International Assets Holding Corporation F1Q09 (Qtr End 12/31/08) Earnings Call Transcript

International Assets Holding Corporation (IAAC)

F1Q09 (Qtr End 12/31/08) Earnings Call Transcript

February 10, 2009 4:30 pm ET

Executives

Scott Branch – President

Sean OConnor – CEO

Brian Sephton – CFO and Treasurer

Analysts

Graham Ryan [ph]

Jeremy Hellman

Steven Spark [ph]

Presentation

Operator

Good afternoon. My name is Patricia and I’ll be your conference operator today. At this time, I'd like to welcome everyone to the International Assets Holding Corp. 2009 first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Scott Branch, you may begin your conference.

Scott Branch

Thanks, Patricia. Good afternoon. My name is Scott Branch, President of International Assets Holding Corporation. I will be hosting this earnings conference call for the first quarter of fiscal 2009 ended December 31, 2008. We have a simple format as usual planned for today. It should last no more than 15 to 20 minutes before questions and answers.

Sean OConnor, our CEO, will present an overview of the quarter’s results. I will then deal with the internal and operational developments since our last call. Brian Sephton, our CFO, will then take you through the recent earnings release. Sean will then briefly wrap up and we will take questions.

If any listeners have suggestions on the format and content of this in future calls, please do not hesitate to contact the company through the Investor Relations e-mail address on our website, www.intlassets.com. We filed our Form 10-Q for the fiscal quarter ended December 31, 2008 with the SEC yesterday. It was posted on our website at intlassets.com under the SEC Filings section of the Investor Relations tab.

Before moving on, we require to advise you and all participants should note that the following discussions should be taken in conjunction with the most recent financial statements and notes thereto as well as the most recent Form 10-Q filed with the SEC on February 9, 2008.

This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the company’s control, including adverse changes and economic, political, and market conditions; losses from the company’s market-making and trading activities arising from counterparty failures and changes in market conditions; the possible loss of key personnel; the impact of increasing competition; the impact of changes in government regulation; the possibility of liabilities arising from violations of Federal and State Securities law; the impact of changes in technology in the securities, foreign exchange, commodities, dealing, and trading industries.

Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the company’s actual results will not differ materially from any results expressed or implied by the company’s forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events, or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.

I will now turn you over to Sean OConnor. Sean?

Sean OConnor

Hi, good afternoon, everyone. Thanks for joining us on our fiscal 2009 first quarter conference call. We mentioned last time that we are in the midst of a financial hurricane and unfortunately things seem to have got worse. I don’t know what’s worse than hurricane. I guess it’s tsunami. Most financial companies have reported devastating losses for the last quarter of calendar 2008, and it’s amazing to think we’re now talking about a possible nationalization of the banking industry, something no one could have even dreamt of a year ago.

I am pleased to say that in spite of this dire environment and concrete to the industry as a whole, International Assets produced, on a mark-to-market basis, record revenues of $31 million for the quarter and posted record net earnings. Our ROE for the quarter was 21% and on a trailing 12-month basis exceeded our minimum target of 15% despite our breakeven results in Q4 of last year, the immediately preceding quarter.

We believe that these results, especially in light of the current circumstances, are a validation of our niche-based, customer-centric business, which is focused on providing value-added execution. Our business model is not predicated on leverage or key capital or speculative activity in general. Our customer base trading businesses have produced excellent results this quarter, offsetting the losses in our asset management business, mainly as the result of further write-downs on seed capital.

Just running through it quickly, our international equity market-making business had an outstanding quarter with record revenues of $18.5 million. This was driven by the unprecedented volatility in the equity markets during the quarter and a gain in customer order flow. We do not expect easily to be able to repeat this kind of performance in the future.

Our commodities and FX trading business had a good quarter. Commodities continued to be driven by the growth of the precious metals business, which is the reverse of a year ago when base metals dominated. The FX business was down slightly on a year ago and the prior quarter, but continues to expand the depth and reach of its customer base. A real standout over the last two quarters has been the growth of our operations in Asia based out of Singapore. The Singapore precious metals business has been a key driver of the commodities results, and we are now expanding our FX activities in the region as well. It’s great to see our business expanding in this previously – well, for us anyway – untouched but critically important region.

As mentioned last time, our asset management business, particularly our Consilium joint venture, which has the bulk of our assets under management, has been through a tough time. And we are currently exploring how best to rebuild this business. Consilium’s assets under management now stand at $543 million and our total assets under management at $820 million. Our gain based asset management business continues to flourish in Argentina.

During the quarter we observed a further $2.8 million in mark-to-market write-downs on seed capital, but believe we have now taken most of the pain on this exposure. As mentioned last time, the asset management segment is likely to be a breakeven business for fiscal 2009, which was in line with the 2008 results.

Our GAAP stockholders equity remains at approximately $75 million, which is about the same as it was at the end of September. Adjustments to comprehensive income relating to the hedging of interest rates and currency exposures offset the earnings from the quarter. The most significant adjustment relates to a three-year interest rate swap we entered into to fix our LIBOR cost for the next three years. We believe inflation will at some point increase interest rates, which for us is a direct cost of business and a cost we seek to reduce or at least lock in at acceptable rates.

The December quarter has been one of the most challenging ever faced by the financial services industry, and we believe our strategy has validated itself. That said, our customer businesses are not without risk. We continue to remain vigilant against customer and counterparty credit risks. We cannot predict how the global financial crisis will play out, but it is likely that the general level of activity will decline during calendar 2009 as credit remains tight.

Despite continued growth in all of our trading businesses, we continue to be very liquid using very little of our committed funding currently, and therefore in a good position to both weather the storm and take advantage of new opportunities that will inevitably arrive. Our priority at this time remains to adopt a defensive pastor generally to preserve liquidity while at the same time supporting our clients during this difficult time by providing consistent and quality execution. This approach has and continues to grow our market share and profitability of these core businesses as we look for compelling expansion opportunities.

I will now hand you over to Scott who will comment on some internal developments.

Scott Branch

Thanks, Sean. In addition to establishing a number of durable uncorrelated business activities designed to offset industry cycles, we have always focused on careful risk management. Risk taking is inherent in all of our activities and a core part of the value that we provide to our customers as a principal market maker. However, we have intentionally crafted a business strategy that is predicated on short-term risks at an absolute unweighted amount, a modest relative to both our capital base and our revenue stream. As a result, throughout the most tumultuous period in our generation, we have been able to profitability service our clients requirements while largely avoiding the pitfalls of this volatility.

Although we would have preferred to avoid them, the losses Sean mentioned in our seed capital investments though within a range that was both tolerable and within the scope of our expectations. Given the broadening ripples of recession throughout the global economy, we are now particularly watchful of counterparty risk. While our experience remains good, we are conscious that this is a very unpredictable environment. Perhaps the biggest uncertainty in the financial sector at the moment is access to credit.

As a small financial institution, we have always been particularly sensitive to liquidity and maintained a very liquid balance sheet with the bulk of our assets convertible to cash within a few days. In this environment we have cautiously diversified our sources of funding over the last quarter. In particular, the recent growth in our precious metals activities has been largely financed through both clients and service providers in the precious metals sector.

In addition, we have streamlined our FX activities to be less cash intensive. As a result, our dependence on bank financing has reduced and our committed bank facilities are substantially undrawn. We have continued with incremental enhancements to both our IT systems and operational procedures that have resulted in improved customer functionality, better management information and greater operational efficiency. These allowed us to process transactions volume in the quarter that at times were more than double our typical volume. As a result of the continuing strong growth of our precious metals and foreign exchange activities in Asia, which Sean previously mentioned, we have now established full operational capabilities in Singapore.

We completed the previously announced closure of our Hong Kong activities with minimal further financial impact and decided to significantly reduce costs in our San Paulo [ph] office where we contemplate how to approach what we continue to believe is a very attractive market opportunity in Brazil. Both of these actions result from our continual review of the performance of our businesses and offices. We allocate our capital to the opportunities that we believe provide the greatest medium and long-term potential.

I’ll now hand you over to Brian Sephton for a review of our financial performance. Brian?

Brian Sephton

Good afternoon, everyone. May I remind you that we do not give future revenue or earnings guidance. This review covers the first quarter of fiscal 2009. That’s the quarter ended December 31, 2008. The year-on-year comparison relates to the corresponding quarter last year. As a caution to listeners, whenever I talk about an adjusted number on this call, I’m talking about a non-GAAP mark-to-market number. The differences between GAAP and fully mark-to-market number arise only in our commodities segment. In all the other business segments GAAP and mark-to-market numbers are the same. For a full reconciliation between the GAAP and the non-GAAP adjusted mark-to-market numbers and our reasons for disclosing non-GAAP numbers, please see page 19 of our Form 10-Q.

The company’s adjusted operating revenues increased by $2.3 million or 8% from $28.7 million last year to $31.0 million this year. Non-interest expenses increased by $4.4 million or 26% from $16.9 million last year to $21.2 million in this quarter. Interest expense decreased by 23% from $3 million to $2.3 million. The company’s adjusted pro forma net income for the quarter was $4.2 million, down 9% on the $4.6 million last year. The interest to convertible notes holders has decreased from about $475,000 to $320,000 following the conversions that we had in September and October of 2008. The company is also paying no rates of interest and decreased bank balances, and the interest rate swaps that Sean referred to earlier has the effect of increasing our reported interest expense by about $200,000.

Of our total non-interest expenses, 38% was fixed and 62% were variable. You will recall from our last conference call that we aim to keep our fixed expenses somewhere below 50% of total non-interest expenses. The compensation of benefits make up 64% of total non-interest expenses compared to 63% last year. Comparing the December quarter with the September 2008 quarter, adjusted operating revenues increased from $18.4 million in September to $31.0 million in December, a 68% increase. Non-interest expenses increased 20% from $17.8 million to $21.3 million. Interest expense decreased from $3 million to $2.3 million, and the adjusted pro forma net loss in the September quarter was $0.1 million compared with an adjusted pro forma net income of $4.2 million in the December quarter.

Total assets at the end of December 2008 were $372 million compared with $428 million at the end of September. Total third party assets under management in the asset management segment decreased from $1.2 billion at the end of September to $0.8 billion at the end of December. Our balance sheet at the end of December remained very liquid with total cash and cash equivalents of $58 million. 83% of our assets at the end of December consisted of cash, cash equivalents, short-term receivables, financial instruments and liquid investments. This excludes commodities inventory, which is decreased from $57 million at the end of September to $42 million at the end of December, stated at the lower of cost to a market value. The market value of this $42 million is approximately $43 million.

You will see in our 10-Q that we have had to disclose for the first time this quarter the fair value hierarchy of our financial assets and liabilities as required by FAS 157. The objective of FAS 157 is to give greater transparency to valuations of financial assets and liabilities. Our Level 3 assets, which are the least transparent from a pricing point of view, represented only 5% of total assets and 11% of our financial assets at the end of December.

Borrowings, excluding the $25 million of convertible notes, were at $104 million at the end of December compared to the $120 million at the end of September. There is a very small conversion of convertible notes during the quarter after approximately $8 million of our notes were converted in the September quarter and the balance of convertible notes now stands at $16.7 million. The ratio of total assets to stockholders equity was 5:1, which we believe is a very conservative leverage ratio.

And I’ll now hand you back to Sean OConnor to wrap up.

Sean OConnor

Thanks, Brian. We are very glad that we have returned to acceptable earnings after the breakeven performance of last quarter. We as a management team have set return on equity as our major financial objective. And for those who have listened to our calls before, you will know that we have set the minimum target of 15% but with a strong desire to remain above 20%. If we achieve the 20% number on a consistent basis, our book value per share doubles nearly every 3.5 years. Over the last six years we have managed to compound our book value at over 40% per annum.

We are more convinced than ever that our niche customer-centric strategy is the right one and has even more relevance as Wall Street restructures itself for the new reality. We are well placed to take advantage of opportunities that this upheaval is going to throw up. That said, these are difficult times and we shall remain vigilant and cautious at the same time.

We will now take your questions that you may have, any advice or suggestions. I guess, Patricia, if you could open for questions please?

Question-and-Answer Session

Operator

Yes, thank you. (Operator instructions) I do apologize. We are having some technical difficulty. It will just be one moment.

Sean OConnor

Sounds like this will be a good opportunity for us to get off the hook with you on questions and stop the call. We won’t do that. We’ll wait a little bit.

Operator

Thank you. I do apologize, we are still waiting.

Sean OConnor

Patricia?

Operator

Yes, it’s going to be just one moment and we do have your questions. We’re just trying to get this – okay.

Sean OConnor

If anyone has to leave and can’t wait until we fix this problem, please feel free to call us or e-mail us on the Investor Relations line with your question, and we will make sure to get back to you either this evening or first thing tomorrow. So, apologies for this is outside of our control. But if you do have a question and can’t wait, feel free to e-mail or call us.

Scott Branch

The Investor Relations line is 888-345-4685 and its extension 335. But we’ll wait just few moments and see if this problem can be resolved.

Operator

And I do to. And we do have a question from the line of Dan Ryan [ph]. Your line is open.

Graham Ryan

Hello?

Sean OConnor

Hi, Dan. Go ahead.

Graham Ryan

This is Graham Ryan [ph]. Sorry.

Sean OConnor

Sorry, Graham. Hey, how are you?

Graham Ryan

Doing well. How are you guys?

Sean OConnor

Good, thanks. What’s up?

Graham Ryan

I just kind of want to walk through some of the business segments. In equity market-making, I mean, I understand there was unprecedented volatility. Was there any gains in spreads or market share, or was it just in volume?

Sean OConnor

Everything. We have everything working for us. So panic in the markets, spreads widening out, competitors not prepared to put up prices, I mean, you name it, it all happened. Kudos to our team, kept their wits about them and stayed within the risk tolerance levels and managed to execute and provide consistent processing, and it paid off. And honestly I think things like that pay off for you not just immediately, but over a long period of time. So we really think that that business given the job there is done is going to see the benefit and – maybe not in terms of absolute dollars, but just in terms of increased market share and better relationships and more flow.

Scott Branch

To give one concrete metric there, in October the number of transactions that we processed in the securities area was 2.5 times what it would have been at the beginning of the year.

Graham Ryan

So the weakened competitors is a small component as well?

Scott Branch

It’s a component of it, definitely. So it’s – spreads widening out, volumes increasing in the market overall, and weakened competitors.

Scott Branch

I think, what we probably see now, now that things have settled down, is probably reduced activity generally, but also the bigger market share than we had before. That’s what I would think if we had the data. That’s what it would tell us.

Graham Ryan

Okay. And then as you mentioned in the commodities business, I mean there was a huge change in the mix from precious to base. Can you give us an idea of how much further the precious metals business has to go? The sustainability of both of those trends, I mean, is commodities – when do you expect that to bounce back a little bit?

Sean OConnor

On the precious side, actually sort of a source of major frustration with our team because we’ve grown the business. I think we have now become one of the solid group of people in this business. We’ve become noticed in this business. We have a very good customer base. And honestly, we are turning away business at the moment. And it’s very painful to do that, but given that we want to adopt a very cautious stance, we set risk limits that we believe are sized right for our business. And this has always been our philosophy. And there is more business than we can handle at the moment. So that’s a good trend because we just become a little bit more picky and we pick the business where we can make the best spreads, and I think that will enhance the profitability of the business going forward. So at the moment I think sort of we could double the [inaudible] double, but we could increase it significantly. We’re probably pulling the range back on the team a little bit there. In terms of the base business, that business is doing fine. I mean it’s probably making as much money as we anticipated the business would ever make three years ago when we got into it. This would have been a good quarter for us. We would have been very happy with that. Obviously we’ve got spoiled to a sort of the profits we were making out of that business, and that time will come again, but that may be a while before that – the opportunity to sort of take the bigger spreads just because of the way the pricing moves in the market. It may take a while. It’s not going to happen any time soon, but there will be a time again when we will have an opportunity to make those kind of profits again. So just bite out time and not getting patient I guess.

Scott Branch

The expansion of the precious metals activity is both the factor of market conditions.

Sean OConnor

Yes.

Scott Branch

Obviously there is a great deal of interest in precious metals in this kind of an environment. So that’s been a component of the increase, but it’s also the geographic expansion into Asia. At this time last year we were not doing any precious metals business –

Sean OConnor

And also Dubai as well.

Scott Branch

In Asia and limited amounts in Dubai. So you got two positive factors there in the precious metals business; the overall market environment and our geographic expansion.

Sean OConnor

And I think you could probably say that somewhat picked up some business from competitors who are exiting the market. I mean, the bigger banks are all kind of focusing on internal issues. And that makes it easier for us to win over customer business.

Scott Branch

And the results of the base metals business were dampened by the current economic climate, which was driven more by industrial cycles.

Graham Ryan

Sure, okay. On asset management, I mean you guys said [inaudible] probably be relatively flat this year in terms of profitability. Have the asset flows out of Consilium? Have they kind of turned off yet or are you still seeing loss of assets? At what level are you profitable and what are your thoughts about rebuilding that business?

Sean OConnor

All are under consideration at the moment. It’s obviously a tough environment. This was a big business that was really growing at a pace. We had a lot of assets. A lot of those assets we’ve didn’t make very big fees on, but it gave us kind of a credibility factor and a presence in the market which we’re starting to leverage off, and this is just devastating for that business what’s happened. In terms of the asset flows, I think we’re probably going to see a further reduction in assets. We have some funds that we manage, I mean, with a sub-advisor to which have put down gates and on oddly liquidation. So we know that there is more money to go unless people change their minds obviously, which I’m not sure they will. So I think that number could reduce down further and it could be – we anticipate that it will be a breakeven situation going forward and a long-term rebuild. The current environment is tough, and I think it will take a while to rebuild the business. And we at the moment are sitting with the team and the principles of that business who are 50% shareholders in Consilium with us figuring out how best to do that and what resources to allocate to do that. But we also have other asset management businesses. I mean, we have our business down in Latin America, that’s going very well. The fees on that business have increased. We’re probably one of the biggest fixed income asset managers down there, but it’s a real niche business. It’s not a business that can double and triple for us, but it’s a very profitable business on the bottom line for us. And that’s just carrying on, I mean, sort of just seems to be unfazed by what’s happening in the markets for now. So that’s good.

Graham Ryan

Okay. And then last question and I’ll let someone else jump in. It seems like you guys are shrinking your balance sheet a little bit paying down some debt. Is this just to reduce risk and free up capital, or are you concerned about rolling over those debt facilities or you need capital to capitalize on some acquisitions or –?

Sean OConnor

I think it’s kind of a combination of all of the above. I think in this environment you re-look your capital allocation. Scott alluded to that. You decide ways best to put capital. We’re certainly pulling back some of our seed capital at the moment out of the funds just because we don’t think that’s a good use of our capital at the moment. One has to be concerned about the banks at the moment. I mean, we – I think we feel fairly comfortable that we’re not going to have a problem, but I think it will be foolish to say that there isn’t going to be a problem or couldn’t be a problem. So we are trying to stay as liquid as we can. And we also think there are going to be fantastic opportunity that we want to be ready with cash available to do that. I mean, probably the best opportunity we have at the moment is to buy our own stock if we could do that. And we prevented from doing that with our subordinated note. I mean, the frustrating thing at the moment is we could probably write a check that’s equal to our market cap right now. And we would probably aggressively be buying our stock if we could. So if anyone on the call has any smart ideas on how we can do that without triggering a redemption of our convertible note, please tell us.

Graham Ryan

Okay. And what’s the typical time frame for rolling over those debt facilities? I mean how –?

Sean OConnor

Well, let’s say, at the end of June it starts. And so we’ll probably start the process two months before then and a lot can happen between now and then. That’s four, five months away. But that in mind, this is a secured structured facility. I mean, people are lending against cash, against gold, with haircuts against that. I mean, this is the kind of stuff banks want to do now. I mean, this is not a general purpose facility. This is not general corporate lending. This is highly secured against extremely liquid assets.

Graham Ryan

Okay, great. Thanks for your time.

Sean OConnor

Okay.

Operator

And your next question comes from the line of Jeremy Hellman. Your line is open.

Jeremy Hellman

Hi, good afternoon, everybody.

Sean OConnor

Hi, good afternoon, Jeremy.

Jeremy Hellman

The one thing I’d say on the share repurchase idea, that’s certainly a disappointment. But are you precluded from being in the market personally at all?

Sean OConnor

No, we’re not precluded. It’s just we tapped up because we leveraged ourselves personally to buy into the company originally. We haven’t sold shares. In fact, if anything, we’ve increased our ownership through exercising options and have had to pay vast amounts of AMT and stuff on our thing. So if we could find someone who would leverage us personally against the stuff we hold currently, which is between me and Scott is approaching 25%, 30%, we would do in a heartbeat.

Jeremy Hellman

Right. Actually that was a – that I just picked up on that you mentioned it. But what I really wanted to ask about was the competitive landscape and you referenced it a little bit with the prior caller’s questions. What is kind of the [inaudible] when you look at the larger banks as pertains to their trading operations and all your markets? Are they retrenching at all? Are they merely wounded, or are they – we would just –?

Sean OConnor

We have seen this in our careers. I got a horrible echo on your furniture. I hope you can hear me. We have seen this before in previous cycles where the banks have sort of retrenched, and typically the first thing that retrench from all the niche activities, which is sort of our bread and butter. So even if there is only just a normal sort of cyclical kind of problem, we would find this a good opportunity for us to expand. But the severity of this problem, I think it makes it a bit more interesting. And my view is I think Wall Street is going to change fundamentally for a long period of time. I mean it will come back. It always does. And a lot of the sort of trading activities that happened at the banks were dressed up as custom activities, but they were really proprietary trading activities in disguise. So the traders would go and tell they bosses, I’m trading for customers. I need a $100 million limit and I was just taking big positions in the market. And the reality is 90% of the markets are fairly liquid. You don’t need to sit there in between with capital. And I think that model is gone. I think people have been found out on that. I think banks will not allocate capital to trading desks any more. I think they will go and execute this somewhere else, go straight on to the electronic exchanges, find someone who will meet your price. If it’s a true customer business, you don’t need capital. And I think we’re finding that. I think not only in the niche areas, but I think banks are pulling capital off the trading desks in almost every business. And that’s part of the problem we’re sitting with at the moment. There is no liquidity in anything. So I think for us it’s sort of a boutique execution shop who has capital is prepared to put up capital in a sensible way but to really service customers. I think we got lots of opportunities to step in where bigger players used to participate.

Jeremy Hellman

Yes, that’s certainly my thought. And do you have a systematic plan in place then to – and I don’t want to start naming names, but if you look at the global firms [inaudible] banks that are now officially again and nothing more in title of any rate. Do you have a plan that you’re working out to go to them and say, Wow, we’ve seen that you’ve pulled out of your market-making activity, so let us service this – what order flow you do have? Do you have anything in place of that ilk?

Sean OConnor

Not really as a result of the current events, but that is something that we have been pursuing broadly and with some success, both in the equity business and in the foreign exchange business over the past couple of years. I mean, a lot of the orders that we get in our equity business are now routed to us by major broker dealers in the US on an automated basis. And in the foreign exchange segment, we are starting to see a greater trend towards couple of the big banks beginning throughout their exotic foreign currency transactions to us. So, not a reaction to the current market environment, but I think a strategy we are already pursuing that would likely be accelerated.

Jeremy Hellman

Right, right. Good. And then lastly, and going back to the asset management business, it may will be too early in the game to really know how it’s going to play out. But do you see I guess in – I think you kind of said this, so I just want to make sure I heard you properly. If I kind of look back up and look at the market in general, the asset management market, there is a lot of people that have seen large significant outflows of funds that now leave them in a precarious state. And is there a real opportunity for you guys to go and kind of do some acquisition or roll-up of managers to try and regain efficiencies of scale?

Sean OConnor

Yes, good question. And I do think there are opportunities, but I guess asset managers need two things. They need someone to share the business risk of running the business with them, give them credibility and on to the survivability question. Okay? Are you going to be around for a year? Can you cover the bills? And someone to share the cash burn? We can do that. We will do that if we find the right team of people who we have some sort of empathy with. But the other thing asset managers need is particularly in the current environment is they need someone who can put up a large amount of seed capital to keep products alive and to keep critical mass in assets. And we can’t do that. I mean, we just don’t have the size where we could make a difference, and that’s probably not a good use of our capital. So that’s something we can’t help asset managers with. But the former, we could definitely help them with. And if we could find a way to find suitable opportunities, we would definitely consider it.

Jeremy Hellman

Okay, great. Thanks guys.

Sean OConnor

Okay.

Operator

And I do apologize about the echo, I’m not sure. But your next question comes from the line of Steven Spark [ph]. Your line is open.

Steven Spark

Thank you. Scott and Sean, very good –

Sean OConnor

Hi, Steve.

Steven Spark

Hello. Very good job on a tough quarter there.

Sean OConnor

Thank you.

Steven Spark

Actually most of my questions were already answered. But back to the asset management division, I think you had mentioned there was $543 million that Consilium was still working with at the end of the quarter. The money that’s been drawn out, is it from a performance standpoint or is Consilium still earning a good profit, whether it’s 5%, 6%? Is it just individuals trying to get their hands and get liquidity?

Sean OConnor

Yes. The problem with Consilium, it’s just terrible how they ended up. We were managing money mainly for a Stan Chart structure that was set up in Europe where it was their funds and we were the sub-advisors, and they were distributing these funds. It was originally Amex, but it was also Stan Chart. And that accounted for the bulk of our assets and we had a great relationship with those guys over the last ten years and ramped that business up very quickly. Most of those funds and simply the funds we were managing were daily liquidity mutual funds in effect. And a lot of them were sold to banks and through banks and to financial institutions. And of course, when the crisis started to hit, people just went for the shortest liquidity irrespective of performance. And that really hurt us because a lot of hedge funds at sort of three-month lead times and people had to go through the whole performance, they could just call our funds or the Stan Chart funds and get their money the next day. And so we were just hit very quickly with massive redemptions as everyone panicked. And that was a real problem for us. I mean, we had massive redemptions, and then of course, when you have redemptions amounting to 60%, 70% of a fund and it’s a big fund, it becomes very hard to liquidate in a two-day period, particularly when there was no liquidity in the market. So that just ended up being a very unfortunate set of circumstances for us, sort of unprecedented. And because we had good performing liquid funds and no one had to take losses initially, I mean, we were sort of hit first. So that’s really what happened.

Steven Spark

All right. So I guess in understanding – and I guess the liquidations started to quicken the pace, then they probably had to –

Sean OConnor

We had markdowns and then the whole market sort of melted down. So, no, we had markdowns probably better than most, but markdowns who wouldn’t have liked to have seen, and had we had the benefit of a little bit of liquidity management, not from our side, but a little better management of the sort of liquidation process, I think we could have outperformed significantly the rest of the market. But I think our guys did a great job in very difficult markets. I think they did better than probably 90% of the emerging market funds out there, but they were down for 2008. And I think probably we’ll do quite well in the current market, but it may be too late. I mean, I’m just not sure people care any more. They just want their money back, you know.

Scott Branch

Now continuing to have good track records in the convertible arbitrage fund –

Sean OConnor

I think we have the number one fund in the world now in convertible arbitrage.

Scott Branch

And the Africa fund that they manage. But those were newer products and with a much smaller investor base in them.

Steven Spark

So unfortunately for the late individuals having to move their moneys out, they probably have a negative or a bad experience because they ended up losing versus selling into a – liquidating into a stronger market. So –

Scott Branch

Yes, the guys a year ago may still sort of behold on their capital. The guys who got in two months before the liquidation are obviously going to have a tough time.

Steven Spark

Right. And then the ones that – the ones that did rush to get out, they might not be rushing to get back in realistically because they did probably take it on the chin.

Sean OConnor

But I think – Steve, I think that’s true sort of in the entire asset management business. And that’s really what we’re wrestling with. What are people going to do? I mean, I think people are sort of reassessing keeping their money close, keeping it liquid. And it may take a long time before people sort of figure out what it is they are going to do. And you just look at the share prices of any listed hedge fund business or asset management business. I mean, they just think [ph] like everything else. I think probably for that reason no one really knows what the landscape is going to look like. That’s why we’re telling everyone this is going to be a long slow rebuild. And we need to figure out how to do it intelligently.

Scott Branch

And our view of the asset management business overall is the great growth in that business broadly, not just ours, but the market generally over the past number of years is in part related to the excess growth of liquidity and that’s disappeared. So I’m not sure that the asset management business overall as a marketplace will any time in the near future return to what it was.

Sean OConnor

Well, Scott was giving me an interesting statistic. You read some with asset management fees.

Scott Branch

I don’t know if I would repeat that, but I’m not sure of the source. But basically what I had seen was that in 2008 what the US consumers spent on financial advice, including asset management fees, was in total greater than what they spent buying cars. And that – ten years earlier it would have been a small fraction of what they spent buying cars. Now not to be repeated and I’m not sure of the [inaudible] source, but I think broadly an indication of what was going on.

Sean OConnor

Yes, just a big bubble in liquidity and an explosion in fees because it moved from sort of a mutual fund to a sort of a carry based performance fee basis, which was multiple.

Steven Spark

One last question for you on – you had mentioned of course that you really look at this as a good buying opportunity. You really felt that that way last quarter as well. From a valuation standpoint, book value, where are we at now? Just right around $9, is it?

Scott Branch

Yes, they are about something in $8 – $8.50-ish, yes.

Steven Spark

About $8.50?

Scott Branch

Yes.

Steven Spark

Okay. And from the financial companies that are more micro cap such as ourselves, I mean what typically should we see a company trade out from a times book? Should it be two times book, 2.5? What do you find in the micro cap?

Sean OConnor

I don’t know, Steve. I think it’s very hard to answer that because we’re kind of a unique business. But I would say if – when we’re looking to buy businesses and look just broadly at the financial markets, I would say any time you trade and get one times book, you’re cheap. And once you start getting to three times book, you’re pretty fully valued. And there is a range in between depending on circumstances and specific characteristics. By that argument, I think we’re cheap and I’ve stated what I would like to do. I mean, I would like to buy shares for the company. I would like to buy them personally. I can’t figure out how to do either. But – and I think when you get to $30, $35, you’re starting to trade in expensive territory, but given that we’ve compounded our book value at 44% a year for six years, I don’t know if it’s expense. It depends on sort of how you value growth. But what I can tell in the current environment, no one cares. No one cares, no one is focused on it, no one has any money to invest, and people are wondering whether you’re going to survive. And until that works its way out of the system, I don’t think people care about valuations.

Steven Spark

Thank you very much.

Sean OConnor

That’s my view.

Scott Branch

Okay. Patricia, any further questions?

Operator

There are none at this time.

Scott Branch

Okay. Well, I guess that then concludes the call. Thank you very much everyone for listening in.

Operator

And thank you. This does now conclude the conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!