Win Smith is considering options for Jupiter Venture's investment in Sensormatic Electronic Corp, including whether to purchase the company's new convertible debentures or substitute them for the fund's existing common stock holding. Sensormatic is the largest holding in Jupiter Venture's portfolio, comprising 353,300 shares worth $6.9 million, and has more than doubled in price during the past 18 months. Smith expects the convertibles to have a coupon of 7% and conversion price of $23.50, providing a premium of 20.5%. Sensormatic has bright long term prospects for 20%+ revenue growth but short term earnings are vulnerable to uncertainties in its major market.
Win Smith is considering options for Jupiter Venture's investment in Sensormatic Electronic Corp, including whether to purchase the company's new convertible debentures or substitute them for the fund's existing common stock holding. Sensormatic is the largest holding in Jupiter Venture's portfolio, comprising 353,300 shares worth $6.9 million, and has more than doubled in price during the past 18 months. Smith expects the convertibles to have a coupon of 7% and conversion price of $23.50, providing a premium of 20.5%. Sensormatic has bright long term prospects for 20%+ revenue growth but short term earnings are vulnerable to uncertainties in its major market.
Win Smith is considering options for Jupiter Venture's investment in Sensormatic Electronic Corp, including whether to purchase the company's new convertible debentures or substitute them for the fund's existing common stock holding. Sensormatic is the largest holding in Jupiter Venture's portfolio, comprising 353,300 shares worth $6.9 million, and has more than doubled in price during the past 18 months. Smith expects the convertibles to have a coupon of 7% and conversion price of $23.50, providing a premium of 20.5%. Sensormatic has bright long term prospects for 20%+ revenue growth but short term earnings are vulnerable to uncertainties in its major market.
Payal Chauhan (14) Dhruv Bansal (16) Arun Kumar (17) Pallavi Sharma Karan Karamchandani Win Smith, vice chairman of JMC was thinking over his options w.r.t. the impending sale of $100 mn principal amount of subordinate debentures by Sensormatic Electronic Corp. SEC was largest holding in Jupiter Ventures investment portfolio and having more than doubled in price during its 18 months in the portfolio. Held 353,300 shares for $6.9 Mn and hold seventh largest equity position in the portfolio. Smith was considering to substitute convertibles for some or perhaps all of the funds Sensormatic common stock.
Jupiter Ventures investment was lagging behind those of direct competitors and stock indices. Shortfall in year 1991 results to a heavy influx of new cash into the fund. Sharp rise in the stock market and recession in the economy led to lack of attractively priced stock to absorb the inflows. Cash comprised of 37% of funds net assets.
Mutual fund is a collective investment scheme that pools money from many investors to purchase securities. Categories of equity funds: Aggressive growth, Long term growth, Growth and income and Equity income. Other category Funds: Small company growth funds, high technology funds and Utilities funds. Domestic funds, Global funds and International funds. Taxable and tax free funds. Balanced Funds and asset location funds.
In 1977 JM entered the mutual fund business. Net asset grew from $51 bn in 1976 to $1069 bn in 1990 because of general prosperity and aggressive marketing by fund sponsors. Mutual Fund became the third largest intermediary in the U.S. financial System after commercial banks and life insurance companies. Other Reasons: Bull market of 1980s, rapid growth in individual retired accounts and increasing sophistication of affluent consumers. At end of 1990, money market funds which invested exclusively in short term taxable or tax exempt instruments comprised nets assests of $498 bn. Taxable and tax free bonds-$325 bn. Equity Funds-$246 bn. 62.6 Mn mutual fund shareholders accounts with an average balance of about $17,000. All mutual funds were managed by external sponsoring organisation.
Prominent sponsors: Brokerage firms, Investment advisory firms, LIC and large mutual fund complexes. Sponsors organised the fund, established its investment objectives, marketed its shares in consideration of a management fee which was generally a percentage of average net assets. Investment advisory contract governed the relationship between the fund and the sponsors and the funds Board of Directors supervised the sponsors activities.
Medium sized but rapidly growing and highly profitable money management firm. Entry into mutual fund business proved to be a major success benefiting from both superior investment results and rapid growth in mutual fund assests. In 1991 JM had about $7.7 bn of net assets out of which mutual fund comprised of $5.9 bn. Hard to compete with the mutual fund giants because of lack resources in terms of advertising, technology and product line extension. Superior performance in management of equity portfolios was cornerstone for success. Focused on small and medium sized companies with limited Wall street research coverage and the potential for significant near to medium term price appreciation. Objective was to buy the stock only when it was deemed to be substantially undervalued and to sell when it was fully valued.
JMs long run objective was to create a family of funds that could satisfy all of the investment needs of the high income household. In 1991 there were five equity funds: Two bond funds and three money market funds. Out of $5.9 bn of mutual fund net assets, equity funds accounted for $2.7 bn. Minimum initial investment was $5,000 and @2,000 for individual accounts and individual retirement accounts and other tax deferred saving plans. It was a direct descendant of the Jupiter Fund. It was launched in mid 1985 to fill the specialty niche one once occupied by the older fund. Objective was to maximise long term growth of capital primarily from the investment in the common stocks of small capitalisation. JVs risk level was higher than that of JF. It was managed by Win Smith from its inception and in 1990 it recorded a compound annual total return of 17.3%. It was a rapidly growing fully integrated manufacturer of electronic system. Systems were used to deter shoplifting and other theft in retail stores and increasingly in non retail settings. Product line: EAS-78% revenues CCTV-13% revenues Access control systems-6% revenues Net proceeds to be used initially to pay $25 million of domestic bank debt and to augment cash reserves. Straight debt financing was relatively unattractive. Private placement of straight debt would have required a coupon of at least 12.5%-12.75%. Amount : $100,00,000 Maturity : May 15, 2001
With respect to the new Sensormatic issue, the options for JV were: 1) Increase the funds overall position in Sensormatic Securities by purchasing convertibles 2) To replace some or all the of the existing common stock position with convertibles 3) To maintain the current position 4) To reduce or eliminate this position Smith considered that sale of convertibles would increase Sensormatics liquidity and ensure capital for its ambitious expansion plan. Smith expected the convertibles to be priced at par with a coupon of 7% at conversion price of $23.50 for a conversion premium of 20.5%. Bright long term prospects revenues expected to grow at 20% or more per annum. Short term earnings were vulnerable to unquantifiable uncertainties because of Sensormatics majors bet on hard good market.