Money managers who are tapping federal aid for bailouts are being criticized roundly, with many suggesting that firms like “Downtown” Josh Brown’s Ritholtz Wealth management return the funds. Over the course of the 11 year bull market, Brown’s firm seems to have not done well enough to make its way through the pandemic without taking on debt. So much for “buy and hold”…
Several firms in addition to Ritholtz have disclosed these loans from the Paycheck Protection Program, including Carson Group, a $12 billion firm and Cornerstone Advisors, which manages $6.3 billion, according to the Wall Street Journal. Ritholtz, which manages $1.3 billion, also took out one of the loans.
The loans are for companies that “reasonably anticipated a reduction in revenue that could hamper day-to-day operations” and due to AUM falling for many of these firms, their top lines have decreased. But many critics see the bailout of financial firms to be “ridiculous”.
One such critic is Patrick Rush, chief executive of $700 million money-management firm Triad Financial Advisors. He said:
“It’s absolutely ridiculous and one of the most disheartening things I’ve seen in my career. We just came off of a 10-plus-year bull market and all of this massive growth. What are you telling your clients? We tell them to sit tight, markets come back. How can you say the same thing but don’t believe it yourself?”
While some firms have returned the money, like Chicago Capital LLC, others – like Ritholtz – have decided to keep it. David Mabie, head of Chicago Capital said: “We were trying to do a good thing by returning it because we felt other people could’ve used it.”
Carson Group says they are using the loan for other arms of their business other than their wealth management: “The purpose of this was to protect employees and jobs. We made the right call. We would’ve let people go otherwise.”
But of Carson’s 424 employees, 392 work in investment-advisory roles.
Cornerstone, which has 28 employees, said in an SEC filing: “…the uncertainty of the pandemic and the sharp market volatility resulted in the anticipation that it may have needed the funds to support ongoing operations. However, that is currently not the case.”
CNBC contributor Josh Brown says he plans on repaying the loans: “The economy is reopening; my clients seem OK for the most part. We’ve taken a revenue hit and that sucks. But I’m not applying for forgiveness. Firms that have not had a revenue hit shouldn’t apply for forgiveness unless they have no morality now.”
Some on Twitter have called Brown taking the loan a “disgrace”. Others have supported him. Brown says he would do things differently if given the chance: “I’d have remortgaged my house and held more of my money in cash. The lesson learned for me is we need to set up a line of credit in case things like this pop up in the future.”
Recall, we initially pointed out the hypocrisy when Ritholtz Wealth Management, headed up by the author of “Bailout Nation”, took a bailout of their own at the end of May.