It seems as though the glib assertion on the part of management that the price of PSEC always recovers to previous highs turned out not to be true. The last secondary seems to have done real damage and made investors wary of how the managers are using this company. I think the managers gets paid based on assets under management and that puts their incentives at odds with shareholders. There is almost no way to change the managers because the whole setup is too incestuous and too difficult to form successful voting blocks and why bother anyway when the easiest vote is simply not to buy the shares in the first place. I think the div is so high because sober investors understand that the management and shareholder interests are not aligned. These guys have been spending money like drunken sailors since the november secondary so the question in my mind is: when does it get slammed again in the next secondary? I'll buy it for a trade next time it gets slammed again but i wouldn't buy and hold this as an investment. i think you really have to ask: why does this trade around nothing more than book value and i think the answer is just what i am saying: management is working for management, not for you. But good luck longs, i'll be happy to join you after the next secondary sell-off tanks the stock again way below book and to a huge div... otherwise i am staying away.
The fees management collects is incentive based. Those fees directly correlate with how much return is generated from each.
First you mention a lack of recovery from the secondary. You fail to define what your definition of recovery is.
The stock was down at 10 bucks and has since traded as high as 11.52? Id say PPS has recovered or at least DID recover prior to the Wells Fargo downgrade.
Next you cut and paste in response to the baloney comment. The poster was I believe addressing your recovery comment on the current price.
As a shareholder you should embrace the fact Prospect has doubled in assets in 6 months. This translates to more money in your pocket. at the very least it translates to stable earnings and dividends.
Fact: The incentive to management has not gone up it is 2% and it has some complex calculations to determine. It most certainly takes into account shares issued. There are performance hurdles and cap gains components as well.
If Prospect managers, administrators are making more rest assured YOU ARE MAKING MORE!
The argument that they will just raise money to generate the 2% fee is idiotic. The cap gains fee is 20%, if management wanted fee generation just show a cap gain on the books and earn a fee 10x higher..Sorry but the Wells Fargo analysis of Prospect is negative only because Wells Fargo advisors generate less from Prospect than Barclays and US Bank.
All this info was available to you when you were BULLISH this equity. Nothing has changed EXCEPT THE FACT there are 1.5B more under management and yest this will be subject to the 2%.
The fees charged for Year ending June 2013
The base management fee is calculated based on the average value of our gross assets at the end of the two most
recently completed calendar quarters and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.
Sentiment: Strong Buy
oh sorry, you said i was unclear about what i meant by PSEC not recovering from the last secondary in november... here's what i meant: the whole market has been going straight up since novemenber... until the last coupla weeks anyway... and PSEC has been stuck and overall has gone from 12 back to right around book value... that relative underperformance is what i meant by its price not having recovered from the last secondary. and just to be clear, i sold my shares into the bounce from 9.60 so i am neither long nor short... just happened to look back at the chart and think it is stuck... of course the 0.11 cent div is nice to collect if the price doesn't tank next time they want to raise funds or in a general market sell-off. as to the issue of how they raise capital, it is dilutive, they only raise money in proportion to some number close to the stock price... usually at some significant discount to the current price so if they issue 15% more shares and get 90% of the then current price for the shares its dilutive. of course they use a little leverage, i think i recall a modest number like 1.3 or something in the neighborhood so maybe they can keep up the great divs. they've done a remarkably good job at increasing the div so far.
ok i went back to the N-2/A filing withe the SEC on 10/29/2012 to check my memory on this subject which you say is "baloney". start reading on page 100 under the subtitle Management Services.
here are a few quotes copied directly from that area of the document:
We have entered into the Investment Advisory Agreement with Prospect Capital Management. Our Chairman of the Board of Directors is the sole member of and controls Prospect Capital Management....
We may make sales of our common stock at prices below our most recently determined NAV per share. Pursuant to the approval of our Board of Directors, we have made such sales in the past and we may continue to do so under this prospectus....
Our Board of Directors also considers the fact that sales of common stock at a discount will benefit our Advisor as the Advisor will earn additional investment management fees on the proceeds of such offerings, as it would from the offering of any other securities of the Company or from the offering of common stock at premium to NAV per share....
The total investment advisory fees were $82.5 million, $46.1 million and $30.7 million for the twelve months ended June 30, 2012, June 30, 2011 and June 30, 2010, respectively.... end of quotes.
Do you know how to multiply? compare what the management company makes to what is left over for sharehoders and i think you will see what i am talking about. Perhaps i am interpreting this relationship wrong but it looks to me like the management company gets a disproportionate benefit and the shareholdes get the risk... but try reading it and have your own opinion... to me it looks a bit like -- lemme think what's a good word that won't get censored -- incest?