YouSaid · the spoken record

Andrew Tsai

lines on the record: 99
first: 2018-10-22
most recent: 2018-10-22
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Banging out emails, right? And there's certain parts of the day that are reserved for talking to people, and I wish someone would have sat me down earlier and say, figure out your biorhythm when you're 21 and focus on those things and just own it and just be really, really firm at that vibe because we've all seen this. You at your best is 20 times better than you at your worst. So just figure out when those periods are. And so I think it's more of a physical thing, but I think it translates into if you can improve your life, 10% every day because that compounding is really, really big.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“If they're a true friend or a real business partner, they'll appreciate it. And I've had so much feedback the older I get from people that have said, you know, remember that conversation we had like five years ago when we were like, we just had that horrible thing happen to us and we went for a beer and you kind of mentioned that one thing. Like that really stuck with me. I'm like, why? Like you kind of forget about some of the things that people remember. I really think that that's one of the big lessons I've had is that you're actually serving someone. You're actually deepening the relationship. You're actually deeply caring. It's a form of gratitude when you care enough to be difficult. And then I think the other kind of life lesson is for my first half of my career, I'd say I was so focused on time management and it's like I want to be first in, I'm going to be lost down. I want to do this. I want to do that. And now it's all about the flow and the energy. And we all have different algorithms. So there's certain times of the day where I reserve for deep thought stuff. And there's certain parts of the day that I reserve for just.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Touching on some of the stuff when we were talking about culture, I really believe this, that the quality of your life is determined by the amount of difficult questions you're willing to have. And that goes across the board, right? That goes to your relationship with your spouse, your kids, your teammates at the office. We talked about business partners out in Asia and how you deal with that. And I grew up in St. Louis and people are super nice and super friendly and talk about lack of conflict, right? It's all about just super, super good people. And that's fantastic. That's an amazing quality. I like to surround myself with people like that. But there's another side. And so I think in my younger years, I thought that conflict was bad. Like, wow, it's like, you know, I'm being difficult. Like I'm being like, you know, that guy. And what I've learned is particularly if people didn't know you and think that you're a reasonably good person. And I hope that's the case. Who knows? But if they think that and you bring something up to them that may even be a little bit offensive to them or a little bit shocking to them.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I'm going to go back to my mom. My mom passed away when I was 16, and she left such a mark on my life. And I'd like to thank her for teaching me about how to connect with people what I said earlier. And I'd really like to tell her about my kids and how I see her and them, you know, they're artistic, their people people. So there's a lot of other folks I'd love to see, but given my short time with her, that would be everything.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Moons meeting to talk about North Korea, right? And then you hear kind of how the pundits here talk about it and you kind of get a perspective on how they think about it there. And so it's kind of eye-opening. And I think it just broadens out the perspective that our perspective here is important, obviously, and we live here, but there's a different perspective. And so I think that's been helpful.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a standard issue stuff. Like, I think the economist is amazing. But one thing that I really enjoy doing is reading newspapers from different countries. It all started because I'll be traveling and I'll be in this airport or that airport. And you're like, instead of picking up New York Times or the FT that's there, which I love, you know, and I read them every day, but then you pick up the China Daily or you pick up the Nikay or you pick up the India Times. There's always a half-life, and since I'm in Asia so much these days, it stays with me that in the mornings, I'll just load up their local newspapers and it's a different perspective. It really is. You have the same event happening.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I had two very different parents. My mom was an artist and my dad is an engineer, a PhD, a structural engineer. So very different lessons. My mom was taking me to art museums with her kind of very colorful artistic friends, very free-loving, very alternative culture. My dad, you know, who had come from Taiwan to get his PhD in St. Louis, very straight arrow in both very different qualities. So my mom taught me the importance of connecting with people. And I think all this stuff on culture. The other day we're humans. We're here for the journey. How do we really connect at a level? She was just amazing at that. And my dad's the most honest person I've ever met. And so when there's ever been any doubt on what the right thing to do is I kind of think, what would he do? And he's just one of these different era kind of integrity type people.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the pet peas is deriving confirmation from others or association. And we've made that mistake before. We said, oh, wow, all these smart people are investing in this. Like, must be good. And maybe in the margin you kind of relax your standards a little bit. And if I go back and think about all of our greatest hits, I don't think there was one that was a consensus. Like, yeah, that feels good around the board kind of investment. It was always like there was always some twist, some difficulty, like even short subprime, like you remember like everyone was talking about the government buying every single mortgage in America. So therefore, maybe it doesn't work. So you go through some late night sweats on all those things, but the ones where you kind of feel like, oh, you know, it's fine, like, you know, yeah, they did it. It must be great. That's one of my pet peeves.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the keys I've done fly fishing all over the world. The keys in particular is the best for specifically for permit and tarpon is the best.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“I named the firm chalk stream because I love fly fishing and I learned how to fly fish when I was in London on the chalk streams in England. And so specifically within the fly fishing world, I love saltwater fly fishing for permit, tarpon, and bonefish. And since there's not many people in the world that do that, I'm actually pretty good People are like, well, you can catch a permit on a fly. I'm like, yeah, but there's maybe 50 of us that are freaks and try to deal with that every year. So, you know, yes, on an absolute number, I'm up there, but there's not many of us.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“I really think you need to get into a different physical space to think like that. I think you need to have a different type of agenda. I think you need to have a different kind of energy flow. So when we think about culture, it's not you see the kind of values on the wall there and kind of speaking up and like, you know, learn from your mistakes and all these kinds of things. But at the essence, it's how do you create an organization that really respects each other and respects each other to ask a difficult question, to be unreasonable, but in a way that's kind, that's empathetic, that is not personal. And that's really hard to do, right? It's a fine line, right? And we're all running quickly and sometimes I'm running out of the door on the way to Japan. I'm like, and all of a sudden I go, shoot, you know, I didn't say that the right way, you know, and I'll get called out too. I solicited a ton of feedback. So we spent a lot of time on this stuff. And sometimes you're like, oh my God, we got to prepare for that 360 review again. It's a week of work, but the stuff that comes out of it is really valuable. Anyway, for us, I think culture is essential for any organization.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“And now you're like, wow, thank you. I really appreciate that. And to us, we say feedback is a gift. You're actually giving someone a gift. And so all these things are not technical, right? They're not necessarily process oriented. But I do think they're really important culture points on how do you create an organization that is able to adapt quickly to a changing environment. And part of that is being able to correct quickly. And that starts with internal. And so all this stuff we do in culture, whether it's feedback, whether it's on mind, body, whether it's on focusing on the long term, all these kinds of things, we try to port that and export that to our partners. And so we've had off sites and we've run them for a lot of our partner groups. And for some of the groups we've seeded. And to me, I get the same reaction every time. Before I go to these things, I'm like, God, are people going to think this is hokey? Are they going to think this is a waste of time? But this is one thing we've done well. The feedback we get is like, thank you so much. You know, gratitude. Like this has been amazing.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Shape, your mind will be in better shape. We spent a lot of time on feedback, on how to give feedback. We'll actually do practice sessions where we'll have to give feedback to each other. It can kind of speed dating sense. And the whole purpose of that is when you're trying to run an organization with high achievers, how do you cut through and get to the issues in a way that's going back to my Japan point, not personal, that is focused on the task at hand, right? So step one is you build kick-ass relationships. So we pay for people to go out to dinners and lunches together. We highly encourage that. We say, we'll pick up the bill, go for it, right? Because if you have better understanding and respect for each other, when I come to you, Ted, and say, Ted, are you open to feedback? And you say, yes, because we just had an amazing meal last week. And I said, you know what? You know, this thing you did in that meeting, I think it really rubbed some people the wrong way for XYZ reasons. And the reason I'm mentioning it to you is that because you're not a bad person, you're a good person, you know, but it really slowed down people's momentum on this for XYZ reasons.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“And if you go back through all of our off sites and see kind of how the firm has pivoted over time, same DNA, same philosophy, same types of people, the things we're doing are different in terms of creating specific co-investments, whether it's around Japan and Korea, whether it's building more permanent capital businesses, which we're doing in a few places. All those things have come out when you have the mindset and time to think differently. And so culture to me is a combination of how do you create the space to dream and to think. And that's things like off sites. It's things like we have strategy sessions once a quarter where we talk about a lot of different things that aren't related to kind of short-term goals. It's stuff about, I'm a big believer in kind of the mind, body connection. We spend a lot of time internally thinking about how do you manage your energy and how do you think about your workflow throughout a day. And I really believe that if your body's in better”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is in the near term. And the theme of the off sites is the same every year, which is in five years from now, if we're looking back, what do we wish we would have started doing and today? And what do we wish we would have stopped doing?”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“I actually spend a lot of time on this stuff. And I think some of the benefits of my different experiences in dealing with different people have really focused my attention on this concept. And for me, one of the great joys of building a firm like Chalkstream is being able to define your culture and to surround yourself with amazing partners and team members that reinforce a culture and actually make it better. And there were some simple things that we started with at the very beginning, which is like no asshole policy, right? Life's too short. Then it's kind of evolved over the years to things like, you know, how do you really focus on collaboration? How do you focus on a learning organization? And so we do a lot of stuff. We just came back from our offsite, actually. We do an offsite every year. We take the whole company and we go somewhere for three days. And we're not allowed to talk about anything.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's pretty big, so that certainly is a factor that is different, and we've tried to capture that in certain ways through certain investments. But Active's not dead. It's just that where do you want to choose to amplify your active bets? And to my point earlier about trying to be really intentional about our beta bets, we're trying to focus on spaces where we think we have a reasonable chance of active management creating alpha.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I think that we're a believer. We're a little bit more skeptical in places with a lot of capital. So we think it's a secular play. That's why we built a business there, adjunct business there, and we expect to be there indefinitely. And some of the other spaces, it's getting harder and harder to create alpha. And so I don't think Active is dead. And I think that Tyson's kind of value versus growth. It ties into technology disruption. It ties into a lot of things. And some of these things will correct at some point, I'm sure, right? Who knows when? Maybe it's 10 years from now. Maybe it's 20. Maybe it's five years from now. But so I think that the passive versus active debate, it's actually always been here, right? Back to when Vanguard started saying let's all index. So it's not a new concept. I think it's capturing a lot of mindshare because people are seeing the effects of quant and something that has changed is if you look at the percentage of trading that is done in the hands of machines, it's pretty big.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Know it's a good question, and I know you thought deeply about this topic. And there's a big shift going on. There's the quantification of almost everything. There's the big data of almost everything. Passive is really trounce a lot of active for many, many years and just taking the hedge fund space and going back to our origins. We have this view there's going to be a lot of money flooding in. It dwarfed what we expected by a factor of five. And so it's really hard to create a lot of active alpha when there's that much money in the space and when a lot of the similar approaches, we're now almost on third generation, meaning like some of the early hedge fund folks have spun off and then there's been spinoffs with those folks, maybe in fourth generation, just saying it out loud. So the techniques are there. The process is there. And there will always be people that are good at active management.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“A little bit more like that. And we do have a little bit of profile there. We have it in Japan. We have it in Korea and things like that. And so I definitely have indirect beta and I have some direct beta bets, but the direct beta bets in our portfolio are very, very intentional. But for my friends, I'm sure you get this all the time. You show up at a cocktail party, and your aunt says, you know, Ted, you know, how should I invest? And I think the low-cost index stuff for majority people makes a ton of sense. And I don't think beta's bad. I think beta is good. I mean, generally, I think there is an expected return expected from that. And there will be periods when it's higher and lower. But in general, if you have a long-term view, I think equities is a good thing to note.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“And more tactical. And for your own capital, do you want to own the beta? Or you just say, look, I'm okay. I live in New York City, I'm implicitly owning the beta because I own my apartment or whatever it is.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you're in the headphone industry, private equity industry, you have beta, the SP. And one of the charts I have on my desk is a graph of 10-year yields going back 40 years. And the reason I keep it there is that it looks like a ski slope, right? It goes from 14% down to where it is today. And there's been some gyrations, but it's basically, I say this to all my contemporaries, like none of us are as good as we think we are. We've been the beneficiaries of, you know, so if you think about hedge funds, equities, real estate, private equity, direct link, you know, if that chart didn't look like that, yeah, and sure, some people have done better than others in capturing benefits from that. But what if it doesn't look like that going forward? And so for us, we don't really feel like we can add much value by providing beta to investors. And we think that they have it already. And what we want to do is provide them with something different and more tactical.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're foregoing on a purpose. I think it's actually fantastic and people should do that. We don't think we add value for providing other people. And I think people know when they come to us, everyone's got plenty beta in their portfolio, either directly or indirectly. If you work in finance in New York City and you have zero equities, you're long equities.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Then we can really do the deep dive. So, for us, it really starts with how do you build something that gives you the patience to be patient. And not force the kind of big bets, not force the tactical bets, right? Because if we were building a whole organization that was just like, okay, we've got to find the next thing, we got to find the next thing, you'll find the next thing. And maybe it's right. Maybe it's wrong. But if you have the patience on worst case, we've built this low beta portfolio that has pretty good returns. That's pretty good.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Getting back to your question, we want to start with building a portfolio that gives us the time to be patient with our research and with our tactical bets and some of our longer-term bets. And that in of itself is not easy. And so we've really gravitated more and more towards things that have limited capacity, things, like I mentioned, that may be kind of in the small cap regional bank space that can be in the healthcare space. We have a healthcare investment business that we seeded that works out of our offices Evercept that is an exceptional team. Cam and his crew are doing some really amazing things in that space. And so finding those are hard, but when you put them together, that part of our portfolio has probably been 0.1 beta or so to the S&P over the last five, six years with pretty consistent alpha. And so that allows us, the patients, to not feel like we're forcing it. And then from time to time, when we find a theme or an area that we want to get more involved.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“We start first with how do we create a low beta core portfolio that allows us to be patient? So if you think about in some ways how we think about ourselves, we're trying to combine the best attributes of a multi-strategy hedge fund, a fund of funds, and a private equity fund. And they all have all got their pluses and minuses, right? So we want to have the direct trading capabilities and infrastructure to go quickly. We want to have the access to information and experts that you get from a fund of funds kind of flow. And it's fascinating sick. We can go anywhere and people want to talk to us. And they really want to tell us their best idea. And that's fun. And then we have the ability to take really long-term bets. And so even if we're seeding people, we can provide working capital, which is a little different. We can provide LP capital. We can say we can start with a question Mrs. Manager, what do you want? Not like, here's a prepackaged program on how we seed people.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, we've canvassed the space and will attend power conferences, we'll be all over the world trying to meet different folks. And so, yeah, I think the limiting factor is that there aren't that many teams out there. We've probably met with 60 or 70 or so, but most of them are kind of small ex-utility traders from public utility or from a energy trading shop and define groups that we can partner with to do it in kind of an institutional long-term approach has been harder. Asset class is growing. It's happening in Latin America and Europe and Asia. So we basically want a front row seat into the asset class. We think there's a lot of things to do in kind of the power and energy ecosystem. And so on that whole concept of our Laminate card, we want to have teams and partnerships that are aligned with us. And we may own some of these businesses to really capitalize on some of the things that we think are developing over the next 10, 20 years.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Days of market making in industries, early days of HFT. So you want a lot of dispersion and there's a ton of dispersion, right? Because you've got weather changing. So you'll get heat spikes and all of a sudden everyone's jacking up their AC. We had that a couple weeks ago. You have renewable disruption, which creates, oh my God, battery storage is going to make it unnecessary to produce energy. Then all of a sudden, oh what? That's 10 years away, right? And so you get these kind of, you know, kind of, it's windy today that creates a lot of energy. Oh, there's no wind, right? So there's all these things going on that create this dispersion. And when you think about trying to be in markets where there's a lot of dispersion, if you approach it like a market maker, that's exciting. And so for us, it really has been about partnering with folks that really behave like market makers and trying to bring quantitative methods to some of these spaces and structuring alignment. Some of them are just”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Like all these things from a big picture perspective, important. And then, kind of the next thing is the team and is the team a local player? Is it us doing CDS? Is it some combination thereof? Then the final thing is the alignment. How do we structure something that is truly in the spirit of doing this for multiple years? So pulling back to the electricity question and comment on where we putting some of our efforts from a space perspective, it's got a lot of those qualities. Most of the people, the participants, I'm talking things like day ahead markets, FTR markets, price of power on these different regional exchanges, most of them are public utilities or hedgers, not investment folks. So that's one. Two, the space has a ton of dispersions. When you think about creating alpha and you think about what you want, you want a lot of dispersion because we're effectively trying to make markets in these spaces. So it takes us, parks us back to like my Sakana days and to the early days.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll focus on one of the more recent ones, which has been electricity trading and power trading. And this is a space that we think fits a lot of our criteria. We look at everything from, we have this kind of laminate card philosophy, which is like this sense of can you put your investment philosophy on a laminate card? And we heard it from one of our off-site coaches on this entrepreneur who had this laminate card on values on companies that he liked. So for us, it's a pretty simple process. And it's basically space team in alignment. So the first thing is space. Like, what do we like on spaces? And for us, we like spaces that are either capacity constrained because it keeps away the big boys complicated, heavily retail focused, like regional banks or MLPs, which when they dominate those markets, they tend to exacerbate things and you can kind of be on the other side of that, so to speak. So space is important to us. And that's why Korea, Japan.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“For other reasons. Good news is that we're able to buy this stuff at really cheap spreads right now, and we're going to hold it”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Japanese equity is down 40%. China hard landing, the world ends. Like we're levered about four times short notional short on CDS. That's going to be pretty good. Arguably maybe even a better P&L outcome than the flip side. So it reminds us a lot of short subprime, which is one of our big thematic kind of asymmetric exposures back in the day. But we've also learned that it goes tighter for a long time. And we're kind of in that phase right now since Albanomics and negative interest rates. These companies that are highly levered and kind of fundamentals are deteriorating, their spreads are tightening into that deterioration.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“A bad game, right? When you have no energy in Japan and Chinese companies have very little environmental kind of issues to deal with so they can create a whole different business. And so that's when we started looking at it. And then when we decided when we were scaling up the equity side of Japan at the same time, he said, wow, if we pair this together. It's more like a long vault trade on Japan, right? Because if you take the extremities, take Japanese equities going up 30% a year for the next 10 years. Fantastic, right? Absolutely. So maybe we catch the beta. Hopefully we create some alpha to that, but it's not going to be bad.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“That being said, we saw this, and this really came about from a different angle, which was thinking about a tail hedge on China. And it was like, okay, not that we have much China exposure, but if China really hard lands, like it probably means some bad things for the markets. And by association, going back to my experience in long-term capital, it probably means there could be some potential knock-on effects in other markets. And maybe that affects some of the stuff we own. So it started off as an innocent discussion on what are some good tail hedges on China. And we did some in Australian receiver swap options, but that played out. And we're kind of looking for other things. And one of our credit managers that we seeded said, you know, have you thought about Japanese CDS as a hedge to China? Like, no. So they started describing this thesis about these massively levered companies that were in things like steel and shipping and basic commodities that had levered a bunch to be able to compete with Chinese companies, which is”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Do and this is an important point, so I'm glad you brought that up. We started the equities, and it wasn't like we said, hey, let's find a hedge for Japan, but we often do that. But in this case, we thought that the margin of safety and the equities was such that we're willing to take beta. And, you know, we usually don't take beta. So for us to take a beta bet somewhere has to be something pretty extreme, like netcash companies”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Our investments in Japan span investments in funds. We have some interest in funds. We have CDS positions in Japan. That's a whole nother bet where we think there's these massively levered companies that are trading at ridiculously tight CDS levels that we think are in industries that are in secular decline. And so going back to that Lehman certificate on the back of my wall here, Lehman traded at 17 basis points. And just as an overarching theme, anytime a highly levered thing trades anywhere in that zip code, I think he puts them on. And in Japan, there's a few of those things.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Very much about avoiding short-term conflict. And sometimes that means that you end up with bigger long-term conflicts. And so, okay, so what do you do with that information? If I know you're going to be willing to avoid short-term conflict, maybe try to tease me the short-term. It's a different way on how I approach building a partnership with you. So that's what I mean. It's things like that and things about just the kind of cadence and pace on how you build a relationship and all those things.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, we've seen this in Japan. We've seen this in Korea. And it's a different culture. So I'm talking to you. I want to invest in your fund, Ted, and we have an open dialogue on what I'm happy about, what I'm not happy about and kind of what I'm concerned about. And it's taken in a very businesslike, it's not a personal thing. It's just about, hey, look, here's my issues with your strategy and let's have a discussion and we'll decide where they get there or not. And you can eventually get there in Japan and Korea. Of course, they want that feedback. But if you lead off with that, it gets personal. So I think the nuance on understanding that let's speak our truth, but let's do it in a way that's culturally sensitive. Let's repeat it. Let's repeat it again. And even then, we're probably going to get to 50%. We've learned through some experiences where we've had to shift our attitudes. And I think part of why ultimately I think we're going to be successful in Japan and Korea is the partnerships we build and the ability for us to kind of really work with these people well. And these cultures are”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Ideally, but there's really not many. And most parts we have speak Greek and English, and some of them speak okay English. And I think even more important than the language is being culturally sensitive. And that's taken some time, and we've made some mistakes.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“A big bet for us. When you start sourcing managers, when you decide, okay, we have a model we think is better than just what we can do here. Do you generally look for English-speaking managers in Japan?”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Did nothing, and this is one where we really saw the value of activism in Japan done in a very particular way, which was friendly, constructive. And we saw that that created really good alpha. So to us, that was even more impressive than being defensive in 2008, was creating returns in a period where the markets were flat. And after that period, that takes us to around 2011. A lot of people think that our big move in Japan was, hey, Abiomics, let's go do the macroplane Japan. And it happened to coincide with that, but it really was the conclusion of our belief that activism could work in Japan and would continue to work. And we saw examples of that. And that was what we were waiting for to get confirmation that we should go big in getting back to concentration. That's when we really started scaling it up.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Change, buy back shares, issue dividends, sell non core assets. These companies have so much low-hanging fruit on what can be done. We thought that that was a better model. We thought that the fees that we would pay to capture that alpha would be worth it. We dipped our toes into it. We made a couple small allocations and do a couple activist managers. And shortly thereafter 2008 happened. And we saw that, wow, pretty defensive. Japan topics is down 44% on average these guys were down 16%, 17%. Net cash companies, you know, when your cash starts trading and discount to cash, you kind of buy back shares. But the more telling thing was, and this today is still why we're so involved in Japan, was after that. So post-2008, the rest of the world flies, US, Europe, et cetera. Japan was flat for four years.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Looked at it and said interesting stuff. And our gut originally was we can run a screen on all these netcash companies. Why don't we just buy all 350 going back to my value days? These are true value names, like net cash companies, and hold them. And over time, probably does okay during tough periods it probably is okay as well. You probably lose some money, but probably not as much as the markets. That was the theory at least. That proved out in 2008. And so that was our working model. So we're flexible and agnostic to whether we do things direct or indirect. And as we started studying it more when we started meeting some of the at the time friendly activists, we changed our tune. And we thought that, wow, on a concentrated portfolio, not all three fifty, but on a subset of those, we think there's guys that can get in there and have kind of a rifle shot on getting a few companies.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we feel like there's really no substitute for being on the ground. We travel a lot, our research team does. There's been two other folks on our research team that have spent as much time with me on separate trips to Japan. But kind of going back in time, I first started doing my trips to Japan when we started Chalk Train. And that was the beginning of the US wave of activists that were coming in Japan.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it looks like the bags under my eyes, because I just flew back from Japan last week and were here in September, and it's been my fifth trip this year to Japan.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“Good understanding. And our goal is when we go deep in this space that we'll be one of the top allocators or partners in that space. And that's why we don't do many of them.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“All we're trying to do is look for extremes, and those extremes point us in places where we think either can be expensive or cheap. And then we do deep dives. And so for us, the process is all about one or two deep dives per year, which may or may not result in something. And if it doesn't, we shelve it and maybe it comes back down the road. That happened to us in kind of the healthcare royalty space where we spent a tremendous amount of time in that space about 10 years ago and then decided to seat a group a handful of years ago in that space. So sometimes you dust off that research and it comes back. But we want to only play in places where we feel that we can put our hand in our heart and feel really proud about the work we've done. So what does that mean? That means that there's a lot of places where people say, hey, what do you think about this? And say, no idea. I did three meetings on that, you know, over the last 10 years. I can't give any kind of reasonable opinion. But if there's a space that we've done a deep dive in, I feel very comfortable that we will have a very”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this is a blessing and a curse. We have an incredibly flexible mandate. We can invest direct. We can invest in funds. We can seed funds. We can invest in private equity and real estate. So that's great, but that's dangerous. How do you make sure that you're not the chump at the table in that particular place that you're playing in? So our whole process and kind of our whole organization is structured around the flexibility to be agnostic to where we want to play. So that means from an operational, from a trading, from a legal perspective, we're able to kind of huddle quickly and SWAT team and kind of get involved, whether it's in different jurisdictions or geographies. But from a process perspective, we look at a lot of things. And I think having that kind of asset class valuation framework to be able to kind of look at things and kind of, if you think about it, roughly dissect things down into an unlevered yield, right? You can do that for an equity, you can do it for a cap rate. You can do that for direct lending, obviously. And you compare these things.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's probably only a handful of tactical themes in our portfolio today. There's things like Japan. There's things like Korea. There's things like electricity power trading. There are kind of big themes in our portfolio. And the balance is a concentrated portfolio of low net, low beta strategies that we think still have some alpha. And usually to your point about capacity constraints, a lot of them can't take a lot of money, right? So that side of our business is not one that can scale infinitely for sure because we're in small cap regional banks, right? And that's a limited strategy. So that's kind of when we think about concentrating in our themes, there may only be a couple themes in a given time that are meaningful in our portfolio. But if you look at Japan, Korea, and increasingly power as a percentage of our risk in our portfolio, that's probably 40% of our risk.”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we like concentrating our bets and you look at diversification, that's obviously hugely important. But if you look at a portfolio like ours, it has concentrated themes, but underlying those themes has a lot of positions, kind of long and short or swaps and hedges and whatnot. But when you kind of dissect return drivers and if you become overly diversified, all of a sudden it really gets hard to allow those asymmetric bets to be meaningful. And we continue to concentrate our portfolio, even today. And what is concentrated?”
2018-10-22 · Capital Allocators · Andrew Tsai – Catching a Theme on the Chalkstream (EP.73) · IDENTIFIED FROM THE TRANSCRIPT · source