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Silvercrest Asset Management (SAMG): A 4% Dividend Yield For an Asset Manager Focused on Super Wealthy Families and Institutions

Silvercrest Asset Management (SAMG) is an investment manager. It looks cheap if you expect it – as has been the case in the past – to do a good job of keeping its clients and keeping those clients keeping about as much money with them as before. However, most publicly traded asset managers are cheap stocks, because they have experienced – and investors probably expect them to continue to experience – redemptions. In some ways, Silvercrest looks a bit closer to Truxton (TRUX) – another stock I wrote-up – than it does to some of the asset managers that just run mutual funds for the general investing public. Silvercrest’s client base is a mix of ultra-wealthy – their top 50 clients average $290 million in assets each at Silvercrest – families (2/3rds of the business) and institutions (1/3^rd of the business). These clients are put into a mix of homegrown investment options and outsourced investments. For all clients, the average is closer to about $30 million. However, as you’d expect – most of the assets under management are with their top 50 clients (who, again, each average close to $300 million in assets with Silvercrest).

Silvercrest charges mostly asset-based fees. These average a bit less than 0.6% of assets under management. Unlike Truxton, Silvercrest is not a private bank. It offers other services. But, these are a small part of the business, aren’t growing very fast, and aren’t something I’m going to discuss much here. So, Silvercrest might sit midway between the kind of publicly traded asset managers you’re more familiar with (say GAMCO) and a private bank / trust business like Truxton. I don’t think it’s entirely comparable to one or the other.

There’s a write-up over at Value Investors Club on this stock. It’ll be a little different from what I discuss here. So, I recommend reading that. But, there’s not going to be a ton of information in there that I don’t also cover. This is because both my write-up of Silvercrest and that Value Investors Club write-up look like they’re nearly 100% based on reading the company’s 10-K. The company does earnings calls. You should read the transcripts. It might give you a little bit better feel for the sales process and things like that. The company also puts out an annual report (on its website) that includes a shareholder letter not found in the 10-K (the rest of the annual report is just the 10-K).

As of the last 10-Q (September 30^th, 2020) the company had $24 billion in asset under management. However, that is for the consolidated entity Silvercrest L.P. which is 35% owned by employees of the company and only 65% owned by public shareholders in the entity I’m writing about here.

So, as a stockholder, you really only have an interest in $16 billion of that AUM.

Silvercrest has a diagram to explain this. But, it’s worth going over here. The publicly traded company owns about 2/3rds of the …

Investors Title Company (ITIC): A Strong, Consistently Profitable Regional Title Insurer Trading at a Premium to Book Value

This stock was brought to me by Andrew. He wanted to know more about the title insurance industry. ITIC is a publicly traded (it trades on NASDAQ) regional title insurer. There are four large, national title insurers that account for 80-90% of all title insurance market share in the U.S. However, in some states – the leading title insurer is a homegrown operation. These companies are known as “regional” title insurers. ITIC was started by the Fine family in the 1970s (it became operational midway through 1976). By the 1980s, it became the largest title insurer in North Carolina. It has since expanded into other states – mainly Texas, Georgia, and South Carolina. Premiums in North Carolina, Texas, Georgia, and South Carolina account for 75-80% of the company’s premiums. ITIC writes mainly (but not totally) directly in North Carolina and through “issuing agents” (lawyers, bankers, basically anyone originating a real estate purchase or transfer or refinance) in other states. Generally, there is no commission associated with title insurance premiums written directly and slightly under a 70% commission rate for insurance written indirectly.

ITIC is a “primary” insurer. It does own a reinsurance subsidiary. And it both assumes and cedes some insurance each year. However, this has never been a material part of its business. As far as I can tell – and I only read the most recent 10-K from 2019 and the oldest 10-K from the mid-1990s – reinsurance has been less than 1% of revenues. My guess is that the reinsurance business is not for regulatory reasons. It probably has to do with the company’s choice to not retain individual risks in excess of a certain amount. For example – and this is just a hypothetical illustration, it may be close to the truth but is not something the company says explicitly – if someone wants $900,000 of title insurance, the company may take the first $500,000 and retain that risk in the usual insurance subsidiary and then pass the other $400,000 on to the reinsurance subsidiary. As of the 1990s, we know that this was not a requirement that state regulators in North Carolina put on the company. It was a choice the company was making.

ITIC’s financial position is strong. You can see it has an A.M. Best rating of “A” (there are only two notches above this: A+ and A++). In a podcast I did recently with Andrew, I mentioned that investors may want to look for an “A minus” or better rating from A.M. Best to know if there is anything about the company’s financial position that might be a concern in terms of the strength of an insurance subsidiary. Keep in mind that an A.M. Best rating is really an indication of insurance subsidiary strength as an insurer (safety for policyholders, ability to reinsure others, etc.) and not a credit rating. It’s certainly not a rating of the safety of the common stock or its dividend.

Having said that, I wasn’t surprised when …