Thursday, September 10, 2009

Dwindling assets and returns for Pzena (PZN)

AlphaNinja - Know what you own. In the case of Pzena Investment Management Inc. (PZN), it's critical to know what you own. Specifically, you own a very small amount (about 10% )of Pzena LLC's profit. As a general rule of thumb, you should not need a chart to explain what your economic interest as a shareholder is. From Pzena's pre-IPO filing:




As a common stock shareholder in "Pzena Inc.," you own only a sliver of the profits thrown off by "Pzena LLC." But of course the compensation is paid to Pzena employees (and stockholders alongside you) before you get your piece:





Richard Pzena is a fantastic investor, but his returns have come under severe pressure. Looking at his returns, they still beat the market since inception but have trailed behind over the shorter term:

I remember reading about Pzena's investment process years back, and my main question was how he separates a good value investment from a "value trap," that stays cheap for a reason. Pzena says that they look at earnings 5 years out, often expecting profits to revert back to previous peaks. This worked out well in the earlier part of this decade, but proved disastrous for his firm when expecting the same out of Fannie & Freddie, Citigroup, Lehman and other financials.
A peak at some holdings back over a year ago:

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