저자: 미상 · 외국인
요약 보기
2015년 PSH는 7월까지 +10.1%였으나 연말 -20.5%로 급락, S&P500(+1.4%) 대비 대폭 하회. 주요 손실은 Valeant(-11.4%p), Herbalife 숏(-3.9%p), CP 철도(-3.8%p). 운용진은 Mondelez·APD·QSR의 영업 개선(마진 확대, 비용 절감)을 근거로 내재가치 개선을 주장. 부채 구조(마크투마켓 조항 없는 채권)로 강제청산을 피해 장기 논리를 유지. 2016년 초 할인율 12~13%에서 기회로 제시.
다듬은 글
Welcome to the deep dive. Today we're jumping into a really fascinating and for the people involved a very painful year. We're looking at 2015 for Persing Square Holdings or PSH. Yeah. And our whole mission here is to try and understand this this huge contradiction, right? How can a fund have its worst year ever?
I mean, ever. while the managers are telling everyone that the companies they own are actually doing great. It's just a spectacular test case. It's a great way for you to see the difference between, you know, the stock price and the actual value of a business. Okay, so let's set the stage with the numbers.
The numbers are wild. PSH starts 2015 on a roll through July. They're up 10.1% net, beating the S&P 500 pretty handily. Oh yeah. And then the whole thing just falls apart. And when you say falls apart, you mean a total collapse. Total collapse. By the end of the year, PSH closes down negative 20.5%.
And the S&P 500, it limped along to a what, a 1.4% gain. So, you're looking at this massive like 30 point swing from outperformance to just disaster. Sorry, five months. Five months. I mean, you don't see that kind of divergence outside of a global financial crisis. So the real mystery for us is how could management honestly write to investors and say 2015 was a good year for our portfolio companies
right after posting that historic loss. Exactly. It forces you to really grapple with this idea of temporary market price versus you know long-term intrinsic value. So let's start there. Let's start at the beginning. If you're going to write out that kind of storm, you have to have a philosophy you really really believe in.
Let's unpack their investment blueprint. Their standards are um almost impossibly high. They're looking for businesses that are simple, predictable, and throw off a ton of cash. Huge free cash flow. Think of them less as stock pickers and more like they're trying to buy a whole company to own forever.
And it's not just the financials, right? It's the qualitative stuff. Oh, absolutely. They want these huge barriers to entry moat. Everyone talks about things like killer brands or unique assets or the power to set your own prices. And they try to avoid things they can't control. Yeah. They steer clear of businesses that are super sensitive to like commodity prices or big swings in interest rates.
So, in a nutshell, it's big North American companies that are trading at a big discount to what they think they're really worth. And what's more, they see a path to making them worth even more by optimizing them. Which brings us to how they describe themselves. They call it a private equity approach to the public markets.
A lot of funds say that. So, what does it actually mean? Especially when the market is just punishing you with a 20% loss. It means they've decided that the stock ticker is basically irrelevant. Their valuation model is all based on discounted cash flows just like a private equity firm would use. So for them, what the market is doing dayto-day.
It's just noise. It is completely irrelevant. They only care about one thing. What is the present value of all the cash this business will generate in the future? So, while the public market was freaking out in 2015, driven by headlines and fear, their internal spreadsheets were probably showing the value of these companies ticking up because the businesses were getting better,
they were trying to exploit a behavioral flaw in the market. That's the whole game. They believe the market gets it wrong a lot, especially with complex companies that hit a rough patch. For them, the real earnings power, that intrinsic value, is the only thing that matters long term. But the big question 2015 raised was when does the market finally catch up?
Exactly. When does that weighing machine finally turn on? And waiting was clearly very painful. So let's get into the performance. Where did the pain come from? The first half of the year was good. It was great. Through June, the winners had added about 13.2% to the portfolio. Alligan and Valent were leading the charge.
And then that success just vanished. It evaporated. By the end of the year, the winners only contributed about 8.7%. But the losers, the losers wiped out a devastating 28%. A negative 28% hole is that's massive. So, you've got to ask where did that come from? One name really. I mean, the single biggest detractor, which just overwhelmed everything else, was Valent Pharmaceutical.
How bad was it? It was an 11.4% negative contribution just from one stock. Wow. And the others. Well, you also had major hits from Canadian Pacific Railway that was down 3.8%. And their very famous, very controversial short on Herbal Life, which actually cost the money. Yep. A negative 3.9% hit. And then Platform Specialty Products tacked on another negative 2.8%.
It was just a bloodbath. Okay. So, losing that much money is psychologically brutal, but it also raises a really practical question for a fund that uses leverage. How did they avoid being forced to sell? Ah, now that is the key to their survival. When you're down that much, your lenders usually come knocking.
Usually, yes. But they had this structural genius or maybe just sheer luck with their debt. What did they do? They had fortified their capital base back in June 2015 right before the crash. They issued a billion dollars in bonds. Okay. But it's the fine print on those bonds that matters, right? The covenants.
That is the critical feature. These bonds had no marktomarket covenants, no ratings based triggers. Can you break that down for us? What does that actually mean? It means that if they had used normal margin debt from a bank, the second the value of their stocks dropped, say 15 or 20%, the bank would have called them.
The margin call, the dreaded margin call, forcing them to sell stocks immediately at the worst possible time to pay down the loan. But because they used these specific bonds, the bond holders couldn't do anything. Even as Valiant's stock price was in freefall, nobody could force them to sell. The leverage made the losses bigger for sure, but the structure of that debt bought them time.
So they took the paper loss, the marktomarket pain, but they avoided the permanent loss of capital that comes from being a forced seller at the bottom. And that preserved the entire thesis. Okay, that makes sense. That's the defense. Now, let's get to the offense. The evidence that management used to argue that it was actually a good year for their companies.
Right? These are their receipts. Mandles, APD, and QSR. This is the proof they pointed to saying, "Look, the businesses are great, even if you hate the stock." So, let's start with Mandelus. This became their biggest holding. Yeah, they put a ton of capital into it starting in March 2015. And the whole idea hinged on this huge opportunity to improve their profit margins.
What was the problem there? Well, Mandelas owned these incredible brands, Oreo, Cadbury, Nabiscoco, but they had the lowest profit margins in their peer group, only about 12% in 2014. So PSH saw that as just bad management, lazy execution. Yeah. Not a broken business. The opportunity was just to get them to run the company better.
And did they in 2015 they made huge progress. Management committed to hitting a 15 to 16% margin in 2016. And PSH thought they could get to 17 or 18% by 2018. And you could see it in the numbers. You could. In the third quarter alone, their gross margins expanded by over two percentage points. The business was getting fundamentally stronger even as the market was souring on everything.
That theme of operational change. Yeah, it's also the story at Air Products and Chemicals APD. It is. They had a new CEO, Safy Gasemi, who came in with a mandate to just shake things up and he delivered. In 2015, spectacularly operating margins shot up by over 3 percentage points to 19% for the fiscal year.
They beat their own guidance, which is pretty amazing given the currency headwinds they were facing. And they were also streamlining the business, right? They announced a plan to spin off their non-core materious technology business that was expected to free up about $1.5 billion dollar in capital, which they could then use to reinvest or buy back stock.
Exactly. It's creating value no matter what the stock ticker says on any given day. Okay, last one in this group. Restaurant Brands International, QSR. That's Burger King and Tim Hortons. This is their ideal business model. It's Capital Light just collecting these high margin royalty checks. And the 2015 results look good.
They look great. Burger King in the US had industry-leading same store sales growth. I mean, 8% in the second quarter. That's fantastic. And on the Tim Horton side, cure efficiency. They slashed overhead costs by almost 40% in the third quarter while still growing sales. The whole business was just becoming more profitable.
If you owned the whole thing privately, you'd have been thrilled with 2015. Okay, so we've got these three core holdings and they're all improving their long-term cash generation. No question. Yet the fund is down 20%. Which brings us finally to the source of all the drama. Valente and the Herbal Life short,
the elephant in the room. Let's start with Valent. It was the biggest detractor. Given what a complete disaster it eventually became, how do you even begin to reconcile that with their philosophy? Didn't the model just fail? Well, see, that's the core challenge. In 2015, they argued the model hadn't failed.
They believed the stock price collapsed because of sentiment, drug pricing controversy, the Filidor pharmacy issues, subpoenas, right? Things that created, you know, existential risk for the stock price, but not necessarily for the underlying cash flow of the business. That seems like a a giant leap of faith.
It was. But they pointed out that some of their earlier deals like buying Seix had actually paused their estimate for 2016 cash earnings per share to increase dramatically from under 12 bucks to almost 16. So they thought the actual business was getting more valuable even as the stock was imploding.
They did they ran the numbers and concluded that the risk of bankruptcy was and this is their word dimminimous. The company was still a cash machine and it didn't have any major debt payments coming due soon. And when the stock was getting hammered in the fourth quarter, they didn't just sit there. They got creative with options.
Very creative. The goal was to bet big on a recovery, but without risking a ton more capital. So, what did they do? In simple terms, they built a structure that gave them massive potential upside if the stock recovered, but with a very defined limited downside. They sold some puts and bought a call spread.
And this let them increase their bet on Valent by about 6% of the portfolio while only using about 4% of their cash. It was a calculated risk to participate in a rebound without going allin at the bottom. And eventually they had to go from being investors to crisis managers. They had no choice. By March 2016, Bill Aman himself was on the board trying to stabilize the company, find a new CEO, and you know, salvage the investment.
Okay, now let's pivot to the other headache, Herbal Life, the big short, the multi-year crusade. Their whole thesis was that it's an illegal pyramid scheme that's going to get shut down, right? And despite the fact that the short position cost them money in 2015, they argued the business fundamentals were actually proving them right.
Net sales were down 12% in the third quarter. And if you took China out of the equation, the core business was shrinking. Local currency sales were down for the full year. And they saw what they called the pop and drop. Yeah. They pointed to South Korea as the perfect example. It used to be a huge market for herbal life and then sales just fell off a cliff down 39% in one quarter.
They argued that's what happens in a pyramid scheme when you run out of new people to recruit and recruitment was the key metric. Absolutely. The total number of members basically flatlined, which sounds okay, but it meant they had to churn through like 6 or 700,000 people in a single quarter just to stay even.
That's an incredible amount of churn. It's financially exhausting for the people at the bottom. And meanwhile, the regulatory threat was getting more real. The FDC went after a similar company called Themma. And Herbal Life itself was spending a fortune on lawyers. A fortune. Over a hundred million dollars in three years on legal and regulatory defense.
And they kept trying to exclude that from their adjusted earnings. It was a huge drag on the real value of the business. So if you pull it all together, 2015 was this incredible internal conflict. You have the gut-wrenching pain of the marktomarket losses clashing directly with this deeply held belief that the businesses themselves were getting better.
management even said, you know, experience is making mistakes and learning from them. And the result of all that market panic was it actually created a huge opportunity. A massive bargain. By early 2016, the PSH stock was trading at a big discount, maybe 12 or 13% to the value of all the assets it owned.
So, let's make that practical for you, the listener. If you bought shares then you were getting the whole improving portfolio mandlays APD QSR and you were getting the most controversial toxic asset valant thrown in for basically free or even less than free. Plus there was this huge incentive for management to make it back.
The high water mark, right? They wouldn't get paid any performance fees until the net asset value recovered by a staggering 68%. All the upside was for the investors. The market's panic created this perfect asymmetric bet. It really makes you think about what separates a long-term investor from just a short-term trader.
Did all that volatility in 2015 just create the biggest buying opportunity since the fund started? I think a lesson from 2015 is that it revealed this crucial knowledge gap. It's not just about the numbers in your spreadsheet. It's about understanding how powerful market sentiment can be, how it can weaponize headlines and fear even when a business is sound.
It's that classic Benjamin Graham idea. Exactly. In the short run, the market is a voting machine. It's a popularity contest. It's driven by fear, by excitement. But the lesson of 2015 is learning how to sit tight, sometimes for years, until the market finally acts like a weighing machine, and the price catches up with the actual weight, the intrinsic value. The real question is, do you have the emotional strength to handle that gap?
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