Horizon Kinetics Holding Corporation (HKHC) Earnings Call Transcript & Summary

So good afternoon, everyone. Thank you for joining us on this call. My name is Mark Hemdon, Chief Financial Officer of Horizon Kinetics. We are pleased that you have joined us for our call where we will cover our results for the first quarter of 2025. First, a reminder that today's presentation may include forward-looking statements. Reliance on forward-looking statements involve certain risks and uncertainties, including, but not limited to, uncertainty about the future security valuations or our performance. During the course of today's call, words such as expect, anticipate, believe and intend may be used in our discussion of our goals, events in the future. Management cannot provide any assurance that future results will be described or will be as described in our forward-looking statements. Furthermore, the statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any particular security or investment fund. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will be profitable or that future investment decisions will be profitable or will equal or exceed past performance of the investments. We encourage you to read our filings with the SEC on our Form 10-K as well as our more recent 10-Q and other filings, which describe the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today. These filings can also be found at the OTC Markets website, and our press releases or other information is at our corporate website at www.hkholdingco.com. Today's discussion will be led by Murray Stahl, Horizon Kinetics Chairman and Chief Executive Officer. I will also be available to answer applicable questions and will moderate the questions. [Operator Instructions]. That's the end of our opening statements, and I want to say a couple of words on…

Yes. Okay. So what is the format for today? So what's going to happen is I'm going to let Mark tell you the highlights of the quarter. Then I'm going to build on the highlights of the quarter. I'm going to talk about what I would call strategic highlights, or better yet, strategic points, what direction we're going in, the meaning of various efforts, the resources we're devoting into it and so on and so forth. And after having covered that, we're going to do questions and answers. We're going to answer every question that is posed. So with that, Mark, if you could give the highlights of the quarter, what you regard as highlights quarter, we'd greatly appreciate.

Sure, sure. And so this will be a little bit historical, and it's been only a relatively short period of time since our year-end update. We were just discussing that it's been about 18 days, and that had a variety of complex information on that call. So I'll again provide a short recap of what we filed recently and why. This Form 10-Q updates our -- continues our required GAAP presentation that includes certain proprietary funds as consolidated entities. And our press release continues the presentation of both our GAAP presentation as well as a supplement that presents our financial statements, excluding those funds, essentially the adviser-only entity. And we think that is important for investors to look at and understand. Consistent with what we have previously reported, this is a presentational matter that does not impact the company's earnings that are available to HKHC shareholders or the shareholders' equity of HKHC. It does result in higher total assets as we have included the assets of those funds that have been consolidated on our balance sheet, as well as a new line item called redeemable noncontrolling interest. And that line item essentially represents our clients' account balances that are supported by the assets of those funds, which you'll see identified in our financial statements as consolidated investment products. The other notable change is the treatment of management fees charged to those consolidated investment products. Under GAAP, those revenues are eliminated for consolidation since that fund is presented within the financial statements. It is akin to an intercompany transaction. However, the economic benefit resulting to the HKHC shareholders remains. And you can see that or that economic benefit is reflected through a smaller allocation of the investment returns of the consolidated investment products to the redeemable noncontrolling interest than they would otherwise have received. You can see -- you can also see the impact of those items in the table within our MD&A of our 10-K -- 10-Q filing. Our results for the quarter continue to be favorable for our HKHC shareholders. The company reported revenues of $19.8 million for the quarter, which is a meaningful increase from the $12.1 million in the first quarter of 2024. This increase is primarily the result of the overall increase in assets under management across the portfolio of investment products and client accounts. As our supplementary schedule indicated, the annual revenues based on the adviser-only model, this is without the consolidation of the investment products, resulting in quarterly revenues of $22 million, which was a similarly meaningful increase from the $14 million in the first quarter of 2024. The results of the consolidated entity were also favorably impacted by the consolidation of the funds, which had $70 million of investment returns during the quarter, of which approximately $59 million was allocated to our client accounts and the redeemable noncontrolling interest line item. From a balance sheet perspective, the company has substantial cash and investments, including amounts outside of those consolidated investment products, and we have no third-party debt outside of our office spaces. The company's cash position was significantly bolstered during the quarter as a result of the collection of incentive fees in 2025 that were earned in 2024. Some of those fees were also paid to the company in securities, which we used to settle certain pre-acquisition legacy debts to affiliates as well as to make an additional investment in a nonconsolidated but affiliated other investment item. So those were my highlights for the quarter, Murray, and we can get into whatever level of detail you'd like after that.

Okay. Fabulous. Okay. Thanks, Mark. So the first takeaway is that we're required by the accounting protocol to consolidate. And the consolidation, however interesting it is, and it is indeed interesting, it's a lot better, in my view, to look at the various aspects of the company separated. So separated, the table I like the most, I think it's the most revealing is the table which appears in the Form 10-Q on Page 23, which shows you the asset management business in a stand-alone basis. And that's really the major operating asset. According to that table, there is $4.9 million -- it should be $4.6 million of operating income. That's pretax, of course. That's the operating part of the business. Really, there is a consumer products business that's really small, which is a legacy asset. We inherited, trying to build it up. So there's an operating loss for the quarter, but we fully expect we're going to eliminate that in very, very short order, meaning a couple of months. So we'll see how much we can add to the business from that. But that's a better representation, in my opinion. Now, the reason for highlighting that area is so you can see the margin of the business itself. And that margin, we'd like to make, of course, as high as possible. So what are the problems in making it high? Well, if you're an asset manager, you have several. And one of the problems is what are called in the industry, the platform fees. As you go through the various tables, you'll see -- and I'm going to cover it in a minute, you'll see how much of our revenue, the asset management business, came from SEC-registered funds that can be mutual funds or ETFs. And generally speaking, and there are some small exceptions, your assets under management from that sphere are coming through platforms, meaning a potential client has their capital at some big to you, it might look like a brokerage house. And they decide to invest in one or more of our funds, we are obligated by the rules to pay platform fees to the firm and holds the client asset. And all they're really doing is holding the client money market fund, meaning the withdrawal from the money market fund from their money market fund, which is our funds, is paying for the allocation to us. We have a platform fee. Different platforms have different fees. So it's a big reduction of our profit margin. It's very, very difficult to get around that in the world of SEC-registered funds. So we've spent a lot of time and effort thinking through that problem, and we have some approaches to it, which we'll share with you in a few minutes. And the other issue is taxes. So we all want to pay our taxes, but we're not a business that has capital assets like plant equipment and machinery. We don't have depreciation expense that's meaningful. So there's no tax shelter from that sort of position. So we're paying essentially the maximum taxes that we would be obligated to pay under the law. Here and there, there might be some tiny exceptions, but they're really tiny. And that brings me to how we came to get into cryptocurrency. So when we're looking at cryptocurrency, apart from the return characteristics of cryptocurrency, which is what everyone focuses on, it's possible to build a cryptocurrency business and avoid the platforms. And because cryptocurrency is itself classified by the various authorities as property, not security, there can be some tax advantages to going that route. That was the origin our interest in cryptocurrency as a generalization. So it's -- so it was an effort to increase our profitability, opens up an entirely new channel of distribution. Now increasing the profitability through that methodology, there are no textbooks, there are no rules ahead of cryptocurrency. So everybody is inventing it as they go. And so did we. So some number of years ago, we took some of our cryptocurrency partnerships, and we rolled them into a corporation called Consensus Mining, which, incidentally, in, give or take a day, in about 10 days, is going to be quoted and traded on OTC markets. You can see a quote to it. And that's really important because there's only so much we can say right now about that effort, but it's important to investment management effort. Once it's actually publicly quoted, we can say a lot more of that. And we found ways of making cryptocurrency mining a lot more profitable than other people would have it. A lot of work went into it. There's a lot of tax advantage for doing it. Now we still have legacy mining assets, and we have -- not that we didn't make money in legacy mining assets, we still have them. When we hear more about crypto, we hear more about consensus mining cryptocurrency mining, you'll understand those are good things, not bad things. So we have legacy assets. The reason they're good things in brief is when you buy these cryptocurrency main devices, you want them to last as long as possible, obviously. And in a lot of cases, we were able to have them last in excess of depreciable life. So that's an important part of our future profitability or increase in future profitability. So we're leaving that for now. I'm leaving you with the idea that we're going to talk about that in not-too-distant future, but we will be talking about it in the appropriate venue. So stay tuned. And there is some disclosure about it. It isn't very much, but it's in the financials, and I call your attention to it. You read them very carefully. Now, as I said earlier, about 2/3 of our revenue comes from the SEC-registered funds, either mutual funds or ETFs. And we made an effort recently to create some, what I think are interesting ETFs. So one of the other problems that, I guess, every manager has had since roughly 2007, and we're no different, is the rise of indexation. So indexation, it poses to the active manager a very serious issue, which is the way you maximize profitability in investment management once indexes came about is to have economies of scale. So the index has the virtue of it can raise a tremendous amount of money. It's all buying liquid stocks. I would argue that the indexes actually distort the price of the stocks in some instances, that's just my personal opinion, so I don't pay a lot of attention to it. The more important thing is the indexes don't charge a lot of fees. You have to compete with that. And the indexes have created a lot of fee compression for managers in general. So since 2007, for every manager that's on the active side, it led to a fee compression issue. We're no different, just a question of degree. However, what it's also done is it's almost forced the investment world, which is really fighting its battle with the largest capitalization stocks to ignore all sorts of interesting opportunities because either are not eligible for indexes or they are eligible for indexes, but they're never going to have a lot of weighting. So I invite you to the following thing. If you were just to look at the -- an index like the Russell 2000 -- the Russell 1000, the Russell 2000, and the S&P 500. So normally, the protocol is to look at the biggest holdings and work your way down, and about name 20 stop looking because that represents the bulk of the weight. I invite you to turn the page upside down and start looking at the smallest holdings. And you will be astonished when you see a tremendous number of holdings in the indexes have a weighting of, believe it or not, 0.0. You might say, how can a stock have a 0.0% weight in the index, and really doesn't. The rounding protocol is one decimal point. So if you were to have a weight of, let's say, 0.03, you round to 0. So it's 0.0. If you have a weight of 0.06, you rounding convention is to round to 0.1. So you'll see the bulk of the money is clearly concentrated on a handful of names. There's a major investment opportunity waiting to happen. And I don't even think it's waiting to happen. I think it's already started. So it's pretty exciting. And I think -- it's just my personal opinion, so feel free to disagree with me. I think it's already reflected in investment results, and I invite you to look at them and study them, and our results are what our results are. And I personally think there is something to be proud of, but others can have their own ideas. So I encourage you to look at our investment results, which are on our websites, and hopefully, you'll be impressed with them. Another thing you might want to pay attention to in the various deconstruction deconsolidations in this statement is the issue of private placements. We own on behalf of our clients and for ourselves, a variety of private securities or private placements. The amount of money contained in that is roughly $194 million. You'll find that in the notes. That value is already much above the cost. If those companies were to come public, we probably collect a big performance fee at that valuation. And it's not inconceivable it will come public at a far more robust valuation. The inputs that are used in valuing this set of securities at $194 million, they are included in the financial statements. So you might want to look at that. So not -- I can't say that all the private placements are subject to performance fees that we haven't recognized yet, but a lot of it is. So I would pay a lot of attention to that set of charts. Another thing you'll observe is our cash balance, which is now $34 million. So that's related to the prior point. At the end of the year, we were carrying a much lower cash balance and end up being a problem. It was a problem -- a nice problem to have. We collected last year, 2024, the biggest performance fee we ever collected in the history of Horizon. So that, of course, we'd all agree, is very good. But like everything, even they had a problem. The problem was that in our current corporate configuration, we're required to pay the taxes on that performance fee before we actually collect -- a matter of fact, before we actually even legally recognize it. So we need to do on December 15th is we needed to estimate what the performance fee would be, and then we had to calculate the tax that would be due on those fees if indeed we were to realize them, then we have to pay them. And we didn't -- we hadn't kept a cash balance large enough to deal with that contingency. So there's a lot of scrambling in mid-December to figure out how to do it. Of course, we never lack liquidity. We're always in a business we would have had the money. We could have sold securities, and we would have paid the bill. The problem was we don't want to sell securities when they're going to appreciate further in our view. Why sell security at a profit to pay the tax, and by realizing a profit, you're going to even increase your tax liability. So we really didn't want to do it. So you'll see $34 million in cash. It's a higher cash balance than we ordinarily run with, but we felt it's appropriate for that reason to build up a more sizable cash balance than we had historically as a private company. And then my last point before we go to questions and answers is when you look at these deconsolidations and deconstructions, you'll see that Horizon itself has over $400 million of its own capital, its own investments comingled with the clients, in other words, what our own cooking. And we have substantial profits in that. So there is on the balance sheet, almost $100 million in deferred tax liability. Now it's a liability, reduces the asset value. We're going to do everything we can not to sell the securities and not pay the taxes. So we're getting float on the basis of money that technically speaking, doesn't exist in our assets, but in point of fact does. Because the way accounting works is we're recording the net number, but the appreciation is on the gross number until such time as we have occasion to recognize a gain and pay the taxes. And that is part of our return for the quarter. It's now a number that is much higher than our operating income. And the point I want to leave you with is being a patient long-term investor has enormous advantages. We're not a small asset management company. We are pushing $11 billion in assets under management, but our earnings from our investments are very, very substantial. And there is a real benefit for looking at things long-term basis, which that's the way we've always practiced. So therefore, the 10-Q is really a document of how we always thought money should be managed. And there you see it in order fashion. A lot of wealth has been created over the years through that, and we hope that will continue. So that concludes my prepared remarks. And now I'd like, if I can, to turn it over to whatever questions there are, and we'll do our best to answer the questions.

[Operator Instructions]. All right. So Murray, so the first question I have, you talked a little bit about ETF offerings is can you describe the marketing effort behind our current ETF offerings? And how do you judge the success of our team's focus on the smaller offerings like BCDF that may not have the same scale as something like IFL?

Okay. IFL is now over $1.2 billion in AUM, as you can see on our website. And that's largely marketed through our historical channel distribution by our marketing team. Blockchain development, what you referred to as BCDF, which is ticker symbol, we really didn't assign the marketers to it in the traditional channels, we took a different approach. The idea was to go direct. And the reason for going direct was as follows. We want to see if we can build up a fund and avoid as many of the platform fees as possible. The platform fees and for a lot of firms, it can be very substantial. So without going into -- because there are too many platforms that we're on, like there are a lot of platforms we're on. And in various cases, just to be on a platform, even if you don't have $1 in assets management, there's a set rate you have to pay. So to be on a platform, it puts you in a loss position until you raise enough assets on a platform just to break even. So the idea was that yours truly would simply approach people that friends, acquaintances, business associates, and just describe the fund. If this was a marking call, I would describe that fund, but it's not a marking call, if I don't want to make it a marketing call of BCGF, other than to say, I really like that fund. If you look at the volume, you'll see the volume is a lot less than the inflation ETF. Although the volume happen to be growing. The idea was ITLA, ATLs B, BTLs C and D and so on and so forth, and it's working. So that fund is, at least as of yesterday, reached over $16 million of assets, just that way. And I think yesterday, they traded over 8,000 shares. Now trading is not really an interesting statistic from our point of view in the stock. It is interesting from the point of view in ETF. The reason it's interesting from the point of view in ETF is money can only go into fund in the ETF in increments of 25,000 shares. So if I personally want to buy 100 shares of BCDF, the only way I can get it is I can either find somebody who wants me to sell me the shares. So if somebody sells me 100 shares, ETF doesn't get any new AUM. The other way to do it is a market maker can sell short 100 shares to me if I want to buy it. Market maker has a short position, which you're obligated, I think, within 4 days to cover. So, what happens is if a lot of little trades happen and there are no sellers, a series of market makers build up short positions, which they have to cover. When they cover them, they create another unit. So if you don't see any trading, it means we're not likely to get new AUM in the foreseeable future. If you see some thousands of shares traded every day, that's a sign we're going to get new units created. The new unit created, of course, means new assets under management. So we didn't do television or print or all the other things. We're going direct. It takes longer, but in the long run, it's more profitable. Now on the way out. So if somebody wants to dispose of shares, if you're selling shares in unit increments, 25,000 shares, same thing, redemption can only be in the increment of 25,000 shares. Somebody wanted for ever reason, liquidate 100 shares. The way it gets liquidated, money doesn't come out of the fund. It's just 100 shares are sold whoever wants to buy it. So you have to create an echo trading system that's big enough so that it supports a stable degree of assets under management. So if we go the traditional marketing route and raise a great deal of money, the risk is if whatever reason somebody wants to take their profit from mother fund, we might be faced with redemptions. And that's what happens in ETFs all the time. So we're trying to build it a really different way. And of course, those big contributions are on the platforms that are going to charge us the fees. So I hope that gives you an idea of how comparing and contrasting those 2 funds. It's 2 entirely different efforts. One last thing I'll point to is we just launched a Japan fund a couple of days ago. This is called the Japan Owner-Operator Fund. So people on this call probably have heard me talk about owner operators. Owner-operator means term, Owner-operator means management that has the bulk of their capital invested with the company, meaning they own the company and they run the company. And my investment thesis has always been those kind of investments are really extraordinary investments for the most part. The reason they're extraordinary is people are well incentivized, and the management is totally and completely aligned with the shareholders. So I like those kinds of investments. The owner-operator phenomenon exists in the United States because the United States was built on that. When you go around the world, it doesn't exist anywhere else, except for here and there, except it is a singular exception in the nation of Japan. Japan has -- Japan also has the characteristic that the Japanese market is heavily indexed, and all the attention is paid to the top market capitalizations and very little attention is paid to the smaller ones. So in the world of Japanese ETFs, the money is in the big capitalization stocks. The big capitalization stocks are Japanese stocks that are multinational, meaning they do their business all over the world. So in the sense, they're not really Japanese stocks. The Japanese stocks that are owner operator are really Japanese stocks, meaning they combine their business activity largely to nation in Japan. So you're going to invest internationally, and you want to be internationally diversified. Are you really internationally diversified if you buy multinational companies that do business in a range of nations, not dissimilar from the range of nations that the American competitors do business in? Or if you want diversification, are you better advised by the owner operators that combine largely their business interest to nation in Japan, and it is really different. And plus, they actually have higher rates of return. I think the latter is the right way to go. So I'm very confident that will intrigue people. So I call your attention to that as well. And that's the marketing approach to tell people to the same way we are doing blockchain development, present the investment thesis on a one-on-one basis. So that's how we're doing it.

And then we've had another question on the same train of thought here with the blockchain development. Can you share your thoughts on Galaxy Digital, which is, I believe this question says as a holding of blockchain development ETF, it's now listed on the exchange, NASDAQ Exchange. And maybe, in particular, touch on the Galaxy's Helios data center initiatives relative to what you've talked about in terms of data centers, energy, and water infrastructure.

Okay. Well, I don't want to turn this meeting into a stock picking meeting, which is another kind of meeting. I just want to make it about Horizon in. But I will say there was a time that we didn't know if cryptocurrency as an asset class was even here to stay. Now I think it's clearly evolving into a major asset class. And therefore, if it's a major asset class, there are all sorts of business opportunities that are in the course of being created. We identified that Horizon Galaxy Digital as a holding a number of years ago. And we thought it was well-positioned to be a business that profits from cryptocurrency. That can be cryptocurrency asset management, and it can be things that are tangential to cryptocurrency, asset management like data centers. The data center opportunity, just in general terms, whoever is pursuing it is -- it's staggering, how big it is. The reason it's staggering is that although people call artificial intelligence, it's not really artificial intelligence. It's high order of computation. It's going to require enormous amounts of data. And because there are enormous amounts of data required, it's going to require a tremendous amount of electric power. And because it required a tremendous amount of electric power, it has to be on 24/7. You have intermittent power with a data center. So that being the case, you have to have power plants. In many cases, it will be power plants that are dedicated to serving data centers. The only power that's continuous, it's what's called thermal power. So even though people think about these modalities for generation power is different, to be coal and natural gas, nuclear, they are similar, a matter of fact, they're identical in the sense that they all boil water and that turn into steam and drive a turbine. Much of that water can be recondensed and used again. Inevitably, some of it is evaporated. So if you measure the amount of electric power that's likely to be needed, you can calculate how much water is likely to be needed and take 10% of that figure that's likely to be evaporated. The numbers are I won't even quote them to you. They're unbelievable. I will say, however, I just wrote a paper on this subject, I finished a couple of days ago. So when it's out, hopefully, it will be out in a couple of weeks, I invite you to read that, and you get a lot of facts and figures from that. It's just unbelievable what's about to happen. And therefore, there's investment banking opportunities, there's money management opportunities. And it's, in one sense, the outgrowth of cryptocurrency because cryptocurrency mining occurs in data centers, but just so much bigger. And a lot of firms got the first exposure to the operation of a data center. We're operating a data center, small scale, of course, for cryptocurrency mining. This is just enormous. So it's an important holding for us. It's not as big as our holdings of Bitcoin, but it's not small either. And I think I might be -- I'm doing this some memory, so forgive me. I think Horizon owns something like 1.3 million shares somewhere in its various funds of Galaxy Digital, something like that. You should be able to look it up on our 13. I'm doing it from memory. I obviously can't memorize all these numbers, but as best I can, I think we own about 1.3 million shares. So it's an important holding.

If I could turn your attention back to HKHC for a second. We've had a question come in. Can you touch on Horizon's Bitcoin holdings at 131 and the inclusion of the top 55 on a top corporate HODL list? And just I'll supplement this as a reminder for everyone, there's 131 Bitcoin that's held directly by Horizon, and then there's additional digital assets that are held within the consolidated funds. And this question is specific to the 131 Bitcoin held by Horizon.

Okay. So 131 Bitcoin owned by Horizon, we mine those, and that's very important. So there are 2 ways you can own Bitcoin basically. You can buy it, you can buy directly, you can buy an ETF to hold Bitcoin, obviously, or you can mine it, meaning you're creating your own Bitcoin. So using the example of $1 million, if I had $1 million, I can buy a certain amount of Bitcoin, you can divide that $1 million by the current price of Bitcoin. You can see how many coins I can buy. And what will happen is, unless I put more money into Bitcoin, that's how many Bitcoin I have. So I could have bought 131, and I got $131 for all eternity, and the price is going to be where it's going to be. And that's one way of doing it. The other way of doing it, what I find much more interesting is mining it, you're creating your Bitcoin. So the idea is once you start mining it, do it in such a way that you mine coins and at the same time, throw off cash. The reason it's important to throw off cash, this is a really important point, go really slow is you want to mine, which is building up coins. Obviously, you're starting with 0 coins. And you want to throw off cash because whatever mining devices you have, at the end of the day, just device. Sooner or later, it's going to wear out, and/or sooner or later, it's going to get obsolete. So you have to get a new one. But assuming you can navigate those 2 challenges, what's happening? Your number of Bitcoin is growing. So coming back to the example, if you had 131 Bitcoin and it is what it is, or you add 131 Bitcoin and you have a mining business and you're able to, a, keep increasing the number of Bitcoin you have; and b, as a direct consequence of Bitcoin mining operations, throw off more than sufficient cash to replenish your ultimately to be depleted mining assets. Well, how can that not be better than just buying Bitcoin and holding it? Because Bitcoin goes -- Bitcoin is either going up or down. If it goes up, not only you get all the depreciation, but you have more coins. And if it goes down, well, you can get all the depreciation, of course, but that depreciation is going to be mitigated by the fact that you have more coins. So in other words, if I had 100 Bitcoin and it went up 100%, well, I got depreciation. If I have -- so Bitcoin doubles, and my Bitcoin doubles. If I had 100 Bitcoin and I was able to mine another 100 Bitcoin, well, I not only have depreciation original 100 Bitcoin, I now have another 100 Bitcoin, which also appreciate. Clearly, I have more money or Bitcoin is going to go down, 700 Bitcoin and whatever quantity, whatever percent declines, you're going to take those losses, or you have 100 Bitcoin, it goes down, whatever it goes down. And then you create another 100 Bitcoin. Of course, you're going to suffer some depreciation at Bitcoin. But at the end, you have 200 Bitcoin. Either way, that's a much better set of circumstances. That's the problem that we're solving for. And we think we have a great solution. And that's why, incidentally, we created Consensus Mining to solve for that problem, which I must tell you is not an easy problem to solve for. There are other publicly traded mining companies. And you can see by studying them, it's not an easy problem to deal with. And you don't solve a problem like that in a day or 2. We believe we've done something really unique. And also call your attention to the fact that our sister company, FRMO, has done the same thing with another company called Winland. So the time will be coming pretty soon. We can talk a lot more in a lot more fulsome manner of what we're doing in that regard, and I'm confident that you're going to like what you hear. But until that time, I just kind of leave it there. So I'm sorry for not going into every detail, but it is what it is.

Okay. Staying with the internal workings of Horizon Kinetics, we have a question about the asset classes that earn performance fees. The question is indicating that ETFs and mutual funds do not earn performance fees, and I'll confirm that. The incentive fees come directly from the proprietary fund group. Is there anything else that you'd like to add around the performance fees or their sources?

Yes. So see, this is the problem when you're -- nothing is without a problem. So I think we've done very well. But when you're a long-term investor, and a consequence of being a long-term investor is that your securities that you own, even if they're all great, they're going to be normally distributed. Even if every security is a positive rate of return, even if it's enormously positive, they can be normally, they're going to be normally distributed. And therefore, something is going to be best security. When you leave a loan, whatever your highest rate of return, i.e., your best security, that's going to be your biggest position. So when you do that and you have really great returns, it creates a marking dilemma for you. And the reason is it's one thing for a potential client to invest at fund inception when you have what looks like a well-diversified portfolio. But eventually under diversifies itself. So some people -- a matter of fact, not just some people, a lot of people be very reluctant to invest in that kind of fund because it's concentrated and they regard it as a risk. So now, of course, you can alleviate that risk in a day because all you have to do is sell the concentrations and put in something else. But now it's not just for us, you can see what taxes we would pay. Every client in that fund would pay proportionately the same tax rate that we would. And there's no reason to. This is a perfectly good security. That's a problem. Some people solve the problem with leveraging. We're not going to do that. So that's out. But it hurts the marketing effort. So what's the solution? Solution is that we have a number of securities in these funds that pay periodically unusually high dividends. And unlike a mutual fund, which has to pay its dividends out to the customer base because that's required by law, the partnerships can hang on to the dividends. We use the dividends to rediversify the funds as we find new securities. So the partnerships have a certain flexibility that the mutual funds don't have. Now when the mutual fund, when you sell securities, you have to distribute not only the income, but also all the capital gains. So if you made $100 million in profits, you have to distribute $100 million to your clientele. So when you trade aggressively, and I should tell you parenthetically, that virtually every SEC-registered fund trades aggressively. The normal turnover in the SEC-registered fund that are active is rarely less than 100%, and 200% turnover a year or more is not uncommon. We don't do that sort of thing. So I think that our SEC-registered funds from that point of view are far, far more tax efficient. And to diversify, we take our time of that, thereby taking the care and the time to manage the potential tax liability. So that's kind of how it works. We just don't respond instantaneously. So it's got a disadvantage in that it makes it harder to market. But on the other hand, it makes it easier market, you have, I think, a more robust return in the long run. And the results are all on our website, and I invite you to look at them, and only you can be the judge of that. So I hope that answers that question.

Okay. Great. You mentioned a few minutes ago, FRMO as a sister company. So I thought maybe you could touch on that relationship a little bit. The question is specific to is FRMO entitled to a portion of the carry revenue. And just for other listeners, we have disclosed in one of the footnotes, and this has been out there a while, that FRMO does have a right to a 4.2% share of the company's gross revenue prior to any commission sharing arrangements?

Right. So what you'll see is if you look at the FRMO financials, you'll see a line item, what's called the revenue share. We are obligated to value it, and we created a value, and we never changed it because it's a very debatable subject. What is the revenue share worth? I guess it depends on how much revenue you're sharing. We don't really want to change it every quarter. But in any event, yes, the number is 4.2%. So FRMO gets 4.2% of the revenue of Horizon off the top. So, how did it come to get that? You might well ask. Years ago, when Horizon was a smaller company and FRMO was a small company, Horizon and Kinix were separate firms. So FRMO, which had financed some business activities. We didn't want to have to register FRMO as an investment adviser, which really wasn't -- it's bad enough, we had 2 investment advisers to make 3 investment advisers, all run by the same people, was really confusing. So, what we basically did is we surrendered to Horizon all of the asset management products, everything in exchange for a revenue share. So we gave up all the income, and the Cid quo was we didn't want to sell it for cash because we would have a tax. So we got the revenue share. And that's the origin of it. It stays that way to this day. So that's how that happened. I think that covers it. I think so.

And then maybe this will be a good question to round it out. Do you have -- a question just overall about the Horizon Kinetics stock itself. And do we have any plans, near-term plans to uplift the stock?

We're looking at all kinds of issues. We've been pretty busy these last couple of months with a number of things like paying the taxes on performance fee, like doing the consolidated financials of Horizon, like getting the quotation OTC markets for consensus mining. So we haven't pursued. We've just been too busy to pursue it. In order to get an uplifting, right now, Horizon wouldn't qualify. We don't have enough volume. So one of 2 things to get an uplifting, we have to do one or 2 things. Number one, possibility, some shareholders are going to have to sell some stock. And depending on how much stock they sell, we didn't qualify, and we would be delighted if you could do an uplisting, possibly number one. Possibility number 2, we could do an offering of stock, and that would trade. And we don't really need any money. So that would solve the listing. We have no problem listing. If we did that, uplisting, there will be no problem. But then again, with an offering like that be dilutive given a lot of the things I talked about today, is it fair to shareholders just get an uplifting to do an equity offering to get cash that we really don't need, which has a possibility of diluting everybody to get some trading. And I suppose people can debate it. So -- and we debate it. So no decision has been made yet. And if you have a feeling on it one way or another, don't hesitate to contact us. You're shareholders, and we have a right to hear your point of view, and you have a right to express your point of view. So we look forward to hearing your point of view. But as I said, no decision has been made. It's possible that some shares will come on the market, and maybe that will solve the problem. But nobody seems to be too eager to sell. The volume is what you see. It's pretty low volume. So the necessary prior step to an uplisting is we got to get more volume. And I described the 2 methods. I wish we might do that. So we have that. There's one more possibility. If we found some company that had publicly traded stock that had a lot of or adequate amount of volume or had listing, we could merge into that in reverse merger, the same way we merged into Scott's Liquid Gold. That's a third possibility. And it's possible you found something that's really undervalued. We might be able to do that without diluting anybody. Those are the possibilities. So don't be shy about expressing your point of view, and we're thinking about that subject. So I just have to leave it there. So any other questions, Mark?

Yes. No, there are no other questions. But on that point, I will remind everyone that the annual meeting is June 17th, if I have my calendar correct. So that is coming up. And then I'll just ask if there's anything else kind of looking forward you want to direct people's attention to, or have any closing remarks, the time to do.

No, I think I covered all the highlights in your introduction. So I guess it just remains me to thank everybody for their attention. I thought questions were pretty good. And of course, apart from the annual meeting, which is coming up, we're going to reprise this meeting format in about 90 days. In the interim, I know it always happens, you hang up the phone, you think of a question you should have asked, but you didn't ask. If you want to have a question asked, don't hesitate to contact us. We will get you an answer. So we want to be as open as we possibly can, given the laws, and there really aren't a lot of secrets at Horizon. So with that, I thank you very much for your attendance today. And hopefully, we can see you all on the 17th of June at our annual meeting.

Great. That concludes the call. Thank you very much, everyone.

Okay. Thank you, everybody. Good afternoon.