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Central Square Management Urges PICO Holdings Inc (PICO) to Explore Asset Sale Opportunities

In a recent filing with the U.S. Securities and Exchange Commission, Central Square Management, led by Kelly Cardwell, disclosed a letter sent to the chair of PICO Holdings Inc (NASDAQ:PICO)’s board Kristina Leslie. According to the letter, Central Square believes that PICO Holdings Inc (NASDAQ:PICO) is deeply undervalued and the company should explore some opportunities in order to increase the shareholder value. The filing also showed that Central Square currently owns 1.37 million shares of PICO Holdings Inc (NASDAQ:PICO) equivalent to 6.0% of the company’s outstanding common stock. The stake represents an increase from 1.29 million shares the fund reported in its 13F for the end of the first quarter.


Central Square was founded by Kelly Cardwell in 2007. The long/short fund employs a fundamental-based bottom-up process to pick stocks. As of March 31, the value of Central Square’s public equality portfolio stood at $96.09 million.

Kelly Cardwell
Kelly Cardwell
Central Square Management

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 65 percentage points (123% return vs. S&P 500’s 58% gain) over the last 35 months (see more details here).

California-based PICO Holdings Inc. (PICO) is a holding company operating through four segments, including Water Resource and Water Storage Operations, Real Estate Operations, Agribusiness Operations, and Corporate. The company’s stock has declined by 36.42% since the beginning of the year


Central Square stated in its letter to PICO Holdings Inc (NASDAQ:PICO)’s board that it had tried to engage in constructive discussions with the company’s board and management over the past several months to present its views and concerns regarding the direction of the company as well as opportunities to create value for its shareholders. The investor added that it had become frustrated with the company’s failure to substantively address the important issues it had raised in a timely manner.

In March, Central Square sent a private letter to CEO John Hart and the company’s board, in which it outlined its concerns regarding the company and specific strategies that could be implemented to improve the company’s performance.

In its latest letter, Central Square states that PICO Holdings Inc (NASDAQ:PICO)’s management compensation practices need a significant overhaul. According to the investor, PICO Holdings should conduct a thorough review and overhaul of compensation policies, as shareholders have rejected PICO’s compensation policies twice in the last five years.

Moreover, Central Square wants PICO Holdings Inc (NASDAQ:PICO) to conduct a formal sale process of UCP Inc (NYSE:UCP), a publicly-held homebuilder operating in California, Washingt Tennessee and the Carolinas. In June, Central Square disclosed upping its stake in UCP Inc (NYSE:UCP) to 409,139 Class A shares.

According to Central Square, PICO Holdings Inc (NASDAQ:PICO) should use the entire amount of the proceeds from a UCP sale and the $10 million of excess cash from the Northstar sale in an issuer self-tender, which will provide liquidity to shareholders. Furthermore, Central Square urged the chair to assign shareholders’ representatives on the company’s board of directors.

Concluding its letter, Central Square said that it is interested to work constructively with members of the PICO Holdings Inc. (PICO)’s board and management “to implement meaningful steps to enhance shareholder value at the company.”

“We remind you that the board’s duties are to PICO shareholders. We look forward to continuing our discussions on ways to unlock significant value for all.”

Other large shareholders of PICO Holdings Inc (NASDAQ:PICO) among the investors we track, include Chuck Royce’s Royce & Associates, and Jim Tarantino and Chris Galvin’s Westerly Capital Management, owning 2.04 million and 98,918 shares, respectively, as of the end of March.

Disclosure: none

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