As reported today by Investment News, GPB Capital Holdings has admitted to substantial losses in its various funds:
In a blow to investors, GPB Capital on Friday reported significant losses in the value of its investment funds, which are in the form of private partnerships that invest primarily in auto dealerships and waste management businesses.
The two largest, GPB Holdings II and GPB Automotive Portfolio, have seen declines in value, respectively, of 25.4% and 39%…
GPB’s five other smaller funds reported declines in estimated value of 25% to 73%, according to GPB.
GPB Capital Holdings released its valuation report late on Friday afternoon. The news comes on the heels of an announcement last week by Fidelity Investments that it would be removing GPB Capital Holdings from its platform. GPB had raised ~$1.2 billion for its two largest funds: GPB Holdings II and GPB Automotive Portfolio. With a combined average loss at 32% of value, the two funds are down ~$384 million. Add to this the 9% average commission GPB’s broker dealers were paid to sell these funds and one could argue the real average loss in the value of these two funds stands at about 41%.
Owned by Scientologist David Gentile, GPB Capital Holdings makes the argument that L. Ron Hubbard’s business management principles have no relevance whatsoever to selecting or managing investments. Hubbard’s so-called “management tech” does no better at running the Church of Scientology itself. Indeed, Scientology leader David Miscavige this week was sued by Jane Doe, a former member of the Church. The causes of action include human trafficking and defamation.
GPB Capital still has yet to issue its SEC-required financials and remains under investigation by the FBI, the SEC, FINRA, and the BIC.
We note in passing that the timeline of James Stunt’s problems and those of GPB Capital Holdings closely match. This coincidence is interesting in light of Mr. Stunt’s recent YouTube defense of David Miscavige. Does Mr. Stunt speak plainly or he is cryptically telegraphing a message to Mr. Miscavige? We ask as Mr. Stunt is clever and is quite the player.
Mr. Frank Pena is the Director, Finance and Valuations at GPB Capital Holdings. He spoke this past April at GAIM Ops, a private equity conference held in the Grand Cayman. His topic was Level 3 asset valuation practices. Investopedia defines Level 3 assets as follows:
Level 3 assets are financial assets and liabilities considered to be the most illiquid and hardest to value. They are not traded frequently, so it is difficult to give them a reliable and accurate market price. A fair value for these assets cannot be determined by using readily observable inputs or measures, such as market prices or models. Instead, they are calculated using estimates or risk-adjusted value ranges, methods open to interpretation.
Given that Level 3 assets are intrinsically difficult to value, one wonders about the exact metrics, models, and assumptions Mr. Pena and his colleagues at GPB Capital used to issue their valuation which showed significant declines in the value of all GPB funds.
The basic question is this: Where did all the money go? For example, if the GPB Automotive Portfolio raised $600 million and is now down by 39% then the lost fund value is a staggering $234 million. How could GPB Automotive lose so much money owning and operating premium automotive dealerships in New York and New Jersey in a booming US economy and stock market? GPB began by acquiring dealerships and claimed automotive as a core strength backed by a deep bench of highly experienced automotive executives.
Did GPB Capital Holdings borrow against its assets when it had to stop raising new capital last year? So many questions with no answers.
Numerous securities law firms have been following the saga of GPB Capital online.
Google “GPB Capital” and one can see that the light at the end of the tunnel is likely a Venutian freight locomotive headed straight for GPB.
Categories: The Scientology Money Project
Mr. Stunt seems to have claimed that he would not be bankrupt for long…
Did any of the missing money find its way into Scientology’s coffers?
As far as where the money went with the decline in value of GPB Capital’s portfolio, it sounds like they’re marking down the value of their holdings. In other words, they overpaid ludicrously for what they invested in and in only a year they are down by half in a record bull market. A sharp decline like that doesn’t necessarily mean that they stole cash — but it certainly means they’re bad at investing.
BTW, while the portfolio is down 32% (41% in terms of investor value after accounting for exorbitant fees), the S&P is also up 6% from its value a year ago. So you could have made +6% investing in an index fund instead of putting money in GPB capital, bringing your opportunity cost-adjusted value to -48% of your money in only a year.
I would also suggest that the interim valuation of assets is not at all a final assessment — it may well be the case that when the various regulatory bodies finish their investigations, the portfolios get marked down even further, potentially even to zero.
A 30% markdown on an auto dealer portfolio may just be overall “mark-to-market” accounting given the decline in auto stocks, as well as the increasing concern that we have reached “peak car,” with record few new drivers among the younger market, increased use of Uber, and the failure of electrics to capture much imagination, with the ongoing implosions at Tesla and NIO. So a 30% markdown may be an estimate based only on overall market conditions for auto makers and distributors, not specifics of these dealerships. And given that big chains with professional management (AutoNation, CarMax, many regional operators) have bought up all the high-quality dealerships, GPB is paying top dollar for dealers that smart guys have already looked at and passed on. Not a great business model.
John P. Capitalist: Thank you for your insights and comments. When you opined in our offline discussions that GPB ridiculously overpaid for dealerships the big companies like CarMax passed over this made a great deal of sense to me. Still, the devaluation of the funds are breathtaking. One would have to be a truly awful investor to lose almost one quarter of a billion dollars in car dealership valuation in just a few years.
These dealerships sell high profit margin automotive financing, lucrative extended warranties, and operate very profitable maintenance and repair facilities. One would think GPB should have been able to at least break even on automotive given its claimed automotive sales of $3.2 billion in 2017 (see quoted article below). Instead, GPB has devalued its automotive fund by 39%.
One line of thinking in business (and it is not always correct) is that it is easier to buy an existing business than it is to build one from scratch. In this vein, GPB may have found it easier to overpay in the short term for existing marquee dealerships and bet on the long term. If so, this would be a real estate investment approach to the automotive market. Such an approach is deeply flawed because car dealerships are not at all like real estate. For one, the internet has so dramatically changed car sales that a dealership is often nothing more than a physical location to pick up a car one purchased online.
Jeffrey Lash — one of the founders of GPB and one-time the head of Automotive until he left the company — shamelessly claimed in a 2018 article that he and GPB were far ahead of Warren Buffet in terms of how to invest in the car sales business:
This 2018 article boasted that GPB’s automotive model was invincible. Ooops. Now everything has changed. Jeffrey Lash left GPB in 2018 and even sued GPB. Lash quickly withdrew the lawsuit. When GPB sued former partner Patrick Dibre for fraud and conversion, he responded in his counterclaim that GPB was a Ponzi scheme. Jeffrey Lash filed an affidavit stating that GPB was not a Ponzi scheme based upon his knowledge of GPB.