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André Perold

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75

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2020-12-21

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2020-12-21

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1. “Think this is going to sound platitudinal, but Einstein is the one who said the definition of insanity is doing the same thing over and over again, but expecting different results The mistake I've made is not to realize how often I'm doing the same thing and expecting somebody different. So the issue is how long do you do the same thing before you realize that's what you're doing? And the mistake was doing it too long too often and being very sensitive to it. It makes a difference when you sort of think that way. As we conduct our business, as you have relationships with people, realizing that you're not always as sensitive to what might really be going on and you keep pretending it's something else and then you realize, oh my goodness, it isn't what I thought, but why did it take me so long? And there are many versions of that and iterations of that where we all have patterns of behavior, where we do things for good reason, the same thing all the time. And then some of those you just perpetuating something that isn't so good.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “So I'm going to mention in COVID, I haven't been doing a lot of reading. We've been watching stuff. And so, if I can talk about something I've watched recently, we watched a documentary called My Octopus Teacher. It's set off of Cape Town, and it's a story of a snorkeler who spends a year with an octopus and actually befriends the octopus. And it's just a very touching story of how a human being can get something like an octopus to trust him. And you learn about how this octopus lives and protects herself and the life cycle of that species, but it's just such a wonderful metaphor for life. And so as I was watching it, I was just so struck by the parallels to what you need to do just working with people instead of an octopus. It's fantastic. So it's one of the funnest things I've done in quite some time.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “Think everyone's trying to build a business. It depends which peers we're talking about. If it's others in businesses similar to ours, it's what's going on in markets, what's going on with clients. I still think that in the investment business, it gets to the issue of the end clients need somebody they can trust and they value the ability to be able to trust and work with you more than almost anything. So being super close to your clients, if your clients can trust you, then you can do wonders with them. Their ability to be better investors themselves goes way up. And your ability to do better for them and for yourself and for your firm also goes way up. So if you build your firm around this notion of trust in a very explicit way, I think the worst is you'll be okay and the best is it could be an extraordinary business.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “Version of you can't win the lottery if you don't buy a lottery ticket. It's sort of that very basic idea. So those are some of the things that I love to tell people.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “Already talked about understand the game people are playing, but I think people need to realize that not only must you understand the game you're playing, but learn also as needed if you can. Sometimes you can change the game and just be very aware of what you can do and what game is being played against you. At the same time, people are afraid to take risks, especially when you're young, you absolutely have to keep taking risk, a lot of risk. But just be smart about it. But not taking risk is just a terrible idea. If you're going to fail, that's fine. We're in a very forgiving world where failure is not a terrible thing. If you're going to fail, fail often, then you'll end up doing really well. And that sort of relates to making your luck. I think you need to put yourself in positions where you sort of make your luck, where good things can happen and you can take advantage of them.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Think people need to appreciate that the real world is a very tough place to compete. What I say to people is the only way you're going to succeed is if you're hugely motivated. So don't do anything where you're not motivated. If you're going to pick stocks, you have to love picking stocks. It's not enough to just do it as a job. You won't be very good at it. So motivation is really important. I think you need to realize your most valuable asset is your human capital. And so, if that's your most valuable asset, what are you doing to invest in it and grow your human capital and sort of consciously having a roadmap for doing so? For example, in our space of investing, having a network is critical, developing, growing the network is a very big deal. And learning to do so takes skill and it takes practice and it takes determination.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “More you're experienced in dealing with people and firms and the real world, you realize that there's always a game being played of some kind. And understanding the game that's being played is a very big deal. And just don't take things at face value. It's so easy growing up. You believe in things, you trust everything. And I think it's easy to be naive on these things. And I for sure had my share of being naive, but you just come to realize it's a pretty important skill to have. And the sooner you get it, the better.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Thank my parents taught us as kids to figure stuff out and do things ourselves. And so the last thing affects being to have the confidence to figure things out and then do it. So a lot of self-reliance and the confidence to be self-reliant, I think is just a very powerful thing.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “There's a lot of those. I don't know if it's a peeve or an observation, but I just think people don't like to think for themselves. People love safety in numbers. They seek safety in numbers. And you see it in places where you shouldn't be seeing it. In the investment space, so many people like to do things that others do. They like to be in a hurd. There are actually very few original thinkers. Everybody copies everybody else. But they all pretend to be doing their own thing. So the PV is that people claim to be doing original work when you know they're just copying other people's stuff. And you see that in research. You see that in ideas. You see that in almost every aspect of investing. But obviously you see it in every aspect of life as well.”

   2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “To think about that one because I guess we get so bound by what we do every day we don't even notice, but I realize every day I get up, I walk the dog. Later the day I walk the dog, I pace my espresso. I have espresso at certain times of day. It's a set of habits that gives a sort of structure to the day that I just love it.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “I love the outdoors, I love nature, there's something about being out in nature that is very tranquil. It just takes your mind off of the day-to-day stuff you're doing. So for me, golf and skiing particularly, skiing out high up in the mountains with stunning views or playing golf in a beautiful environment. I just love it. So those sorts of things to me are very special.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Expertise on the flag when there's an opportunity. We have our particular way of doing it, but every firm does that. And I think I just see us going more and more in that direction.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Think would affirm that, like every other investment firm, you always have to keep developing your edge and you always have to be able to evolve and innovate in a very competitive world. And I think in our case, working with smaller specialized firms in niche year areas is a very big piece of our future. By working alongside them and doing direct investing, in many cases with their help, so that as we execute, we can be that much more efficient, bring costs out of the system, have more liquidity, not do everything in an extremely illiquid way, have much more flexibility. I think that is our future. There is a bit of a convergence, I think. If you look at most firms that are deep in the active space, they all have networks. They all have people they talk to. They all have ways to develop experience.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Figure that out, and we could trade on the spot with them. And if we didn't have the direct capability, it would have been much harder to do, but it was still working with a specialist to be able to execute that.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “I would say internal implementation for its own sake is something we're doing a little less of and we're doing much more of the internal is simply a way of expressing what a specialist is doing. And so if they have great ideas, we can buy more of those on our own balance sheet. We can do SMAs. We can co-invest. We can work with them to see other opportunities and sometimes do those on our balance sheet. A great example was in March of dislocation. You had mutual funds being redeemed. They were dumping AAA bonds, especially AAA munis, were being dumped at crazy prices. And, you know, credits like the best IVs, for example, were among those that you know they weren't going to be impaired. And by having a muni specialist, we could”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “So historically, you always had a balance of extracting, let's call it, betas that were easy to do internally, some of these alternative betas, and then mixing it with some external managers, as you do more specialists, does it get harder to do internal implementation?”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “I think for us as a business, what's exciting is leaving aside the excitement of trying to find opportunities. It's that clients We all have the same problem. We're all trying to not be in the 60 43 real bucket if we can avoid it. And we find our clients want to know what to do about it. What do you do for bond substitutes? How do you get returns? How do we do it? And so I would say the opportunity set for us to work with clients pretty closely and help them see the world the way we see it through a bottom-up that becomes a top-down perspective, aided by all these specialists that we work with, is a very valuable thing. So I would say working much more closely with clients, we see the world quite broadly and interestingly and in a differentiated way. And that means the opportunities to work with clients are that much better. And so I think that interface of us being a strategic partner with clients is just going to grow and grow and grow. And I think that's a very exciting part of the business. And that will be”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Up to pre COVID until another at least two years from now, if at all. And so they're pretty beaten up. But there's a lot of bottom fishing opportunities there. And at the same time, those are also more inflation. And so I think if you look at financials, if we get high inflation, bond yields will go up probably. That's good for financials. It's good for credit. If you have inflation, the assets go up relative to liability. So credits improve. So if you're looking for inflation-sensitive assets, the mature ones are better places to look. Anyway, it's actually a really interesting. So while top down, the returns don't seem high. The opportunity set looks pretty interesting from a bottom-up perspective.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “And it's there for a good reason. It's there because the future is going to be different. Our tastes are different, our buying habits are different, technologies are allowing us to do things differently because of COVID. We may not all go back in the office. Just the future is different. And in a way, it's very exciting because it means that there are firms and businesses that will be very exciting to be with. There'll be a lot of innovation. And so I would say within the growth areas, again, you need to know what you're doing, but if you can pick your spots, that's exciting. The non-growth areas, I like to call them mature areas as opposed to value. I think values are misnomer, but mature businesses are like financials and energy and real estate and consumer staples and things like that. Within those, they've been really hard hit by COVID. And the forward-looking earnings there, they're not expected to catch.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “Which is for us, we sort of view that as that's our business is to help our clients who would otherwise be getting three real, help them find opportunities to do a lot better than that in a diversified portfolio of these niche opportunities. That's our task because the three rail is maybe is a risky three rail. And you've got to worry about inflation. You've got to worry about those things. At the same time, I would say that I think it's also pretty exciting if you look at the marketplace today. I think like two-thirds of market cap is really in growth areas today of the S&P.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Okay, zero real or maybe even negative real. And if your PE is 20, that's an earnings yield of 5. Now an earnings yield of five, if bond yields are zero, is a kind of a risk premium of five. So, okay, there's a risk premium of five and I'm going to, but that's my, that's like a five reel on equities, maybe, times 0.6 is three, and I get zero on the 40. So I'm getting three real on a 60-40 portfolio. That's pretty tough. At the same time, that rates don't have much further to come down, if anything. So you don't have the wind in your back of multiple expansion that you can look forward to. And if anything, there's maybe a risk of multiple contraction. That's not a forecast. You will see multiple contraction, but it says that the current levels of PEs are aided by low rates. And so going forward, returns, it's hard to see how you can say in the aggregate returns will be very high. They're not.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

22. “Just looking at it recently. It's very interesting. You know, the last 15 years that we've been in business, if you look at the return on the S&P, it's 9% a year since the late 2005. Of the nine 3% a year has come from multiple expansion. And that 3% a year is entirely consistent with the 3% decline in bond yields over the same period. So equity, PE multiples have gone up by roughly 30% from something like 15 and change to about 20 today. Those are forward multiples on the S&P. It's true, and the 3% multiple expansion is true in other markets. It's true in worldwide almost. So it really feels like we've had multiple expansion, which is the wind in your back as rates have come down. Going forward, what's tough is that you think of a 60-40 portfolio, 40 of the 60 is earning zero.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

23. “Get impatient. They want to wind up the fund. They have some interesting assets in the fund they want to sell. The existing LPs want out and there are opportunities to pick up some phenomenal assets that are being sold, but they're not public, so they're not traded. And you need to be in the loop and in the network to be able to take advantage of these. You know, inventure capital, you'll see early in the life of these private companies, there are pro-radder rights that you can get rights to invest in the next round, rights to do all sorts of things. And often the original investors don't want to exercise those rights. And you can get the rights to do that. in the space. You need to be set up for it, but there's a wide range of places to pick your spots in the private markets. Private credit similarly, but certainly private equity. And that's also pretty interesting.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

24. “And demand for privates at the same time. And what's exciting about that is I just think like any other place, there's inefficiencies of many kinds. We are seeing there's an inefficiency it very much feels like in private firms, pre-IPO, private, for example. You see that in many areas where if you can get in at the round before they go public, certainly in biotech but other areas as well, that's very nice. Taking companies private is a very interesting area. I think there's huge amounts of money tied up in private equity funds. At the end of life of those private equity funds, you know, private equity fund will say we have a stated life of 12 years or 10 years, but we have the option to extend and then very often they will extend a few years and then they'll come back and say, well, we need even more extension.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

25. “Great thing about private markets is that they become so big and they become big, I think, for two reasons. One is that being public is expansive. SOX 404 for companies to conform just to that, but many other things. The regulatory costs are being public or pretty high. In certain areas, being public is cheap, like biotech. The markets love these little things. But for the most part, being small and public is pretty expensive. And so a lot of firms go private. And so there's a supply of private there. At the same time, there's just huge amounts of capital that has grown over time. Trillions of dollars now seeking private equity return. Some of it is because private doesn't mark nearly like it's not as volatile based on marks. So that's attractive. But the fact is there's a lot of sophisticated capital, so there's a lot of supply of private.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

26. “A time arbitrage in the markets. I think you see it in all markets. And as long as that's the case, I think longer dated concentrated active management will always have a place. I don't see a government. Even in the largest cap stocks, I think it's there, which is nice. And it's very healthy, and it means that those who have the patience and can have the staying power to live through these ups and downs, they're a very nice returns to be had.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Markets are focused on this quarter, next quarter, they don't look out five years. The markets have a great problem looking out five years for some reason, three to five years is very difficult for people to want to bet on. And they'd like to see near-term confirming evidence. And because of that, especially in a world where the future is brand new. So if you look in the area of tech, for example, and right now we're at a moment of extraordinary innovation. Partly COVID has accelerated all of that. But the digital transformation is enormous. And so things are going to be happening three to five years out that are remarkably different from today. But it's hard for people to see it when they see it. Do they get really high conviction? And if you see the future a certain way and it goes against you, how do you persuade your sources of capital that it's still good?”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

28. “Inactive management more broadly, let's just take equities, even large cap equities. I do think It always surprises me how short term the markets are. And the managers will say this and you sort of shrug it off, but it's true that the markets don't look very far out.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

29. “Specialists are still available and they're not being swapped with capital. And so I think that's what it takes to form a product. So in the case of biotech, it is one area, but in credit, it's actually a wide range of areas that are all put together. So we're sort of betting that we can find a range of these inefficient markets and take advantage of them and that there's enough out there to make it worth our while and that we can give our clients a really good investment that is spread across of those.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

30. “I would say on the latter type, the ephemera ones, they come and go all the time. There are opportunities there. These are more where you need to, again, it's under the heading of you want to find a phenomenon that exists out there. It's a certain sector of the world where capital is scarce. The big money can play. It requires great specialization. It's got to be inefficient. You need to understand the inefficiency. And then you need to find players, specialists who can actually succeed for you. And it's that combination. So when you see an inefficient market and you see that, and you find these specialists, you can make a judgment as, okay, this is going to go on for a while. And if we can find more than one specialist, maybe a range of them, we can bet that will be there. Our job is to keep reaffirming that the inefficiency is there.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

31. “So as you take a step back and think about your business implications of these strategies, how do you figure out whether one of these niches has a long enough duration that you turn it into a product as opposed to something that is a great investment opportunity but maybe more ephemeral in nature?”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

32. “They do one load at a time, they have to source the loans, they have a network, they're making judgments. These loans are out for a year to three years. You can, in some cases, double your money if it succeeds. You can lose it all. So it comes down to hit rate, and they're just really good at doing it. And it's a tiny corner of the space. Zero correlation, what makes a lawsuit succeed or lose has nothing to do with whether the markets were up or down in that moment. They are capacity constrained. And so there's a limit to what we can do. But for that little piece, that's just terrific.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

33. “So let me talk about litigation finance as an example. This is where you're lending to folks who were awarded judgments that are being appealed. So let's say someone's awarded a judgment of $50 million. It's being appealed and you need to defend the appeal because if the appeal succeeds, you're not going to get your money. You need money to defend it. And so through a specialist partner, we will fund the loan. And then that partner has to make the judgment that this is a good bet. And so we, you know, fortunately through our network, we found a firm of folks who were lawyers before who were doing this who realized they can turn it into an asset management business. We helped put them in business and we have certain rights, we have a share of their investment capacity comes to us. And they do, as I said, it's hard work.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

34. “Loan that's going to give you a very nice return, but a lot of that return is payment for the work you're doing. That work means you have to perfect collateral, you have to perfect title, you have to set up the loan in a way that protects you in a range of scenarios. That's just hard work. And so you've been paid for work as opposed to being paid for epiphanies and genius. We love that. The more you can reduce investing to just hard work, it's awesome.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

35. “But what if it doesn't fit, then that's where private credit steps in and says, okay, we can configure a loan. We're finding there's all sorts of things to do in niche corners of the credit markets. There are corners of the litigation finance market. There are corners of the catastrophe risk markets, corners within energy distress, corners within small ticket European distress, some mes lending in certain cases. These are the stuff in aviation finance. There's just a very wide range. If you just look at the credit space, it's vast. And within it, the rock corners that are just not that efficient because credit is really hard work. Credit isn't about being a genius investor that has epiphanies all the time. It's really about finding borrowers that need help, finding borrowers that have very high costs of money, and then finding ways to create a”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

36. “Think the second favorite would be corners of the private credit markets. Credit is as vast a space as any asset class in the world economy. It's huge. A lot of credit is safe or on the safer end. There's high yield and stuff. But at the level of private credit, a lot of folks, a lot of firms don't have easy access to credit. There's a reason why there's something that isn't easily figured out. They have a sausage machine of wanting to have loans conform to certain criteria where they can score them and they don't want to do too much work for each loan. And so when something fits their criteria,”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

37. “You look at biotech stocks that are extremely wild. If you look at biotech indices, they have at least twice the volatility or typically twice the volatility of equities. A typical manager, because they're so concentrated, also is not quite as high as twice the volatile equities, but pretty high. By being diversified, and we also do a little bit of hedging, we can get that ball down to mid-teens, 15 or so percent, which is very similar to equities. But you get all of the alpha, much higher return. And the correlations are very low. The correlation with equities of the strategies is something like between 0.5 and 0.6, which is a pretty low correlation. So now if you asked earlier about how do you create a diversified portfolio, if you were going to own equities and you have a chance to put some of your equity exposure into this strategy, that has similar volt to equity.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

38. “We get the benefit of their concentration and their conviction, but yet we're not bearing nearly as much risk because we are diversified”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

39. “Yes. So, what happens in the space that's inefficient if you really do your homework, you can figure that out. So the managers who, as I said, are small, smart money, they love what they see. And so they just love the idea of having 10, 15 stocks in a portfolio. So imagine you have 10, 15 stocks in a portfolio, each of which is risky. Obviously, they hold them because they think they're going to do well. But the fact is it's risky. So what we love about it is it means that they have high conviction. So these are specialists that we work with. They have high conviction. We love it, but it's still risky. So for us, if we can find a range of such experts who do it differently, one of the nice things in the space is there are many ways to do it that don't really overlap. So you're not giving up much return by spreading your money among different strategies, but you are spreading your money among each of which is a very high conviction approach in the space. And then we get the diversity.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

40. “You're just doing very much a washer rinse repeat all the time, or it could be a much longer buy and hold strategy for the most part, which becomes more of a slugging percentage. So both things are very much present in this area.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

41. “Think it's interesting area because you have such big winners over time. You can have a little company at 50 million that has a drug that can replace an incumbent that has a market cap of 10 billion. And so the upside is just absolutely monstrous. It's not going to happen overnight. It may happen over 10 years. But there is huge upside. So if you can hold on long enough, you're going to get phenomenal returns. And that's more of a slugging percentage idea. Certain strategies are based in the very short term where you're looking at the results of clinical trials. You have a view on the market says this one's going to be great. The results are coming out next week. They're going to be great. And you think otherwise and you can bet on that for a week, long or short. And so depending on your strategy, it could be much more of a hit rate approach.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

42. “We think a lot about stock pickers that someone who has a 55 or even 60% success rate can be pretty heroic. And I'm curious in a sector like this, whereas you mentioned the ultimate outcomes can be so binary. Do the hit rates or the success rates of the good stock pickers, are they similar to those levels or do they have to be higher?”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

43. “Others dumped it, it's a bargain. But if you owned it before and it fell, if you're not a good investor, you may be tempted just to run as well. And the good investors understand when to double up and when not to. So it's a combination of someone who's a good investor who has a deep understanding of the fundamentals and who can do both sides of that.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

44. “Think the characteristics are all they all have the ability to figure out the signs. They may not be MDs or PhDs themselves, but they have been around long enough. They deeply worsened in it. They know how to call on experts. They have the networks to be able to do the work. They have others who work for them who are. So they can figure out the science. Think of that as understanding the fundamentals of these firms. And then they're good investors as well. It's not enough to know the science. You have to be a good investor. Often things are not obvious. You get a clinical trial where they had the dose wrong and the trial works out badly. And some people don't quite see that, so they sell. As soon as it comes out thinking it's bad. And the smart money says, hey, wait a minute, it was just the wrong dose. We know when you put the right dose, it's going to work.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

45. “You're doing the reason it's inefficient is that because it's small, the big smart money can play. What you need is the small smart money to play. And so the cat's gone and the mice are out here to play. And yet there are a lot of tourists who make it inefficient who will go in and out as tourists. These stocks aren't very liquid, so you can't easily come and go. So when people do come and go, they move prices. The fundamentals you can ascertain if you know the science and research it carefully. And so it's an area that's inefficient. You need domain experts. They need to be small to get the biggest bang for the buck. And we have found if we can execute on this through a portfolio of different kinds of strategies with different kinds of experts who are doing it a bit differently. You get great diversification. So it just checks every single box of the type that I want.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

46. “That these are individually little companies, they each are idiosyncratic, they the same in the sense that they're doing drug discovery. They all have to go through the FDA many times. They all need a lot of financing. They all burn money. They don't really have revenues for a very long time. And yet there are particular signs that's very unique to each one. Someone pursuing an area of heart disease has nothing to do with the success or failure of someone in the area of lower cancer or something. And so what it means is that idiosyncratic at the level of science and opportunity, they can be home runs, these little firms, but they can also do pretty badly. You get clinical trials that don't work out, a stock can fall by 80%. In a day, it can double in a day. And so you get the prospect of very high returns, but you need to know”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

47. “Are created by venture capitalists and others. And then as they become successful, they eventually go public. And more of them have been going public than any other piece of the capital markets. Something like 50 a year. It's remarkable to see this year has been a very vibrant IPO market in the space. These firms are all trying to discover the next good thing. What feels very good about the space is that you're actually curing diseases and helping people. That feels good. The wind is in your back in this area because there's been so much the gains made in the genome and other areas that technological advancements are profound. So our ability to create new drugs, discover things, make them effective and safe is quite remarkable. So it's a very growing space. So all of that's good, but the best part, the reason that there's a money-making opportunity is because it's inefficient.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

48. “Biotech is maybe my favorite example because it's for us so clear to see what is going on there. At this highest level, you have today some 600 public companies in this country, about out of 4,000 total public companies. So it's about a seventh of all public companies in this country are in biotech per se. They small cap, so the total cap is about $600 billion out of $36 trillion. So a very small cap, but a very large number of firms. And the reason they exist is that pharma is not good at R&D. These little firms all do R&D. They do drug discovery on the path to drug commercialization. And what we find, they exist because pharma isn't good at it and the capital markets have figured out that, hey, pharma, you shouldn't do this. We'll fund these little biotech companies. At first, a nascent firms.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

49. “Other markets. I think in the smaller cap areas, in the micro cap spaces, micro cap public equities are sort of almost private companies. They're not liquid. They're not widely followed. They're not well understood. There's a lot of stuff, I think, in the small cap market that is very efficient, but you need to pick your spots and be pretty careful about what you're doing there, but that's another example.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source

50. “So, I think it's a matter of degree. I think that China equity market is a very inefficient market. It's a huge retail presence in that market. It's dominated by retail investors still. It's vast, but within it, you have hundreds and hundreds of quality firms that actually a skilled person set up to do research in that area who's very connected there can find great growth companies and do pretty well. And we absolutely believe that and we understand the inefficiency. China is the one exception to the rule that an inefficient market is small. It's an enormous market that still seems to be quite inefficient, not just in equities but in other securities as well.”

    2020-12-21 · Capital Allocators · André Perold – Pockets of Inefficiency at HighVista Strategies (Capital Allocators, EP.169) · IDENTIFIED FROM THE TRANSCRIPT · source