Harry Rady News

November 11, 2011
By Joyce Hanson, AdvisorOne

When Harry Rady flew to New York from San Diego this week, he was on a mission: to find an independent registered investment advisor that would buy him out.

While pounding the pavement in Manhattan, the chief executive of Rady Asset Management called AdvisorOne from his cell phone between interviews with potential buyers to explain why he had come to town.

“I want to merge my firm with a large RIA that has scale so I can focus on what I can do best,” said Rady (left). “Since I’ve been in New York, the response has been nothing short of remarkable. We’ll take our time to make a decision, but we hope to find a match by the end of the year. I’m conservative, but 80% to 90% of the firms I’m meeting are saying, ‘We want you to be part of our team.’”

What Rady does best is serve clients as an outsourced chief investment officer. As smart and talented as Rady may be, though, his apparent success in talking with potential indie RIA buyers may also have something to do with the current demand for outsourced CIOs who can focus on buying and selling securities.

Outsourced CIOs Come to Wealth Management

The trend of hiring outsourced CIOs, already popular in the world of endowments and nonprofits, is making inroads in the world of wealth management.

Last year, according to an SEI Quick Poll, the majority of nonprofits considered switching to an outsourced CIO model to manage assets as a result of economic conditions.

“Changing market conditions have led some to reconsider their current approach,” SEI reported. “Of this group, they cited increased complexity in investment vehicles (52%) and increased due-diligence requirements (43%) as reasons for concern. Also, 20% of respondents said their organization lacks the necessary internal resources and 25% said the number of new asset classes is a strain on their existing investment management approach.”

In Harry Rady’s world, those figures translate to high-net-worth families whose needs include wealth transfer, philanthropy, business succession planning and even aircraft management. It’s a world he knows well: Harry is the son of billionaire financier Ernest Rady, former chairman and CEO of Westcorp, a financial services holding company bought by Wachovia in 2005, and Harry has served as the CIO of his family’s multibillion dollar financial, investment and real estate conglomerate.

HighTower, BlackRock Get a Mention

Asked last week which indie RIAs he had been visiting, Rady wouldn’t say, but he did confirm that they were along the lines of HighTower, the RIA firm that has attracted a raft of breakaway brokerage teams from major

wirehouses over the last couple of years. The firm’s standard approach, as led byElliot Weissbluth, is to bring in a team looking for the benefits of independence and partnership.

Rady also mentioned that asset management giant BlackRock is now in the business of aggressively hiring outsourced CIOs.

Over the last decade, the path has been cleared for outsourced CIOs as brokers and advisors do less risk management and asset allocation, Rady asserted.

‘Advisors Want to Free Their Time Up to Manage Client Relationships’

“Brokers and advisors were picking stocks and managing money a decade ago, but over the years, broker-dealer wirehouses have mandated that advisors no longer pick individual stocks. They’re supposed to pick mutual funds, but now even that is changing,” he said. “It’s not that advisors aren’t smart and capable, but they want to free their time up to manage client relationships and bring in new clients.”

Just before he got into the elevator for his next interview, AdvisorOne had one last question for Harry Rady:

What is his advice to advisors seeking to ally themselves with larger indie RIA firms?

“I would strongly advise those people at the Merrills and Morgan Stanleys of the world to invest some time in understanding what the independent model has to offer versus the wirehouse broker-dealer model,” he answered. “The days of the big wirehouses and broker-dealers are numbered, and I tell my friends in the industry that the future is in the independent advisor space. The economics are simple: a 40% payout at Morgan Stanley, but 70% at an independent. It doesn’t take a brain surgeon to see why independent RIAs are attracting talent.”

Read How Due Diligence Can Give Advisors Confidence at AdvisorOne.com

Originally posted on – http://www.advisorone.com/2011/11/11/one-mans-quest-to-find-an-indie-ria-buyer

November 15, 2011
by Tara Lachapelle, Joseph Ciolli and Rita Nazareth

Nov. 11 (Bloomberg) — Even after losing more than half its value, Green Mountain Coffee Roasters Inc. is still almost twice as expensive for potential acquirers as the median company in the Standard & Poor’s 500 Index.

Nov. 11 (Bloomberg) — Even after losing more than half its value, Green Mountain Coffee Roasters Inc. is still almost twice as expensive for potential acquirers as the median company in the Standard & Poor’s 500 Index.

The largest U.S. seller of single-serve brewers, which plunged the most ever yesterday after its sales trailed analysts’ estimates, has fallen as much as 63 percent from its all-time high in September, according to data compiled by Bloomberg. The drop, which wiped out $11 billion of market value, left Green Mountain trading at 28 times earnings, still more than 90 percent higher than the median S&P 500 company.

Green Mountain has used the Keurig business to boost its revenue fivefold in the past three years and control a dominant share of the U.S. single-cup coffee market. Still, Training The Street’s Scott Rostan says any potential buyers from Nestle SA to Coca-Cola Co. and Starbucks Corp. would risk overpaying for a company that faces competition as patents on its brewing system expire in less than a year and scrutiny of its accounting practices from short sellers such as David Einhorn.

“While a Nestle or Coca-Cola or Starbucks would love to have that growth potential, that’s a pretty big price for them to pay right now,” Rostan, a former investment banker who trains new hires at firms from Blackstone Group LP to Credit Suisse Group AG on mergers, said in a telephone interview. “If there are accounting concerns, most acquirers are probably going to run for the hills. A suitor would have to buy the entire company and that means they would assume all the liabilities.”

Today’s Trading

Suzanne DuLong, a spokeswoman for Waterbury, Vermont-based Green Mountain, didn’t respond to a telephone message or an e- mail seeking comment. Robin Tickle, head of corporate media relations for Vevey, Switzerland-based Nestle, declined to comment. Kent Landers, a spokesman for Atlanta-based Coca-Cola, said it doesn’t comment on rumors or speculation, as did Alan Hilowitz of Seattle-based Starbucks.

Green Mountain’s shares climbed 3.5 percent to $42.33 at 9:56 a.m. in New York today. The stock had plunged 39 percent to $40.89 yesterday, the biggest drop since its initial public offering in 1993. The company slumped after saying that fourth- quarter sales increased 91 percent to $711.9 million, trailing analysts’ average projection of $757.7 million.

Wholesale customers boosted orders in the third quarter, only to cut back in the next period, Chief Executive Officer Lawrence Blanford said on an analyst call. One reason was that retailers purchased more K-Cup capsules prior to a price increase, according to Janney Montgomery Scott LLC.

K-Cup Sales

The company also overestimated K-cup sales for the fourth quarter, Chief Financial Officer Frances Rathke said.

Yesterday’s slump left Green Mountain with a market value of $6.26 billion. Before reporting earnings, the coffeemaker was worth more than $10 billion, bigger than almost half the companies in the S&P 500, the benchmark gauge for U.S. equity.

While Green Mountain’s price-earnings ratio has declined from a high of 89 times, it was still almost twice as expensive as the median S&P 500 company, which traded at 14.5 times yesterday, according to data compiled by Bloomberg.

Most of Green Mountain’s drop came after Einhorn, president of Greenlight Capital Inc., said in an Oct. 17 presentation at the Value Investing Congress in New York that it faces a “looming patent issue” on its Keurig system that may undermine its ability to impose a “monopoly price” on the packets.

‘A Good Chunk’

“I believe the available market is smaller than the bulls believe it to be and that Green Mountain has already penetrated a good chunk of it,” Einhorn, 42, said. Green Mountain also has a “litany of accounting questions,” he said.

Best known for betting against Lehman Brothers Holdings Inc. before it collapsed in September 2008, Einhorn has had mixed results in 2011. Greenlight Capital sold a stake in Yahoo! Inc. for a “modest loss,” he told investors in a July letter.

His attempt to buy a share of the New York Mets baseball team fell apart in September.

Einhorn declined to comment yesterday about Green Mountain.

Green Mountain disclosed in September 2010 that it was the subject of an inquiry by the Securities and Exchange Commission. Two months later, the company restated earnings for years dating back to 2007 because of issues with K-Cup coffee-pod revenue and royalties, according to a statement. The coffeemaker said in August it continues to cooperate with the SEC inquiry.

“It’s a high-risk investment,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. In addition, “the accounting stuff is a bit scary,” he said.

Short Interest

Investors increased short sales on Green Mountain to 13.8 percent of shares outstanding as of Nov. 8, from 7.7 percent a month ago and the highest level since March, according to data compiled by New York-based Data Explorers. In a short sale, a trader borrows a stock and sells it, hoping to profit from a decline by replacing it at a lower price.

Whitney Tilson, who oversees $150 million as managing director of hedge fund T2 Partners LLC in New York, boosted his short position after Green Mountain released earnings on Nov. 9.

“The stock remains significantly overvalued,” he said in a telephone interview yesterday. “Our view is that the short thesis has just started to play out and that there are probably more shoes to drop. We don’t think there’s any chance they make next year’s guidance” because of its expiring patents, he said.

‘Ridiculous’ Reaction

Anton Brenner, an analyst at Roth Capital Partners LLC, said in a report to clients yesterday that the market’s reaction was “ridiculous” and anticipates that Green Mountain will maintain its “rapid” rate of sales and earnings growth.

That could help reignite speculation about a possible acquisition of the company, he said.

If Green Mountain hits its growth goals, the company may be cheap enough to lure companies such as Nestle, according to Harry Rady, chief executive officer of La Jolla, California- based Rady Asset Management LLC.

Green Mountain forecast revenue of as much as $4.37 billion this fiscal year, which would value it at 1.4 times sales, matching the multiple for the median S&P 500 company, data compiled by Bloomberg show. Nestle, which sells the Nespresso single-cup brewer, may want Green Mountain to remove a competitor and expand the Keurig K-Cup system, Rady said.

“That is a valuable franchise and the Nestles of the world would love to have that,” Rady, who manages $260 million, said in a telephone interview.

Bullish Analysts

Sales at Green Mountain ballooned 430 percent in the past three years. Last year, the company almost doubled revenue.

Most analysts covering Green Mountain remain bullish on the company’s stock, with at least a half dozen reaffirming their “buy” ratings after its earnings announcement.

On average, analysts estimate that Green Mountain will climb to $96.56 a share within the next 12 months, more than double its price yesterday.

Based on earnings, Green Mountain was also almost as cheap as Starbucks, which traded at 27.4 times yesterday. Two months ago, Green Mountain was more than three times as expensive, data compiled by Bloomberg show.

Green Mountain is worth no more than $32 a share, 22 percent less than its price yesterday, according to a report dated Nov. 10 from Stifel Nicolaus & Co.’s Mark Astrachan, the only analyst who recommends selling Green Mountain. He said its reported sales fell short not because of what the company attributed to wholesale customer ordering patterns, but because demand for its brewers and K-Cups is weakening.

“Top-line is tough to get these days, but there’s a limit to what you can pay for,” Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets, said in a telephone interview. “There’s more risk in there than there’s reward.”

–With assistance from Leslie Patton in Chicago. Editors: Michael Tsang, Daniel Hauck.

To contact the reporters on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Nick Baker at nbaker7@bloomberg.net.

Originally posted on – http://www.businessweek.com/news/2011-11-15/green-mountain-making-coffee-90-costlier-than-s-p-500-real-m-a.html

Nov 9, 2011
By Jeff Macke | Breakout

"Gold is not the safe haven that everybody makes it out to be," says Harry Rady, CEO of Rady Asset Management.

In fact, he says, gold is just like copper, wheat or pork bellies or any other commodity, only with almost totally arbitrary pricing. You gold bugs up in arms yet? If not, you’re about to be.

"Investors are willing to invest in gold at any price with the assumption that it’ll go up forever… just like housing" (emphasis added). Gold investors are playing a "dangerous game of musical chairs," he contends.

Rady has shorted gold via the SPDR Gold Shares (GLD) ETF, but he has no position at the moment.

What he is doing is building extensive positions in industrial commodities via their producers. Consistent with his view that the woes of the global economy are overstated, Rady is loading up on Stillwater Mining (SWC) and North American Palladium (PAL), miners of platinum and palladium, respectively. According to Rady, the reality is that these metals have "limited supply, and global miners are struggling to produce." Because of the perception of the markets, these particular stocks have been beaten senseless, enabling investors to buy proven reserves at pennies on the dollar and getting probable reserves for free.

With economic risk already discounted (Stillwater is down about 60% from its 2011 highs), he sees low double-digit downside risk with the chance for each stock to be "doubles or triples over the next two or three years." Rady’s M.O. is to get long stocks near their 52-week lows, giving him a potential embarrassment of riches with the miners, which, despite their recent vigorous rallies, are still closer to their bottoms than their old highs.

Another group Rady likes are mid-cap exploration and production (E&P) companies. The asset manager sees players in the E&P space with dominant positions in regional markets as takeover targets for Big Oil. "Nobody is going to acquire Exxon Mobil (XOM)," he says, but with values at 50 cents on the dollar, an acquisition of these relatively small operations would be ideal for bigger fish who "want to improve their positions in these very prolific plays."

For Rady’s money, as well as that of his investors, the most prolific names in the group are Penn Virginia (PVA) and Carrizo Oil & Gas (CRZO).

Originally posted on – http://finance.yahoo.com/blogs/breakout/sell-gold-buy-metal-miners-mid-cap-e-134553765.html

Remember President Obama’s stimulus plan? See what Harry Rady‘s thoughts were back in 2009.

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