Nov 6, 2008


Asset management is normally a great business model as I've stated before. It's a largely fixed cost business like software so your margins can grow as you grow. Sales are largely a function of the assets you manage (AUM), which on average grow even when you don't sign up new clients. And you have your clients money so there are no accounts receivable so working capital is not a drain on growth. Normally...

Like all leveraged business models there is a bad side. That leverage works against you on declining revenues. Since revenues are tied to AUM and AUM in markets like this have demonstrably gone down, our firm is getting squeezed. Hard. So much so that a couple of weeks ago we had a brutal day of layoffs.

As an aside, that was actually interesting to me because I've never lived through that. I like new experiences even when they are somewhat painful. For some strange reason I wasn't particularly nervous about it either. On one level, as a total permabear on this market, I knew it was coming months and months ago and so I was mentally prepared. I guess on some level I also thought the risk was low because I was having a good year. But I also find change exciting and if I did lose my job I was kind of excited by the thought of what I might do next. And I had a lot of ideas. Well I didn't get laid off so that's all moot.

As a result of the layoffs the analyst base wasn't well spread out across the market cap of the world markets. So I got reshuffled. I used to largely cover technology, in US markets on the short side. Now I'm going to cover utilities in North America; both long and short. This may sound like a boring industry to cover but I'm pretty jazzed about it. I spent a year of my life in Brazil assisting a US company with acquisitions of Brazilian electric companies that were being privatized by the government. I found it fascinating. And not entirely because of g-string bikinis on the beaches down there. Utilities are interesting because the industry is so simple on one hand (make energy or clean water or gas, distribute it, and deal with regulators) and yet the the complexity of the financial outcomes belies this.

Anyway. Expect a lot of energy related posts in the future.

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