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Tuesday, July 15, 2008

David Tice To Sell Prudent Bear Fund

Today it was announced that long time bear David Tice is selling his $1.2 billion "Prudent Bear" and $507 million "Global Income" funds to Federated Investors Inc. Tice founded the funds in 1995.
Doug Noland, who has overseen much of the day-to-day management of both funds, will serve as senior vice president and senior portfolio manager of both funds. David W. Tice, who founded the Prudent Bear funds, will join Federated as a chief portfolio strategist. Patrick Ryan Bend will also join Federated from Tice as vice president and portfolio manager for the Federated Prudent Bear Fund.
The purchase price includes an initial $43 million payment and future contingent payments of up to $99.5 million over the next four years. The deal is expected to close in the fourth quarter of 2008. David Tice will join Federated as a chief portfolio strategist. Federated will change the names of the funds to "Federated Prudent Bear Fund" and the "Federated Prudent Global Income Fund

Price paid for the assets under management:
  • Total Assets = $1,200M + $507M = 1,707M

  • Initial Payment = $43M / $1,707M x 100% = 2.52%

  • Additional Payments = $99.5M / $1,707M x 100% = 5.83%

  • Total Payments = $43M+ $99.5M = $142.5M for $1.7B in assets
This means Federated will pay up to 8.35% [2.52% + 5.83%] of the roughly $1.7 billion in assets under management to David Tice for the ability to extract future management fees from the account holders. [I recommend you learn to manage assets yourself using the "core and explore" approach explained in "Kirk Lindstrom's Investment Newsletter."]

You can bet that if the bear market continues that Federated will send advertisements about the bear fund performance to all its account holders who have been long. The real value to Federated may be in having a good performing fund for unhappy customers. The small investor often chases performance:
For the 19 year period ending in Sept. 2003, the average return for the average investor was 2.6% per year, inflation was 3.1% and the S&P500 gained 12.2%. See "Winning on the zigs, losing on the zags" for full details.
As of March 31, 2008 Federated had $338.5 billion in assets under management.

BEARX - Prudent Bear Fund Chart courtesy of BigCharts.com

PSAFX - Prudent Global Income Fund Chart courtesy of BigCharts.com

Is Tice Selling at the bottom of a bear market for maximum value?


This news reminds me of when the husband and wife owners of World Savings Bank sold out near the very top of the banking and housing bubble. Wachovia Corp. acquired Golden West Financial Corp., parent company of World Savings Bank, in October 2006. Sure Tice will stay on as a portfolio manager but he gets a big chunk of the selling price up front.


One thing for sure, there is a lot of money to be made managing assets! This is why I recommend you learn to do it yourself using the "core and explore" approach explained in "Kirk Lindstrom's Investment Newsletter."

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