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Sydnee Gatewood
Sydnee Gatewood
Articles (3500) 

John Paulson Expands Position in BrightSphere Investment Group

Guru now has a minority stake in the British asset manager

March 06, 2019 | About:

Renowned investor John Paulson (Trades, Portfolio), founder and portfolio manager of Paulson & Co., disclosed on Feb. 25 he expanded his holdings of BrightSphere Investment Group PLC (NYSE:BSIG) by 283.85%, completing a minority stake acquisition.

With the long-term goal of capital preservation, above-average returns and low correlation to the market, the guru’s New York-based hedge fund specializes in event-driven arbitrage strategies, including merger arbitrage, bankruptcy reorganizations and distressed credit, among others.

According to GuruFocus real-time picks, a Premium feature, Paulson purchased 14.8 million shares of the U.K.-based asset management company for an average price of $14.19 per share. He now holds 20 million shares, which represent approximately 6.47% of his equity portfolio.

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GuruFocus estimates he has gained 3.32% on the investment since establishing it in the third quarter of 2018.

BrightSphere has a $1.31 billion market cap; its shares were trading around $14.19 on Wednesday with a price-earnings ratio of 11.18, a price-book ratio of 14.60 and a price-sales ratio of 1.65.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.

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On Feb. 7, the British asset manager recorded fourth-quarter and full-year 2018 results. Adjusted earnings for the quarter came in at 43 cents per share on $214.5 million in revenue. For the year, it posted earnings of $1.26 per share on $928.2 million in revenue.

It also reported it had $206.3 million in assets under management as of Dec. 31, down 15.1% from the prior-year quarter.

GuruFocus rated BrightSphere’s financial strength 5 out of 10. In addition to having poor interest coverage and a large debt load, the company’s Altman Z-Score of 1.76 warns it is in danger of going bankrupt. The asset manager’s long-term debt and capital lease obligations have ballooned from $90 million at the end of 2015 to $393.3 million at the end of 2018.

The company’s profitability and growth scored an 8 out of 10 rating. Although the operating margin is in decline, BrightSphere is strengthened by solid returns that outperform competitors. In addition, the Piotroski F-Score of 7 indicates operating conditions are healthy.

Paulson is the company’s largest guru shareholder by far with a 21.7% stake. Hotchkis & Wiley, Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Pioneer Investments (Trades, Portfolio) also have positions in the stock.

Portfolio

Paulson’s $4.17 billion equity portfolio, which, as of Dec. 31, is composed of 51 stocks, is heavily invested in the health care space at 40.39%. Financial services stocks have a much lower weight at 4.87%.

Other financial services stocks he holds as of the end of the fourth quarter are Stewart Information Services Corp. (NYSE:STC), Altaba Inc. (NASDAQ:AABA) and CME Group Inc. (NASDAQ:CME).

Disclosure: No positions.

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