Description

The thesis here is simple: a ~17.3% CAGR in TBVPS since 1/1/96 ought to be worth more than 69% of a liquid, easy-to-value TBVPS.  The same management team has essentially been in place since the mid-90s and own 56.4%. They repurchase just about all the shares they can considering the limited liquidity, and acquisitions are just not a risk – never done one, never wanted to.

Senvest was previously written-up by ele2996 on 4/24/14 at $168, or 72% of tangible book.  It’s a great writeup.

Assets in Canadian $   Estimated as of 3/31/18:

$442M in Senvest Partners Fund (plus $540M of outside AUM).  Perf: 17.9% net over ~21 years

$79M in Senvest Israel Partner (plus $70M of outside AUM).  Perf: 19.6% net over ~15 years

$666M in company owned funds – portfolio likely similar to Senvest Partners Fund

$19M in shares in fund 100% invested in the Bank of Cyprus (which is public.  Plus $7.3M outside AUM)

$58M in private REITs

-$201M in net liabilities (net of assets and liabilities outside the funds)

-$120M minority interest (R. Mashaal’s stake in the funds accumulated via his 40% of fees – more on this below)

=$943M equity attributable to shareholders  (= $344 tangible book for each of 2.726M shares)

Senvest was originally a distributor of in-store security devices founded by current Chairman Victor Mashaal.  In 1997 he let his son Richard start investing company money in a value-based small & mid-cap equity strategy. In the early 2000’s he launched a second fund to invest in Israeli equities and opened up the funds to outside money.  As you can see from the performance numbers above, Richard has done a pretty good job. Moreover, shareholders have done roughly as well as the fund’s net return - TBVPS + cumulative dividends have grown at ~17.3% annually for the past 23 years.

One reason for these results is the fact that, unlike many investment managers, a huge chunk of AUM belongs to the company, which has always been controlled by the Mashaal’s via their majority stake.  Thus they’ve been able to run a somewhat concentrated book and were able to pounce on opportunities like banks during the financial crisis.

I think management comp is reasonable given the performance, but you be the judge.  Mgmt and director salaries are pretty reasonable, but there are 2 additional things that can result in a big payday for these guys.  First, Richard Mashaal get 40% of management and performance fees on outside money (that’s on $544M = the $617M outside AUM above less ~74M that doesn’t pay any fees.)  Fee structure is the typical 1.5% and 20%. Second, there is a mgmt bonus pool comprised of A) 3.5% of pretax income, and B) up to an additional 3.5% of pretax income. The latter is based on the outperformance (if any) of company investments versus a benchmark comprised as follows: 25% S&P 500, 25% NASDAQ Composite, 50% Russell 2000.  So for example, if the composite gains 20% in a year and the company investments gain 27%, mgmt. gets the entire additional 3.5%. If they only match the composite they get none of this, and it’s prorated between 0 and 35% outperformance.

Capital allocation is good.  Senvest has never done an acquisition and mgmt. has never expressed any interest in doing so.  Senvest has not granted options since 2007, and the last of these were exercised or expired by 6/30/17.  Mgmt has been buying back and cancelling shares for many years. Notably, the sharecount has shrunk by 1.4% in each of the past two years.  In my experience, mgmt teams rarely do buybacks when shares are this illiquid (average daily volume over the past 3 months has been C$96K, but the shares don’t trade on many days.  That said, the bid/ask spread has always been reasonable in my experience.)

I’ve not noticed any style drift over the years.  I think it’s a bit hard to say whether the AUM growth has impacted performance.  On the one hand, massive AUM growth had little impact on outperformance of Senvest Partners vs the Russell 2000 through 2014.  Outperformance has been more muted in the last 3 years, but note that includes the 2015 hedge fund Annus Horribilis.

Please note that the trailing P/E of ~4 is not a great valuation metric as EPS is lumpy.

Catalyst

Richard keeps on putting up the numbers.

Share buybacks