StoneX Group Inc (SNEX) 2009 Q1 法說會逐字稿

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. (Operator Instructions). Thank you.

Mr. Scott Branch, you may begin your conference.

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 31st, 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 O'Connor, our CEO, will present an overview of the quarter's results. I will then deal with 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 and future calls, please do not hesitate to contact the Company through the Investor Relations email address on our website, www.intlassets.com.

We filed our Form 10-Q for the fiscal quarter ended December 31st, 2008 with the SEC yesterday. It is posted on our website at intlassets.com under the SEC filings section of the Investor Relations tab.

Before moving on, we are required 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 9th, 2008 (sic - see press releases). 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 in 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, and the impact of changes in technology in the securities, foreign exchange and 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 statements, 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 O'Connor. Sean?

Hi. Good afternoon, everyone. Thanks for joining us for our fiscal 2009 first-quarter conference call.

We mentioned last time that we're in the midst of a financial hurricane and, unfortunately, things seem to have got worse. I don't know what's worse than a hurricane. I guess a 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 contrary to the industry as a whole, International Assets produced on a mark-to-market basis record revenues of $31 million for the quarter and close to 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 result 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 cheap capital or speculative activity in general.

Our customer-based trading businesses have produced excellent results this quarter, offsetting the losses in our asset management business, mainly as a 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 custom 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.

The 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 particularly important region.

As mentioned last time, our asset management business, particularly our Consilium joint venture, which housed 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 have total assets under management at $820 million.

Our Gainvest asset management business continues to flourish in Argentina.

During the quarter we absorbed 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 result.

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 rate and currency exposures offset the earnings from the quarter. The most significant adjustment related 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, are in a good position to both weather the storm and take advantage of new opportunities that will inevitably arise.

Our priority at this time remains to adopt a defensive posture 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 will continue 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.

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 that, in absolute unweighted amounts, are 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 profitably 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 fell 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 consciously 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 transaction 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 Sao Paulo office while 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?

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 the 31st, 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 the GAAP and fully mark-to-market numbers 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 million this year. Non-interest expenses increased by $4.4 million or 26% from $16.9 million last year to $21.3 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 note holders has decreased from about $475,000 to $320,000 following the conversions that we had in September and October, 2008. The Company is also paying lower rates of interest on decreased bank balances. And the interest rate swaps that Sean referred to earlier had the effect of increasing our reported interest expense by about $200,000.

Of our total non-interest expenses, 38% were fixed and 62% were variable. You'll recall from our last conference call that we aim to keep our fixed expenses somewhere below 50% of total non-interest expenses. The compensation and 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 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 $438 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 has decreased from $57 million at the end of September to $42 million at the end of December, stated at the lower of cost or market value. The market value of this $42 million is approximately $43 million.

You'll see in our 10-Q that we've 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 three 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 with $120 million at the end of September.

There was 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 stockholder's equity was 5 to 1, which we believe is a very conservative leverage ratio.

And now, I'll hand you back to Sean O'Connor to wrap up.

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 a 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 6 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'll now take your questions that you may have, any advice or suggestions. I guess it's Patricia, if you could open for questions, please.

Yes. Thank you. (Operator Instructions.)

I do apologize. We are having some technology difficulty. It'll just be one moment.

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

Thank you.

Okay.

I do apologize. We are still waiting.

Patricia?

Yes. It's going to be just one moment because you do have two questions. We're just trying to get this--.

Okay.

Okay.

If anyone has to leave and can't wait until we fix this problem, please feel free to call us or email us on the investor relations line with your question and we'll make sure to get back to you either this evening or first thing tomorrow. So, apologies for this. Outside of our control. But if you do have a question and can't wait, feel free to email or call us.

The investor relations line is 888-345-4685 and it's extension 335. But we'll wait just a few moments and see if this problem can be resolved. Appreciate your patience.

Yes. And I -- thank you. And I do, too.

And we do have a question from the line of Dan Ryan. Your line is open.

Hello?

Hi, Dan. Go ahead.

Oh, this is Graeme Rein. Sorry.

Oh, sorry, Graeme. Hey, how are you?

Doing well. How are you guys?

Good, thanks. What's up?

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

Everything. We had everything working for us. So, you know, panic in the markets, spreads widening out, competitors not prepared to put up prices. I mean, you name it, it all happened. And kudos to our team who kept their wits about them and stayed within their risk tolerance levels and managed to execute and provide consistent pricing 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 they have done, is going to see the benefit in -- maybe not in terms of absolute dollars, but just in terms of increased market share and better relationships and more flow.

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.

Okay. But weakened competitors is a small component of that as well.

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

Okay.

I think what we probably see now, though, now that things have settled down, is probably reduced activity generally but us with a 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.

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 and the sustainability of both of those trends? I mean, is commodities -- when do you expect that to bounce back a little bit?

Well, 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 a select 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's 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'll enhance the profitability of the business going forward. So, at the moment I think sort of we could double that business. Well, I don't know double, but we could increase it significantly. We're probably pulling the reins 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 got spoiled with sort of the super 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 anytime soon, but there will be a time again when we will have an opportunity to make those kind of profits again. So, just bide our time and not get impatient, I guess.

Okay. The expansion of the precious metals activity is both a factor of market conditions. I mean, obviously there's 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--.

--And also Dubai as well--.

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

And I think you could probably say that we 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.

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

True. Okay. On asset management, I mean, you guys said you think it'll 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 a loss of assets? At what level are you profitable and what are your thoughts about rebuilding that business?

All 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 didn't make very big fees on, but it gave us kind of a credibility factor and a presence in the market which we were starting to leverage off of. 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, we're the sub-advisor to, which have put down gates and on orderly liquidations. So, we know that there's 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're anticipating it'll be a breakeven situation going forward and a long-term rebuild. I mean, the current environment's tough. And I think it'll take a while to rebuild the business. And we at the moment are sitting with the team and the principals in 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 is 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 unphased by what's happening in the markets for now. So, that's good.

Okay. And then a last one then I'll let someone else jump in. It seems like you guys are [tricking] 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 do you need capital to capitalize on some acquisitions or expansions--?

--I think it's kind of a combination of all of the above. I mean, I think in this environment you relook at your capital allocations. Scott alluded to that. You decide where's best to put capital. We're simply 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, I think we feel fairly comfortable that we're not going to have a problem. But I think it would 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 opportunities and 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're 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.

Okay. And what's the typical timeframe for rolling over those debt facilities? I mean, how--?

Well, it's 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 or five months away. But bear 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.

Okay, great. Thanks for your time.

Okay.

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

Hi. Good afternoon, everybody.

Hi. Good afternoon, Jeremy.

The one thing I'd say on the share repurchase idea, and it's certainly a disappointment, but are you precluded from being in the market personally at all?

No, we're not precluded. It's just we're tapped out because we leveraged ourselves personally to buy into the Company originally.

I'm sure--.

--And 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 things. So, if we could find someone who would leverage us personally against the stock we hold currently, which is between me and Scott, is approaching 25% to 30%, we would do it in a heartbeat.

Right. Well, that's actually -- that was an aside that I just picked up on since 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. But what is kind of the lay of the land when you look at the larger banks as it pertains to their trading operations in all your markets? Are they retrenching at all? Are they merely wounded or are they really just exiting the market in general?

Well, we have seen this in our careers. I've got a horrible echo on your phone here, Jeremy. I hope you can hear me.

Yes.

But we have seen this before in previous cycles where the banks have sort of retrenched. And typically, the first thing they retrench from are the niche activities, which are sort of our bread and butter. So, even if this were 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'll come back. It always does. And a lot of the sort of trading activities that happened at the banks were dressed up as customer activities, but they were really proprietary trading activities in disguise. So, the traders would go and tell their bosses I'm trading for customers. I need $100 million limit. And they were just taking big positions in the market. And the reality is, 90% of the markets are so 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 anymore. I think they'll go and say go and execute this somewhere else. Go straight onto the electronic exchanges. Find someone who will make 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's no liquidity in anything.

So, I think for us, as sort of a boutique execution shop who has capital and is prepared to put up capital in a sensible way. But to really serve the customers, I think we've got a lot of opportunities to step in where bigger players used to participate.

Yes. That's certainly my thought. And do you have a systemic or systematic plan in place then to -- and I don't want to start naming names, but have you looked at the global firms, the money center banks that are now officially banks again and nothing more, in title at any rate. Do you have a plan that you're working on to go to them and say, whoa, we've seen that you've pulled out of your market making activities so let us service this -- what order flow you do have. Do you have anything in place of that ilk?

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 toward a couple of the big banks beginning to route their exotic foreign currency transactions to us. So, not a reaction to the current market environment, but I think a strategy we were already pursing that would likely be accelerated.

Right, right. Good. Then lastly, and going back to the asset management business -- and it may well be too early in the game to really know how it's going to play out. But do you see I guess -- and I think you kind of said this, but I just want to make sure I followed you properly. If I kind of look -- back up and look at the market in general, the asset management market, there's 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 rollup of managers to try and regain efficiencies of scale?

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 answer the survivability question, okay? Are you going to be around for a year? Can you cover the bills? And someone to share the cash burden. We can do that. And 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.

Okay, great. Thanks, guys.

Sure.

And I do apologize about the echo. I'm not sure. But your next question comes from the line of Steven Schwartz. Your line is open.

Thank you. Scott and Sean, very good--.

--Hi, Steve.

Hello. Very good job on a tough quarter there.

Thank you.

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 being 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?

Yes. The problem with Consilium -- and it's just terrible how it ended up. We were managing money mainly for a StanChart 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 sold to StanChart. And that accounted for the bulk of our assets. And we had a great relationship with those guys over the last 10 years and ramped that business up very quickly.

Most of those funds, and certainly 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 had sort of three-month lead times and people have to go through a whole performance. They could just call our funds or the StanChart 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. 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.

Alright. So, I guess I'm getting an understanding. And I guess as the liquidations started to quicken the pace, then they probably had to sell at--.

Then we had markdowns. And then the whole market sort of melted down. So, no, we had markdowns probably better than most, but markdowns we 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 you know, 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 will do quite well in the current market. But it may be too late. I mean, I'm just not sure if people care anymore. They just want their money back.

And now continuing to have good track records in the convertible arbitrage fund.

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

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

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

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

Right. And 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.

Yes. 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 is 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're 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 tanked like everything else. And I think probably for that reason no one really knows what the landscape's going to look like. And 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.

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.

Right.

So, I'm not sure that the asset management business overall, as a marketplace, will anytime in the near future return to what it was.

Well, Scott was giving me an interesting statistic he read somewhere on asset management fees.

Yes. I don't know if I would repeat that because I'm not sure of the source. But basically, what I had seen was that, in 2008, what US consumers spent on financial advice, including asset management fees, was in total greater than what they spent buying cars. And that, 10 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 validity of the source, but I think broadly an indication of what was going on.

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

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

Yes, thereabouts. I mean, $8.50-ish, yes.

About $8.50?

Yes.

Okay. And from the financial companies that are more micro-cap such as ourselves, I mean, what typically should we see a company trade at from a times book? Should it be 2 times book, 2.5? What do you find in the micro-cap?

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're trading at 1 times book you're cheap. And once you start getting to 3 times book you're pretty fully valued. And there's 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'd like to buy them personally. I can't figure out how to do either, but--. And I think when you get to 30 to 35 bucks, you're starting to trade in expensive territory. But given that we've compounded our book value at 44% a year for 6 years, I don't know if it's expensive. It depends on sort of how you value growth.

But what I can tell you, in the current environment no one cares. No one cares; no one's 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.

Well, thank you very much.

That's my view.

Okay. Patricia, any further questions?

There are none at this time.

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

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