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August 01, 2007 at 04:00 AM
In “The Carry Trade,” (HedgeWorld, June 2007) you quote Erik Postniecks stating that “Ninety percent of all retail investors lose money in futures markets.”
I assure you, there has never been a survey taken or published to substantiate this urban myth. If 90% of retail futures investors really lost money, do you actually think there would continue to be retail futures investors?
I am an investment advisor and a CTA with 30 years of “C” level experience in the futures industry and whether I employ equities or futures for client investment needs quite simply depends on the client. Futures are legitimate investment tools, and it’s tiresome to see them slammed as an asset class without regard to their proper application in wealth management strategies.
Scott Eisner
Managing Member
Scalar Funds Management
Buffalo Grove, Illinois
Bob, You’re So Wrong
After reading Bob Clark’s June 2007 article (“The Art of the Deal”), I felt compelled to point out a number of inaccuracies in this and many of his previous articles on selling your practice.
In his cash-flow comparison of selling to a roll-up firm like NFP, he fails to note that the purchase money received up front is taxed at lower capital gain rates. He also fails to take into account that the up-front money can be invested and will grow over time.
While mentioning that NFP stock has performed exceptionally well, he totally discounts the appreciation potential of the stock part of a transaction. He seems to miss the point that one of the primary benefits that a roll-up firm offers is the ability for all of the participating firms to leverage the much higher valuations for public companies. This can be especially attractive with early stage roll-up firms like Focus Financial Partners.
When one takes into account the proceeds from selling a portion of your future cash-flow for an up-front payment on a tax-advantaged basis, plus the earn-outs that provide additional compensation based on firm growth, plus the benefit of getting public company valuations for your private company, these transactions can result in multiples far in excess of the 14 times free cash flow quoted by Bob Clark. These deals are also not pie-in-the-sky, but have already taken place successfully. They are very transparent deals where everyone can see how everyone makes their money, not a “Byzantine deal structure” or an undefined piece-by-piece sale to younger advisors that Bob Clark seems to be promoting.
