Manning & Napier, Inc.

Active investment managers have taken severe beatings over the last few years as money piles into passive index funds. Manning & Napier (MN), Inc. is a US-based registered investment advisor. It earns fees serving wealthy individuals and institutions via separately managed accounts, mutual funds, and collective investment trusts.

The company has suffered declines in assets under management (AUM) from $25.1 billion two years ago to under $19.5 billion as at December 31^st, 2019. Almost all its funds have underperformed their benchmarks (though not by a lot) over five and ten-year periods.

Revenues have declined from $314m in 2015 to $138m in 2019. In such a backdrop of continually declining revenues, the bargain hunter would hang his/her hat on liquidation value. Examination of the balance sheet reveals net liquid assets i.e. cash, short-term investments, and short-term receivables net of all liabilities of $81m. The company's common stock is selling for under $49m in the market.

But there’s a catch that makes the reading of the footnotes essential here. The listed company owns only 19.2% of the underlying investment advisor MN Group. The balance is held by founder William Manning and other employees.

Being the managing member, however, the company consolidates the entire balance sheet of the group and discloses the 80.8% interest as ‘Non-controlling interests’ (NCI). The rub here, is that this only accounts for the share of the retained deficits, not of liquid assets. Hence, the NCI is presented as a negative figure, which a casual reader would presume to belong to a minor economic stake.

Taking the 19.2% economic interest of net liquid assets results in a value of only $15.6m. Recent diluted earnings of $0.09 reveals a current trading multiple of over 30x earnings.

This case represents one of those accounting quirks, which necessitates the reading of the footnotes. This security doesn’t appear to be a clear-cut bargain based on the figures.