BloombergSen: Struggling against inequality with dismal performance

BloombergSen is another fund with performance fees and issues

BloombergSen Investments, Fund

BloombergSen is much larger than I imagined: at the start of the year, it was managing $2.4 billion. By the end of the first quarter, that figure had dropped to $1.6 billion.

Lawrence Bloomberg, the founder of the last independent brokerage on Bay Street, First Marathon, has backed it (sold to National Bank in 2000). He is listed as the Chairman and Founder. That probably helps.

Lawrence Bloomberg

Here are some interesting facts about BloombergSen that I discovered:

  • The CIO is actually Sanjay Sen(and not son Jonathan Bloomberg, who is listed as CEO)
  • The partners own -10% of the assets ($160 million) (primarily, I would presume, the Bloombergs)
  • Sanjay and Jonathan were employees of Burgundy Asset Management.
  • They are mostly about US large caps, so the S&P 500 is a good benchmark
  • Their compound annual growth rate (CAGR) since inception is 5.6%. (a period covering February 2008 to the end of Q1).
  • During the same time period, the S&P 500 returned 7.9% on an annualized basis (with dividends reinvested, before considering currency impact)
  • The FX benefit was about 3% annualized, so the Canadian investor in the US index would gain close to double BloombergSen’s annualized return
  • As of the first quarter, they were down 37%.
  • Because they are true buy and hold types, I believe they will rebound in April.

There are some aspects of the firm that I like:

  • A single strategy
  • The term “independent” refers to a person who does not work for the government.
  • The average holding period is seven years

They are, however, a little too concentrated at 12-15 holdings. I do not believe they have the acuity to warrant this sort of concentration. A few years ago, they were a victim of Valeant (which might have been a 15% weight or higher around when it imploded). In the long run, twelve is probably sufficient diversification. But in the short-term, it causes needless volatility of returns.

They charge performance fees. Again, I believe this is unjustified. Alpha is razor-thin and will degrade further. Clients who waive performance fees in good times leave no cushion for bad times.

They’re also at the cheapness-obsessed end of the business investing spectrum:

“We only invest in companies that are selling for much less than our conservative estimate of their intrinsic value.”

The term “electronic commerce” refers to the sale of goods and services over the internet (or for the past 10 years for that matter). BloombergSen reported at the end of 2019 that their holdings were trading at 13 times earnings, compared to 17 times for the S&P 500.

To begin with, multiples are a fictitious construct; even discussing them is ridiculous. In terms of full discounted cash flow models, most valuation exercises are a delusion in an economy as dynamic as the one we’ve had over the last two decades.

This year, I intend to write an essay on this topic titled The Ayatollahs of Valuation or The Frog-Kissers of Graham and Doddsville, unless I can come up with a more derisive title. My favorite manager simply says, “don’t overpay,” which I believe is a good formulation. The term “electronic commerce” refers to the sale of electronic goods.

I’d like to get a closer look at what they’re up to. I need to see a winning track record of at least 10 years. CIO Sanjay Sen’s background is described as follows:

Sanjay worked for Cumberland Private Wealth Management for a year, focusing on research and analysis of US equities. From 2002 to 2006, he worked as a private investor. Sanjay worked at Burgundy Asset Management from 1996 to 2002, where he was the lead analyst on the US Small Cap Value Fund and analyzed Canadian and US companies across all market capitalizations.

Between 2002 and 2006, he must have had some truly magical numbers to persuade the Bloombergs to make him the investment brain behind BloombergSen. Even a perfect strategy is dependent on the right jockey to execute it.

The term “electronic commerce” refers to the sale of electronic goods. With this and Bonnie Bloomberg’s firm’s returns, the Bloombergs are in danger of fulfilling the shirtsleeves-to-shirtsleeves prophecy. I believe Bonnie’s company, Triumph Asset Management, has been experimenting with various products since 2004.

They rebranded twice, first as Amadeus Investment Partners and then as One Sixty Two Capital. They’re trying to reinvent the wheel, so they’re calling themselves “quants”). I think that’s quanta-crazy! You Quant Quant Quant Quant Quant There is no such thing as an an an an an an a They once had a crazy volatile base metals fund. I believe Bonnie is no longer associated with them, but I am not certain.

BloombergSen has wealthier clients with typical purchases being in the high six figures or more. It’s a small company, with only 12 employees listed on LinkedIn. The business is very salvageable, with over a billion AUM and a strategy that has some sound elements. OPM Wire, the world’s first provider of no-fee restructuring services, is ready to help.

I’m not just piling on because BloomberSen has had this drawdown. Drawdowns of up to 30% are not uncommon for this strategy. I’m concerned about the upside. The analysis would have been the same at the end of last year; they had consistently underperformed the S&P 500 while charging performance fees. No big mystery. I don’t see any rational reason to invest in this fund.

Clients should ask one simple question at the start of their relationship with a money manager: How will I know if you fail to deliver? At the very least, this makes it very easy to fire the manager. I doubt they would have said, “Over the next 12 years, we will underperform the S&P 500, delivering less than 6% annualized.”

That this non-value adding firm manages a billion-plus portfolio shows how extraordinarily inefficient the marketplace for money managers is. I told you that AirBnB and Uber were peanuts compared to an organization intent on making the marketplace for money managers efficient. Other industries use a far more effective star system. You may have noticed that Michael Jordan’s children do not play in the NBA.

On their website, they have a quote from Benjamin Graham:

“Achieving satisfactory investment results is easier than most people realize; achieving superior results is more difficult than it appears.”
This is, of course, an endorsement of passive investing. Clients can’t say they weren’t warned!

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