Horos Asset Management, an investment management firm, published its first quarter 2023 investor letter. A copy of the same can be downloaded here. During the quarter, Horos Value Internacional fund returned 6.0% in the volatile market environment compared to a 5.4% rise in its benchmark index and Horos Value Iberia was up 6.1% in the same period, compared to a 10.8% rise of its benchmark. Since Horos’ inception on May 21, 2018, Horos Value Internacional returned 34.0%, compared to a 47.1% gain of its benchmark index, while Horos Value Iberia has returned 10.9%, slightly below its index’s 13.4% return. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Horos Asset Management highlighted stocks like SVB Financial Group (OTC:SIVBQ) in the first quarter 2023 investor letter. Headquartered in Santa Clara, California, SVB Financial Group (OTC:SIVBQ) is a diversified financial services company. On June 9, 2023, SVB Financial Group (OTC:SIVBQ) stock closed at $0.3038 per share. One-month return of SVB Financial Group (OTC:SIVBQ) was -37.37%, and its shares lost 99.93% of their value over the last 52 weeks. SVB Financial Group (OTC:SIVBQ) has a market capitalization of $17.984 million.
Horos Asset Management made the following comment about SVB Financial Group (OTC:SIVBQ) in its first quarter 2023 investor letter:
“Although in hindsight the causality of events in the financial markets usually seems very evident, the reality is that very few people were able to foresee the bankruptcy of one of Silicon Valley’s most emblematic banks: SVB Financial Group (OTC:SIVBQ). This entity was established forty years ago with the aim of focusing on providing financing services to newly created firms (such as start-ups) and vehicles that invest in them (venture capital and private equity), as well as offering private banking services to Silicon Valley’s high net worth individuals. We are therefore talking about a bank that specializes in a particular niche in this sector and which, until recently, was among the twenty largest in terms of assets in the United States. To achieve this milestone, Silicon Valley Bank was able to benefit from the big investment boom in technology companies (including crypto-assets) in recent years, as evidenced by its customers’ deposits reaching a value of c. $190 billion in 2021, compared to almost four times less in 2018. However, this tremendous growth concealed the seed of the subsequent destruction of the iconic bank. On the one hand, the bank, faced with the inability to grow its loan portfolio at the rate at which it was attracting deposits, invested the excess funds in financial assets (notably, U.S. government agency mortgage-backed securities or MBS) to such an extent that, at the end of 2022, investments in securities accounted for 44% of its assets, far exceeding the c. 27% represented by its loans (its supposedly underlying business).3 On the other hand, its financial leverage increased by 70% over the period, with its assets reaching a size 17 times greater than its equity at the end of 2022. So far, beyond a possible exuberance in the technology market that could be behind its high asset growth, nothing seemed to foreshadow what was to come. Consider that the leverage ratio of many banks is at similar levels, so this figure does not indicate a higher risk specific to this bank. In addition, the asset portfolio was of very high quality, so they were not taking on credit risk with their investments.
However, the catastrophe occurred practically overnight. On March 8, Silicon Valley Bank announced realized losses in its fixed income portfolio of nearly $2 billion and the intention to raise capital by $2.25 billion to address this hole in its capital base.4 Before proceeding, it is important to note that a financial institution that classifies its investments as held-to-maturity assets does not have to mark-to-market its value, i.e., it does not take into account whether this portfolio is currently generating profits or losses. Why is this relevant? Because Silicon Valley Bank accounted for about $91 billion of its $120 billion of investments as held-to-maturity securities and, therefore, unless it sold them, it would not impact its performance on its income statement or balance sheet. Having clarified this aspect, two questions underlie the bank’s loss and capital raise announcement. First, why did the value of its fixed-income portfolio decline so sharply? The answer was discussed in detail in our previous quarterly letter (see here). Simply put, the Federal Reserve’s interest rate hikes caused a drop in the value of fixed-income assets not seen in decades. In the case of Silicon Valley Bank, the market value of its held-to-maturity investments was well below the $91 billion booked on its balance sheet. Specifically, its value was just over $76 billion. Thus, by accounting standards, its asset base showed investments worth $15 billion more than their market value. A figure that, on the other hand, compared to shareholders’ equity of just over $16 billion. In other words, in the unlikely event that Silicon Valley Bank had to sell its held-to-maturity securities, it would have to suffer losses that would volatilize almost all the bank’s net worth. An unlikely scenario, but not impossible…” (Click here to read the full text)
SVB Financial Group (OTC:SIVBQ) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 4 hedge fund portfolios held SVB Financial Group (OTC:SIVBQ) at the end of first quarter 2023 which was 45 in the previous quarter. In addition, please check out our hedge fund investor letters Q1 2023 page for more investor letters from hedge funds and other leading investors.
Suggested Articles:
- 10 Best Booming Stocks to Buy Now
- 10 Biggest Gaming Companies in the World by Revenue
- Top 20 Information Technology Countries in the World
Disclosure: None. This article is originally published at Insider Monkey.
