"I also wonder whether activist investors will come after PSEC in the next year or two in the way they've come after TICC and FSC (other BDCs). PSEC's fees are fat and juicy (2% and 20%), so I don't know why some asset manager doesn't propose to manage the assets for 1.5% and 15%? Let the shareholders decide in a proxy fight. 10-1 PSEC's management's response would be to match the 1.5% and 15% and viola, the share would probably jump a $1.00 just on the news."
Activist investors have to be careful. If they make a move only to have PSEC's current management match a cut, then the activists have accomplished nothing for themselves (except for any shares they have that have gone up in value).
Should not the board of PSEC be seeking out a better management deal itself? Of course in today's world most boards are toadies to the CEO's. In PSEC's situation, they ought not to be. I quickly checked the 10K, and it seems that management is not entrenched.
"The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. Prospect Administration is a subsidiary of the Investment Adviser."
But I have not double-checked that. Many, if not most, outside managements manage to entrench themselves to get a golden parachute if they are discharged.
I own some PSEC, but have reservations. Book value is overstated, and it is hard to know by how much, although the current stock price discount is most likely much more of a discount than the overstatement of book value. Management is overpaid. Board of directors is not diligent. The current dividend could be cut. Market pricing is indicating a fairly high likelihood of dividend cut, and usually the signal from the market is a fair statistical indicator of prospects for the dividend.
Nonetheless if they paid the current dividend for 2 years and then cut it in half and continued that for many years, it would still be a good investment at this price, which is why I still hold it. Hopefully I will not be kicked in the teeth on this one. Have been before. As Hillary says, "I have the scars to prove it." |
