The money manager Martin D. Sass loves a good bargain.
He snapped up his 1995 Donzi motorboat after it had been repossessed from its previous owner. He made a deeply discounted, 24-hour, take-it-or-leave-it offer for a home on Long Island that had been on the market for years, only to later discover he had bought Vincent Astor’s summer home.
And while the Midtown offices of his investment firm, M.D. Sass, are appointed in rich mahogany panelling with marble tables, Sass explains that not all is as it seems. He leased the office at a fire-sale price in the early 1990s after the previous tenant, Ensign Bank, went into receivership.
Sass’ bargain-hunting ways extend to his investment firm, which oversees a collection of investment funds, hedge funds and private equity partnerships with $8 billion in assets.
Earlier this year, as shares for oil-services stocks like Halliburton and Baker Hughes languished, Sass added to his stakes in his flagship M.D. Sass Relative Value Equity Strategy, a group of accounts that require a $10 million minimum investment.
And this spring after the earthquake, tsunami and nuclear crisis in Japan rocked global stock markets, and insurance companies tumbled on early estimates of billions in losses, Sass again went shopping, this time picking up shares of the insurance company MetLife.
“I went in as everyone else went out,” said Sass, perched on a chair in an office filled with figures of bulls and bears.
He does not make bold bets like John Paulson’s gold play, which personally netted Paulson $5 billion last year. Sass doesn’t buy stock in a company and agitate management to change its ways as the activist investor William A. Ackman of Pershing Square does. Nor are Sass’ offices staffed with mathematicians or physicists designing algorithmic trading models for high-speed computers like those of James H. Simons of Renaissance Technologies.
What Sass does is real meat-and-potatoes investing. He scans the markets for companies trading at prices that he thinks do not reflect their earnings potential. He applies his accounting background to company financials to root out cash flow.
Sass entered this year bullish, betting that the economy was going to improve and that stocks were undervalued. He thinks the Standard & Poor 500-stock index could end the year closer to 1,500 from its current level of 1,331.
Aided by a small team of analysts, including his son, Ari, Sass develops broad investment themes and then digs for companies within those sectors that are positioned to benefit.
For instance, he built up his big stake in oil-services companies in the belief that they would gain once drilling resumed in the Gulf of Mexico. He has grabbed onto generic drug makers on the notion that large pharmaceutical companies are on the verge of losing critical patents on blockbuster drugs. And his firm took a sizable position in a company that makes slot machines, an area he argues will show tremendous growth as more states hope to address fiscal shortfalls through gambling.
Sass’ style has produced an annualized gain of 7.2 percent, after fees, over the past decade versus a 5.3 percent annualized return for an index of value stocks tracked by Chicago research firm Morningstar.
Still, over a decade ago, Sass threw caution to the wind when he supported a plan to merge two furniture companies – Seaman Furniture and Levitz Furniture, which was in bankruptcy.
The deal was orchestrated by one of Sass’ top lieutenants, who oversaw a fund that held substantial stakes in both companies. That led to shareholder lawsuits claiming that Sass’ firm was trying to force a merger to salvage its money-losing stake in Levitz. The investors eventually settled, on confidential terms, and the Seaman-Levitz merger occurred in 2001. In 2005, the combined company filed for bankruptcy.
“I regret that after realizing substantial profits in Seaman’s, we also tackled the much larger troubled business of Levitz,” Sass wrote in an email response to a question about the deal.
Today, Sass oversees about $4.4 billion that resides in his investment funds and about $3.6 billion in a private equity fund and other funds backed by a joint venture created in 2006 with Australia’s Macquarie Bank. That venture seeded, or made early investments in, 11 different hedge fund and private equity partnerships.
Four of the managers eventually closed shop because they could not attract enough outside investors, and seven remain operational, including a fund that invests in high-yield asset-backed securities and one that provides loans to agricultural commodity producers and companies.
During the height of the hedge fund and private equity boom a few years back, as many as 400 managers a year reached out to the firms looking for money.
Stephen Darke, the co-head of the global alternative strategist group at Macquarie, said, “Marty would sometimes interrogate a manager until he was sweating, trying to understand how his models worked or whether he or she truly understood the stocks all the way down to the cash flows and the factories and the workers and the litigation around it.”
That tough tack saved him not once, but twice from investing with Bernard L. Madoff, the convicted Ponzi schemer.
Sass is just not a believer in get-rich-quick deals.
“Growing up humbly, coming from nothing, really gave me a healthy degree of paranoia,” Sass said. “I don’t want to go back to that basement apartment in Brooklyn.”
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