A fascination with marketplaces and a knack for math is what pushed a young Paul Britton to explore the world of derivatives. However, it was his talent at chess that impressed a senior trader at his first interview with the London International Financial Futures Exchange. Paul was awarded the job, and while at LIFFE he discovered options—a type of derivative that would eventually become his specialty. Paul Britton is the founder and CEO of Capstone, a $9 billion global alternative investment management firm that specializes in derivative-based strategies. The core of Paul and his team’s strategy is a deep understanding of volatility. While most investors would be wary of options and the surrounding complexities, Paul uses this complexity as an advantage to spread exposure across all asset types. In this episode, Paul talks about the evolution of his derivative-based strategy, as well as Capstone’s origin. Adapting to a changing marketplace and constantly evaluating investment strategy is what Paul says has brought much of the firm’s success. “I hope in five years’ time, I look back and critique the way I'm doing business today,” Paul explains, “That, to me, is the exciting part because Capstone is such an innovative place to work. We're always challenging the ways that we are thinking about investing, risk managing, [and] about the efficiencies in our processes.” Many investors have previously viewed volatility as merely a defensive mechanism during times when the market was becoming more volatile. The emergence of volatility as an asset class is something more recent, as investors like Paul make a strong case that you can actually build a complete portfolio using only volatility and derivatives contracts. Before founding Capstone, Paul began his career with Saratoga Limited, trading options on the London International Financial Futures and Options Exchange (LIFFE), and co-founded Mako Global Derivatives in 1999. Paul received a B.A. degree in European Business Finance from London Metropolitan University. Paul currently serves on the Boards of the US Soccer Foundation, The Tate America’s Foundation, and Friends Seminary School in New York City.

Successful Investors

Paul Britton (Capstone Investment Advisors) “Building Resilience”

A book recommendation during undergrad was all it took for Patrick Quinn to uncover his aptitude for investing. As a biochemistry major, Patrick had to then take an unconventional road into the investing world—it was a road that would introduce Patrick to key mentors who were invaluable in helping him on his path as an investor, ultimately starting his own fund. Patrick Quinn is the founder and CIO of Quinn Opportunity Partners LLC, an investment advisor with approximately $650 million AUM. Patrick started Quinn Opportunity Partners in 2011 after he discovered an enormous investment opportunity while working as an analyst at Perry Capital. He used this idea to raise capital from his first investors, and his fund was born. In this episode, Patrick tells the story of how shorting Tesla became a pivotal mistake that led him to his current contrarian investment strategy. Central to this approach is the ability to not be biased towards investment ideas due to external pressure, but to instead let price volatility in the market work to his advantage. “I realized how having these conversations with prospective investors was actually biasing me toward looking for an idea,” Patrick explains about his Tesla short, “instead of just letting the idea hit me over the head and letting the price volatility of the market be our advantage. It was me turning over stones and trying to say, 'that's the one, right now I've found something that everyone was missing.’” Lately we've observed an environment where investors "want it all," and managers often overspecialize to the point that they lose their edge trying to deliver something unique. Given these pressures, watered-down results should not be surprising. On the other hand, Patrick is an unapologetic generalist. He deliberately keeps himself open to every good opportunity, which has resulted in 29% net annualized return since his fund's 2011 inception. Prior to launching Quinn Opportunity Partners, Patrick was an analyst in the risk arbitrage group of Perry Capital, with approximately $1 billion allocated to the strategy. Patrick graduated from the University of Kansas with a B.S. degree in Biochemistry.

Patrick Quinn (Quinn Opportunity Partners) "Upside Volatility"

As the son of Iranian immigrants who were forced to relocate during the 1980 Iran-Iraq conflict, Cameron Khajavi is no stranger to building things from scratch. His father, an accomplished engineer in Tehran, started mowing lawns in Houston, Texas in order to provide for a young family. His example provided Cameron the motivation and inspiration to later start his own fund, named with his parents’ initials. Cameron is the founder and CIO of MIK Capital, a long/short hedge fund specialized in consumer businesses. His introduction to the financial world came while accompanying his mother to their local Fidelity branch, where he was introduced to the idea of mutual funds. This idea drove him to move away from the family tradition of medicine to pursue a career in finance. MIK’s investing strategy includes a focus on team dynamics, probabilistic thinking, and looking past current market perceptions to see the underlying potential of a security. In this episode, Cameron discusses market fads and the market’s tendency to overvalue companies based on fads. “It's not uncommon now to have a SaaS business trading at 30, 35 times sales.” Cameron explains, “If the company can continue to grow at 35% for the next X number of years, then potentially that is justified, but there's not a lot of base cases that you can point to historically that suggest that's a common occurrence. And that's kind of what you need just to justify the current stock price.” Cameron Khajavi was born in Boston, grew up in Houston, Texas, and attended Duke University. Cameron also received an MBA from the Wharton School at the University of Pennsylvania. He began his career as a consumer-focused M&A analyst in the investment banking division of Lazard. Prior to launching MIK, Cameron worked at Citadel Global equities from 2007 to 2014.

Cameron Khajavi (MIK Capital) "From Scratch to Stardom"

Starting his own investment firm at a younger age than most, William Heard learned the importance of listening while carving his own path in the equity investing space. William Heard is the founder, CEO, and CIO of Heard Capital. His investing approach is propelled by the skills he obtained through his upbringing in Milwaukee, WI and his experiences in finance—such as actively listening, always having a plan for what can go wrong with an investment before initiating a position, and analyzing a management team’s “Say-to-Do” Ratio. In this episode, William explains why investors should never dilute their best ideas. William also explains how focusing on debates, rather than screens, leads Heard Capital to its investment ideas, and discusses the firm’s dedicated process to help remove confirmation bias and see through the fog. “I know that every day is going to be different,” says William, “Our investment process begins with listening and making sense of your environment, knowing what's real and what's not, and then supporting the decisions made with a unit-based fact pattern.” William Heard earned his degree in Finance and Real Estate from Marquette University’s College of Business Administration, where he founded the University’s Applied Investment Management Program. William currently serves on the Leadership Council for a Better Chicago, the City Year Chicago Board of Directors, and actively participates in OneGoal: a local organization dedicated to creating opportunities for today’s youth and low-income population.  

William Heard (Heard Capital) "Active Listening"

After a noteworthy decade-long tenure at UBS, Alexandre Challand returned to his true passion in life: wine. Wine had captured Alexandre's imagination as a teenager, back when he convinced his father and uncle to purchase cases of Lafite 1986 for 60 Francs for both drinking and long term investment (which had increased in value 20x by 2008). Alexandre Challand is Founder of Vintage Investments, Co-Founder of Histoire d’Enfer (a high end winery project) and Co-Founder of Fine Wine Capital, an investment boutique specialized in high end wines from Burgundy, Bordeaux and Italy. The objective of Fine Wine Capital AG is to deliver a superior financial return to its shareholders over the medium term and to allow its stakeholders to get exposure in the distinct asset class of fine wines. As you’ll learn in this episode, in many aspects, wine matured to become a financial asset class. There are benchmarks, live prices, and—pun intended—abundant liquidity. In many other aspects though, wine remains a specialized market where you need expertise to navigate. As an example, staying cautious of a growing number of counterfeits flooding the market. In this episode, you’ll learn from Alexandre about wine as an asset class. Hear what he looks for in an investment, how he knows it's time sell, as well as Alexandre's strong feelings on Bordeaux and global warming. But also, you’ll hear about Alexandre's story on how to combine passion with reason. If your heart beats for an unique asset class, you'll be pleased to meet Alexandre. Alexandre received a BA in Political Science from the University of Lausanne, and a Masters in Economics from the London School of Economics as well as a Master from the University of Bordeaux (DUAD).

Alexandre Challand (Fine Wine) “Investing in Liquids”

Jeff Lignelli is the founder, portfolio manager, and CEO of Incline Global Management, a long short equity fund based in New York. Central to Incline Global's philosophy is a rigorous adherence to data and analytics. "When you start a hedge fund, it's not like you've won a prize; you've only won the right to work very, very, very hard," points out Jeff, "Starting a hedge fund is only a license for continuous improvement. And the people that will really do well over the long term are funds who evolve over time." Jeff Lignelli's great grandfather left Naples, Italy, at age 17 and worked in the Pittsburg steel industry. His grandfather's courage inspired Jeff to aim higher, which led to him to graduate from the Wharton School of Business as a Joseph Wharton Honors Scholar. "It's so important to work very hard to put everything you can into growing your business and your fund. I actually like to think that I have ice in my veins during the very difficult times in the market. And I think that comes from the mindset that you get being so close to someone from that generation—like my grandfather." Prior to forming Incline Global in 2012, Mr. Lignelli served as a partner on the investment staff at Appaloosa Management. At Appaloosa, Mr. Lignelli was responsible for developing specific sector themes and related equity investments. Prior to his tenure at Appaloosa Management, Mr. Lignelli founded Stonebrook Fund Management in 2001, where he was a portfolio manager for the firm’s long/short equity hedge funds. In 2008, Stonebrook returned outside capital to investors and Mr. Lignelli primarily managed his personal capital until he joined Appaloosa Management. From 1998 until 2001, Mr. Lignelli was a partner on the investment staff at Omega Advisors where he invested in companies across a myriad of sectors, geographies and market capitalization. Before joining Omega, Mr. Lignelli served as equity analyst at Atticus Capital where he performed research and analysis across equities and special situation investments. Mr. Lignelli began his career in finance as analyst and associate at Gleacher & Co. where he focused on mergers and acquisitions and gained a detailed knowledge of valuation and construction of financial models.   

Jeff Lignelli (Incline Global) "Continuous Improvement"

Investors today seem to be enamored with growth in the US tech sector, regardless of valuations. By contrast, Soo Chuen and his team practice the increasingly rare art of contrarian value investing on a global scale. Soo Chuen Tan is President of Discerene Group LP, a Connecticut-based private investment partnership that invests in businesses protected by either structural barriers to entry (“moats”) or hard assets, when such businesses are out of favor, at prices offering significant margins of safety. In this episode, Soo Chuen discusses the psychological and philosophical underpinnings of value investing, including (1) being greedy when others are fearful and fearful when others are greedy, (2) viewing risk as the probability and potential magnitude of permanent capital impairment rather than volatility, (3) distinguishing price from value, and (4) requiring a margin of safety. Soo Chuen also discusses the importance of understanding the historical, social, and cultural context of a business enterprise. What are the unspoken norms that a management team operates by? What are the values of the country or culture that the business operates in? Values, after all, guide behavior, and behavior influences outcomes. Soo Chuen speaks of several investments he's been involved in around the world, and what he's learned from each. In particular, he shares his reflections on operating in "thick" versus "thin" cultures. Born in Malaysia to two physics teachers, Soo Chuen discovered his calling as a value investor in his mid-twenties while in business school. Soo Chuen holds a Bachelor/Master of Arts degree in Jurisprudence from Oxford University, where he was awarded the Martin Wronker University Prize for Law. Soo Chuen also holds a Master of Business Administration degree from Harvard Business School, where he was a George F. Baker Scholar. Before founding Discerene, Soo Chuen worked at Deccan Value Advisors, the Baupost Group, Halcyon Asset Management, and McKinsey & Company.

Soo Chuen Tan (Discerene) "Value and Values"

Paolo Mortarotti is founder and Chief Investment Officer of Tower House Partners—a fundamental equity, long/short manager in London. Part of Paolo’s success as an investor lies in his ability to identify companies that have promising futures, but are overlooked by the market. He then applies what he calls a “peaceful activist” approach: (1) gain the confidence of a company’s management, (2) have an open and frank discussion about what they're trying to achieve, and (3) help the company imagine a greater future and move toward it together.  When it comes to transparency, Paolo may be an outlier. Most managers prefer an aura of mystery—not Paolo. In a field often shrouded in secrecy, Paolo believes that when companies and investors are upfront with stakeholders about their processes, everybody benefits. Paolo graduated summa cum laude in Economics from Bocconi University in 1999. He then started his career at Cazenove on the European research team (which has nurtured several of the current London-based equity managers). Paolo continued his development as an analyst at Theorema before graduating to the portfolio manager seat at UBS O’Connor, and then back at Theorema. All the while, Paolo focused solely on the sectors that Tower House now specializes: healthcare, TMT, consumer and business services. Prior to establishing Tower House, Paolo spent a few years as a managing director at C&C Group, a FTSE 250 consumer goods company, where he helped hone his “think like a business owner” philosophy through a better understanding of what really goes on behind the corporate façade.

Paolo Mortarotti (Tower House) “Imagining a Future”

Jennifer Heller is President and Chief Investment Officer at Brandywine Group Advisors, advising on $10bn of capital for a small group of families with multi-generational time horizons. This means she is in the field of balancing portfolio objectives and beneficiary interests. Conversations around this have become especially crucial during the COVID-19 crisis, as she shares. Listen to hear some of the guidance Jennifer gives her families about how to stay smart during these unique market circumstances. Central to Jennifer’s success is finding a steady supply of best-in-class managers. When working with limited transparency, this part of the job is difficult for any allocator. In this episode, Jennifer shares her insights on how to screen for manager alignment using the quantitative and qualitative tools at her disposal. She also shares how she knows it could be time to part ways with a manager. The Brandywine pools and family portfolios span multiple asset classes and investment styles, a challenge that Jennifer finds absolutely invigorating. As a liberal arts major in college, Jennifer has always carried a natural curiosity for multiple topics. At one point during the interview, she suggests that having so many interests can be distracting at times—however, this knowledge breadth and approach to learning is actually the very force that helps her succeed. It’s this valuable attribute that inspired the title of the episode, “Investing Renaissance.” Before Brandywine, Jennifer worked at both Alfred P. Sloan Foundation and Stanford University’s endowment. Early in her career, she also spent six months in India working for a microfinance NGO. Jennifer holds an MBA from Stanford University.

Jennifer Heller (Brandywine) "Investing Renaissance"

By observing what hedge funds are holding in aggregate, one can potentially isolate themes that produce outsized returns. A best ideas strategy involves the creation of an index or basket of stocks based on hedge fund ownership. However, depending on how you approach the ownership data, outcomes vary drastically. To create an effective best ideas strategy, special care must be given to: (1) data integrity, (2) filer identity, and (3) construction mechanism. In this minisode, Aishwarya Damodharan, Shraman Ghosh, and Nathan Innis of Novus discuss the interworkings of the Novus 4C Indices, and how the Novus Conviction Index has fared in the times of Coronavirus. WORKS MENTIONED: 13F Research with Barclays– https://indices.barclays/file.app?action=shared&path=qis/insights/qis-insights-13f-alpha.pdf Consensus vs. Conviction­– https://www.novus.com/blog/which-factor-is-truly-a-best-idea Barclays Partnership­– https://www.novus.com/barclays-public-data-partnership Conviction Index during the Coronavirus– https://www.novus.com/blog/hedge-fund-best-ideas-during-covid-19 SPECIAL NOTICE: On July 10, 2020, the Securities and Exchange Commission proposed to significantly raise the AUM threshold for funds required to file quarterly 13F disclosures. The new AUM threshold would become $3.5 billion, effectively excluding 90% of current filers. Aside from shrinking the dataset with which best ideas strategies are curated, we anticipate this change would have many negative consequences for the investment community and markets. Read our analysis of the proposal here: https://www.novus.com/blog/dont-mess-with-13fs Please consider adding your voice during the 60-day public feedback period by emailing the SEC at rule-comments@sec.gov with subject line “File Number S7-08-20”; or by submitting a comment on the SEC’s website https://www.sec.gov/rules/proposed.shtml “

Minisode: Best Ideas

Fahmi Quadir ascended to fame in 2015 when she played a pivotal role among investors shorting Valeant Pharmaceuticals. She appeared on Netflix's Dirty Money series in 2018, discussing her successful short position against the company. At the time, Fahmi was an analyst at Krensavage Asset Management. Her concentrated, aggressive short book of fraudulent healthcare and biotechnology companies that she developed at Krensavage propelled her towards launching her own short-only fund in 2017. She was 27 years old. Safkhet Capital, where Fahmi is founder and CIO, is a concentrated, short-only fund focused on identifying and exposing fraudulent companies and companies with misleading business practices. Safkhet achieves this via diligent investigative research, unblinking defiance in the face of opposition, and a strong propensity for moral justice. Fahmi's penchant for sniffing out and acting against fraud has even earned her the nickname, "the assassin." And as she describes in this episode, "It's not uncommon for me to be in a room with executives and then they start sweating—even if I'm not saying anything." She attributes much of her drive to her upbringing, and the sacrifice her parents made for her in moving to the US from Bangladesh. Born and raised on Long Island, Fahmi Quadir graduated in mathematics and biology from Harvey Mudd College in Claremont, California. Her rigorous STEM background and love of mathematics has shaped her approach to the world and markets.

Fahmi Quadir (Safkhet) "Shorting Fraud"

Josh Jacobson is Partner and COO of the Equity Division at Cheyne Capital Management, a London-based alternative investment manager. He is also the classic successful player-turned-coach story. The concept of coaching has always been a core tenet throughout Josh's career. Why? Investing is a performance activity. And as Josh points out, all of the world's very best performers who are at the top of their game, across any category, have a coach. Josh Jacobson started his career at Salomon Brothers in New York, where he conducted macroeconomic research within the emerging markets team. He joined Cheyne in 2002, where he managed one of the firm’s equity long-short portfolios without a single down year during his eight years as a portfolio manager (including during the 2008 financial crisis). He left for Trafalgar Capital in 2009, and then returned to Cheyne in 2015, where he now spends much of his time passing on his hard-earned wisdom to portfolio managers. In this episode, Josh shares what he learned from his time studying with Ari Kiev, and relates the uncomfortable realities that he faced while scrutinizing his own performance. Andrea and Josh also discuss the most common mental traps that investors fall prey to, as well as the top advice Josh gives when he is coaching portfolio managers.

Josh Jacobson (Cheyne) "Sponges, Not Stones"

Chris Dale is the founder, CIO, and portfolio manager at Kintbury Capital. Chris attended Cambridge to study math, but eventually earned his degree in philosophy. After school, Chris worked at S.G. Warburg in corporate finance. He eventually migrated to Warburg's equity division, where Chris cultivated his passion for markets and investing. Next, he moved to Millennium Capital Partners, at the time a $2.5 billion dollar fund. After nine years at Millennium running a market-neutral strategy, Chris started his own fund, Kintbury, motivated by his fascination for European equities. In this episode, we hear about Chris’s perception of market bubbles, as well as the valuable role that both math and philosophy played in shaping his approach to markets. Chris shares his personal metrics for determining when to sell, and also explains his ideology around tracking performance on a long-term basis. "The challenge is always asking yourself, if it wasn't in the portfolio, would you be putting it in today?" —Chris Dale Chris values inquisitiveness, which has served him well throughout his career. It turns out that math, philosophy, and investing all have the following in common: to succeed, you must truly understand and dissect your assumptions.

Chris Dale (Kintbury) “Math and Philosophy”

[Revised] Dan Waters is co-managing partner at Northern Trace, a commodity hedge fund. During his long career on Wall Street, Dan ascended to co-lead FrontPoint (along with Mike Kelly) in 2006. Shortly after, FrontPoint grew to be one of the world’s largest hedge funds, and was ultimately acquired by Morgan Stanley. Managing a portfolio is challenging. Investing at a large scale adds yet another complexity: managing talent. Like a portfolio, talent requires active management. Losers must be moved out, and winners must be scaled up. The difference is, of course, you’re making these decisions about people, not just securities, and that raises the emotional stakes. Dan insists that emotions are very important—you can't neglect them—but certain emotions can cloud judgement. Dan Waters is an exemplar of steady leadership (including during difficult periods), and he’s become adept at balancing his emotions so they don’t obscure his view of a situation. Dan’s thoughts on leadership are universally insightful, no matter your role or focus. He tells us the three simple questions he asks every prospective manager (24:18), and he discusses tactics for inviting people to improve (20:40). In this episode, Dan also provides us with a succinct thesis for leadership, “The best leadership comes from just doing what you're expecting of others yourself”(11:30).

Dan Waters (Northern Trace) "The Talent Portfolio"

While working for McKinsey & Company, Jennifer Oppold developed a passion for discovering what makes companies tick. At the same time, she grew frustrated at not being able to ever stay with a problem long enough to see it through, as consultants are required to quickly move on from one assignment to the next. With a newly discovered professional calling very clear in her mind, Jennifer left McKinsey to enter a dual J.D./M.B.A. program at Harvard. While there, she spent a summer with Select Equity, a firm investing in small- and mid-cap companies with a value tilt. It was love at first sight. At Select Equity, Jennifer started working with George Loening, the firm’s founder, who would become her most influential mentor. Under George, Jennifer learned the art of shorting, as well as how to wait for the “value moment.” About two years ago, Jennifer launched her own firm, Alpine Peaks, where Select Equity’s legacy of intellectual honestly and personal mentorship lives on—now with Jennifer’s touch. Hearing Jennifer’s story, we get to witness firsthand how the power of intellectual honesty creates an investment edge. Key to her success, she says, is diligence in writing down her assumptions. Anyone can talk about intellectual honesty, but Jennifer lives and breathes it. Those who seek to make a career on the buy side (and truly, investors of all stripes) can learn much from Jennifer Oppold’s journey.

Jennifer Oppold (Alpine Peaks) "Intellectual Honesty"

Accomplished investors share their stories, mental models, and what market factors they’re paying attention to today. Host Andrea Gentilini of Novus unpacks what has helped them and hindered them on their diverse roads to success. Modeled after the values of Novus industry research, this is where managers and allocators alike tune in for engaging discussions on how to succeed in the investment world.

hubhopper

Successful Investors

hubhopper