
Sorry that it takes me so long to make a reply.
Some years ago I was on the BOD of a small P&C company. We had a great CEO who really knew how to write business, and we never had worse than a 90% combined ratio. It was a great business but was not scalable so we merged it into another company who could better use our earnings. In looking at the insurance industry, I realized that for all the companies in the field, there were very few who knew how to make money. Interestingly, it seemed to me that the few really good businesses in the insurance area were all dominated by a single really smart individual. Peter Lewis at Progressive knew how to distribute auto insurance in a novel manner and achieve cheap distribution. Prem Watsa at Fairfax writes risk well. Hank Greenberg made (for a while) AIG into a global giant. The management at Markel has done a great job.There maybe others. Of course, no one ever combined investing and insurance as well as Warren Buffet, and he stands out as unique even in this small group. In looking at the industry, it occurred to me that the business was like a giant card game and only a very few players get to the finals table. Apollo is a pretty smart group of guys. In the LBO business, they are among the best. I think that they can play cards with about anyone, buy it remains to be seen.
Book Value - It is nice that the discount purchase of Aviva will flow through to book value, but I view it as cosmetic as it is important only to the regulators. What is important is what is earned on book. The equity of AAA will be highly leveraged after the Aviva purchase. If the AAA management can earn a very good rate of return on the portfolio, the reported earnings and cash flow will be significant. If Mr. LaNasa is correct and AAA reports $6.00 of EPS, the stock will trade up if investors believe that the earnings stream is permanent whatever book value is as an accounting function.