Hedge Funds & the PPP

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Note from Tim: as a reminder, I put together a spreadsheet of Palo Alto firms that got over $150,000 in PPP loans. Check it out here. If you don’t have an AirTable account, it’ll ask you to sign up for free.

I had noted a few months ago that many of these firms getting the PPP loans were not ‘in the spirit’ of the program.

Without any real ‘oversight’ the compliance part of these loans seems – – – questionable — on some.  I am not sure how it all really works, but the American public likely believes these funds should have gone to the ‘small business’, with waiters, waitresses, or bartenders who obviously couldn’t work.  This was the spirit of the PPP program.

And, there are others – the people at the gyms and yoga studios.  At the nail salon and corner barber shops.  There are many, many businesses, and it seems everyone has a hardship story.

My daughter work(s) in an art studio that caters to teaching small children… a robust, successful business in 2019 and even January…  then, they were forced to close.

The proprietor of the business maintains a staff of 5. Three of them, full time.  Then, on March 17, the doors closed.  No income!  But, the rent was due in 2 weeks, among other bills.  And, there were paychecks to write!

The spirit of the PPP was for businesses like this.  Well run businesses that had to close due to Coronavirus.  The Govt response: lend them some money to keep the staff employed until such a time that ‘the economy reopens‘.  That was initially targeted as May 1.  Then June. Finally, on July 1, they reopened, in a very reduced and highly restricted way.

Incomplete PPP Spreadsheet

So, when the Govt released the PPP spreadsheet this week, I started to browse it.  It was not complete, and it didn’t have the final awards.  It left off the under $150,000 loans (which apparently there were many of) and it categorized size as $1-2million, $350k- 1m, etc.

As I paged through the 650,000 line spreadsheet, I decided I would search for the key word “Asset Management”.  Earlier in May, I had seen a hedge fund take a loan only to return it after some bad media.   I wanted to see who else may be taking these loans.

The first name was a real estate related ‘Asset Management’ firm in Seattle Washington.  Epic Asset Management appears to have taken $1-2m in loans.  Their website touts they are a property management firm, one of the largest in Seattle.  56 years in the business, 5,400 units with 6,000 residents and boasting 170 person staff.

I am guessing that when the economy closed, most of ‘management’ could work from home, but there were other jobs that were ‘non-essential’ staff would be sidelined for 2-3 months until the markets reopened.  If that made up 100 (of the 170), it means that at $1m loaned, they had $10,000 per employee budgeted for the 3 months.

That seems fair.  $10k over 3 months is approximately $40k annual salary.  If the loan was for $2m, that would be double, $80k annually.   The loan was probably somewhere in between – seems fair…

Meritage Asset Management Receive Huge Amount In Loans

Then, I came across Meritage Asset Management, Inc of Columbia SC (gave address too, so I could confirm the company’s website).  Per the listing, Meritage got between $350,000 and $1m in loans.

Between Buzzfile, Bloomberg and Manta corporate profiles, Meritage’s annual revenues in 2019 were between $400,000 and $450,000.  It also listed the firm as 7 employees.  I don’t know what Meritage does, and I don’t know what the expenses are, but just simple math (450,000 divided by 7 is $65,000)   Nobody is getting rich at Meritage Asset Management.

Of course, 2020 may be different.  The business took out a $350,000 to $1 million loan.  At the very least, they could nearly double every employee’s ‘normal’ earnings or possibly triple them! This doesn’t seem in the spirit of the PPP loan to me.

Cambria Asset Management Takes Advantage Of The PPP

Another name I stumbled across was Cambria Asset Management out in Salt Lake City, Utah. Cambria is an RIA business, a Registered Investment Advisor, or what used to be called a stock broker.

In my mind, these are exactly who shouldn’t be covered by the PPP program.  As an RIA, Cambria files with the SEC. From their filing, they list a 7 person firm that manages $11 million across 158 client accounts.  In other words, approximately 158 people have entrusted Cambria with an average life savings of about $70,000.

On the Cambria website are listed 4 gentlemen as ‘TEAM’, all with impressive resumes, MBAs, licenses and other credentials.  I guess there are 3 others in their office as ‘staff’, performing accounting and operational duties and perhaps a receptionist.

Per theri SEC filing, their $11,000,000 investment generates investment fees of 1.5% each year.  This group then takes in $165,000 in revenues each year.  Again, not taking into account expenses like office rentals, $165,000 divided by the 7 employees is about $23,500 per employee, per year.   (Not sure how they really make this business work.)

Per the PPP listing, Cambria Asset Management took a loan between $150,000 and 350,000.  At $150k, this is another $21,000 per employee.  Seems more like a ‘bonus’!

Why? Asset management businesses are work from home businesses.  Their revenues did not stop, like at the restaurant or the barber.  Why is the public supporting Cambria, subsidizing their business with a Covid bonus?

I explored 4 or 5 PPP – Asset Management names today.  These are my quick findings.  There are over 650,000 different loans made on the spreadsheet made public.  Only 650,495 more to review….

Bloom Asset Management Scores Up to $2 Million In PPP Loan

Bloom Asset Management is listed as an RIA based in Michigan.

Per PPP filings, they got a $1m to $2m loan…  which they said would save 20 jobs

Per their ADV, they are an RIA at the same location, and show the firm as 20 people!

They list AUM at $1,192,000,000      yup, 1.1 BILLION

They earn an average 75bps in fee income.  This is approx $7.5m in revenue

They took a 1 to 2m loan, on the taxpayers backs (as they get forgiven) to help them through these tough times!

They still get paid!   Its not like they all got fired!

Assume they spend 1/2 of their 7.5 on office ‘stuff’  this leaves $4m left.

Does anyone pay attention?