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By John Coumarianos | 01-27-2010 01:40 PM

Market Missing the Value in Asset Managers

International Manager of the Decade David Herro on misvalued asset managers and his increasing interest in Japanese companies.

John Coumarianos: One can't help but notice that when one looks at Oakmark International, you have a fair amount of financial exposure, particularly to European and Japanese banks. I think Allianz, Daiwa, UBS, and Credit Suisse are among your top positions. How are you assessing the balance sheets of those firms now?

David Herro: Well, you have to very carefully. Because the balance sheet risk, of course, is the biggest risk in analyzing these financials or certainly has become the biggest risk in the last year or two. And to some degree, we've been very successful at it, but to another degree, we made a few mistakes.

Because there's less-than-perfect transparency in looking at the balance sheet of financial institutions, because they're loans and loans are something dynamic. They could be good one day and sour the next. It's not like a steel plant or an oil field or any other form of asset a company may have.

So, loan is a different type of an asset, and we have to make sure, when analyzing these banks, that we do have enough transparency that we could come close enough to have an accurate evaluation.

That's only one part of the story, though. Many of these financials which we own are asset managers, and this is a business we like a lot. Now, this is something we can easily measure.

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