Value Investing Claims Another Casualty as $5 Billion SPO Shuts

(Bloomberg) -- The value-investing discipline pioneered by Benjamin Graham and Warren Buffett is claiming another casualty.

SPO Partners & Co., a $5 billion firm that’s managed money for almost five decades, is closing, according to an investor letter viewed by Bloomberg. The company -- whose clients once included the billionaire Bass family -- will return about a quarter of its assets next month and most of the rest early next year.

“Today, we are finding it exceedingly difficult to deploy capital with an acceptable margin of safety,” Eli Weinberg, SPO co-managing partner, said in the letter. “Businesses we admire, in well-positioned sectors with attractive growth prospects, are priced to perfection.”

Value investors have struggled since 2015, as so-called growth stocks have rushed ahead of their inexpensive brethren. John Griffin, who headed Blue Ridge Capital, closed his fund in 2017 while David Einhorn has lost about 35 percent in the last three years. Another long-time value investor, Eddie Lampert, has foundered after his bet on Sears Holdings Corp. went awry.

SPO traces its roots to 1969 when investor John Scully launched San Francisco Partners and was later joined by Bill Patterson and Bill Oberndorf. Patterson died in 2010, while Oberndorf retired in 2012 to invest his family’s money. Weinberg became co-managing partner with Scully, 74, three years ago.

SPO, based in Mill Valley, California, said clients had asked to pull about 7 percent of its assets, or $344 million, by the end of the year. It returned about $3.3 billion to investors over the past six years after investments matured.

Since its founding, the firm has posted an average annual return of 23 percent across its investments, the letter said. The SPO Partners II fund has gained 1.3 percent in the first nine months this year, according to a person familiar with the matter.

A firm representative declined to comment.

Einhorn, who is down 26 percent so far this year, has repeatedly voiced his frustration with his poor performance, while confirming his commitment to owning stocks that are inexpensive relative to the market. Weinberg shares Einhorn’s frustrations. He said investors are suspending valuation discipline and paying up for companies, hoping that the stocks will rise.

“SPO’s approach -- buying discounted dollars with embedded margins of safety to drive attractive returns -- is proving difficult to execute, and our recent returns bear witness to that,” he said.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net;Katherine Burton in New York at kburton@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella

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