YouSaid · the spoken record

Andy Lee

lines on the record: 51
first: 2023-03-30
most recent: 2023-03-30
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

“As brilliant as Puppa Lee is, I really learned this one from my mom. My dad did his PhD in artificial intelligence and is one of the brightest individuals in that space. But I learned this one from my mom. You have to learn to sell in the same way that you have to sell your future spouse on marrying you, your kids on eating vegetables. You have to sell institutional investors as to why they should put you on their roster, why you will deliver for them a return that is outstanding. You have to sell employees on why they should join you on this journey and why you are going to be the winner in this overall opportunity set.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“The end of 2017, we had just raised our fund one. TJCA had just passed. I had just hired an individual who had worked for me at Lone Star. And we found a press release from a large scaled manager that suggested that they had interest in the opportunity set that we are pursuing today. I remember standing in the shower and literally saying to myself, I just convinced one of my best friends to leave a great job and I just raised on one from investors on the premise that this was an untapped opportunity. And here is someone who could easily blow us out the water. It's been six years since that did not come to pass. But I remember being incredibly challenged if we should give the capital back. During that time.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“He's also from Champaign Medal of Nowhere and has been a big brother for me throughout this process understanding how to navigate the institutional investor landscape, but also how to necessarily counterposition and enable yourself to achieve what something that a little country pumpkin might never have even imagined.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are definitely two individuals who have made a significant impact on the first of which is Greg Beard. I still remember calling him. I struggled to break into investment banking coming out of Illinois, primarily because many of the investment bankers were seeking juniors and not a freshman or sophomore. And so in that context, I was scratching my head as to how I could get an internship. And I thought about who is the stakeholder that an investment banker might care about. And I realized there was something called private equity. I wasn't quite sure what that was. I co-called a number of private equity individuals. One of them was Greg. He was at Riverstone and he said, I actually also went to college at 15. You remind me of my story. And so I'll make a number of calls on your behalf. Ultimately, that ended up in a summer internship, but he's been a mentor throughout my life. The second individual is James.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“People who think in binary terms that being good or bad. So one of the meanings of parallaxis is just for the word a parallax is looking at an item from a different vantage point. Parallaxes is the plural of which you can look at a problem from multiple vantage points and arrive at a different solution set. And so I really struggle with people who only see things through a single lens.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I am absolutely obsessed with history, learning about some of the victories as well as losses that historical figures have experienced has been incredibly fascinating to me as I just think about our daily life and the work that we do might that be the lives of some of the Roman or Greek leaders and some of the battles might that be the Alexanders of the Great Fight, which is taking the high ground in a battle. What does that mean? How do you express that in the business world that we live every day or to the trials and tribulations of Hannibal as he cross the Alps? For me, being a little country bump can coming from Champaign, Illinois, New York City is my realm. And so crossing the Alps and trying to find a way to win the Punic Wars is something that I somewhat romanticized to myself each and every night.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think a lot of life is focus. There are many opportunities, especially in tax. It's a really poorly understood world and opportunity set from a finance perspective. I don't know if that's my burden to carry insofar that as I think about the opportunity set today that we have, it's large, it's growing in adoption and there are so many avenues through which we can express ourselves that to look further or feel may make it challenging for us to bring to bear the value propositions that we seek to deliver to our stakeholders.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Lot of times when someone's found a niche that is limited in size, they spend some time trying to figure out are there adjacencies and other opportunities so that they can expand your business. How have you thought about the future of your business as you look out a couple years?”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are six of us today. I've always sought to build relatively small and tight-knit teams. I recognize that one of the things that many institutional investors Is an institutionalized oriented organization. I think that's a tad challenging for a relatively new asset class, primarily because there are many items and many problems that private equity firm may encounter that aren't necessarily relevant to us. And so one of the things that we've been very focused on is avoiding technical debt that we may incur as a result of taking on some of the legacy systems that make sense for private equity, but less so for us.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think many who are fasc with tax would look at our portfolio and say all we are is a factoring items that have existed in tax code for almost 100 years and are protected by lobbies including the real estate lobby we fundamentally follow the same principles that many of these that have been well honed in tax code and so there are many other asset classes that would hurt in earnest prior to it really affecting us but that is something that we spend a lot of time thinking about but is a macro factor that we candidly have no control over our ability to influence in earnest we actually tried to hire an advisor who had previously been a former IRS commissioner”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Itself. They have not only the lowest cost of capital, they also have asymmetric information even relative to us as it pertains to what they view their tax assets to be worth and when they will realize it. And so the company is oftentimes our single largest competitor.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Around the sourcing of the opportunity and the size of each opportunity, the average opportunity is between $15 to $20 million. If you are a large scale manager with several billion dollars to deploy, that can be challenging to spend a significant amount of time to deploy $15 to $20 million for each check. And the fifth reason and final reason is we're trying to make it challenging to compete against us. Several of the things that we've done to do that includes the likes of pre-underwriting the opportunity set to the extent that we can deliver our sellers speed and certainty as and when they ever want to transact that we are not only getting in front of them whenever they want to sell we're staying in front of them and trying to add value to them on a regular basis our biggest competition that has always been there it's not a third party it's really the company”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“More so, a lack of competitors. And there are really five rationales as to why that is. I think the first that I alluded to is the domain expertise requisite to underwrite the opportunity set. Most deal professionals here where tax and they just run away. The second rationale is around the return expectations. The third rationale is around the fact that the duration of the opportunity oftentimes makes it incredibly challenging for people to clear committees insofar that if you were a hedge fund with one year locks and you had a one-year asset, everyone could do it. If you said that you need to have eight to ten year funds, that starts becoming incredibly challenging for many of the more credit oriented firms who have six to eight year vehicles to originate the opportunity. The fourth reason is around”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“So there are a number of avenues. Obviously, this is annuity and self-amortizing first and foremost is the inherent cash yield that we get on an annual basis. But look, we're pursuing a path similar to the leaders in the pharma royalty space as well as the musical royalty space who have undertaken the process of consolidating their holdings and ultimately listed them. Our goal is to undertake a similar process. We did that in 2021 and are in the process of completing our second merger. But on a go-forward basis, our goal is to originate these assets and subsequent to that contribute them into our overall portfolios with the long-term exit strategy of potentially going public.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're pretty upfront about our cost of capital and how we think about it. And that's a function of a number of items. Might that be the underlying credit risk of the business, but also when we believe that we're actually going to get paid. And we share that oftentimes from a qualification of a seller perspective. Many of them don't want to engage at that price level. And that's fine. Our job is to educate them as to what we can get done. And it's important for us to know if there's a transaction to be done or not, for us to cut bait on a opportunity that may not exist because we have just different price expectations of what makes sense.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you've gone through the process of educating a company about the value of this asset, then I imagine you have to go through a negotiation to try to figure out the price because you're not just highlighting the asset, you're trying to buy it at a discount what it's worth. So how does that process play out?”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Among others, and those can be incredibly challenging to underwrite. One of my favorite stories from underwriting is when we were seeking to better understand the realtor market. Part of understanding the Rain Mac and as part of that, we sought to have one of our team members take the New York Realtor examination. Sadly, I would share that I was the one volunteered. The one thing that I would say positively is that I actually passed. One of my colleagues has made it his life mission to eat at every shake shack in Manhattan.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll credit underwriting is non differentiated relative to what a credit manager in the rec lending or in the distrust world might undertake. What we're looking to do is understand A is the business gonna remain a going concern. And because B, we have a different lens as to the world that we live in primarily because we're not originating seven-year pieces of paper where we believe that our takeout is a refinancing or that via that payout for us seven years is oftentimes the window through which we receive the majority of our cash flows. But in order for us to make not just a return of capital, but a return on capital, we really need the year 8 through 15 cash flows to have a profit. And so we have to underwrite, do we believe this business is going to remain outstanding for 15 years, though it's at least the underwrite, which makes it challenging for certain businesses that some may view to be fads, where they have hero products.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“With the company. That would be challenging for us as a firm to engage with. There are TRAs with significant international tax assets. Tax is a very local domain of expertise. It's incredibly challenging for someone like myself who study primarily federal tax to understand anything about state tax, let alone international tax in Canada or Mexico.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“We look and feel almost like a celebrator. Many CLO managers undertake within their shriek zone to underwrite as many of the underlying names that may issue broadly syndicated loans or bonds. And so for us, for the entire option he said, I'll call it 200 and change names, we have sought to underwrite the entire opportunity from a credit, legal and tax perspective. And that's required a ton of spade work, but it allows us and our team to start from the 80-yard line versus starting from the one yard line whenever an opportunity arises. It also allows us to pre-identify opportunities that may have challenges to executing a transaction. So take, for instance, there is a rofer in the office.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so we run the gamut from seeking to engage with these holders. So at a low cost avenue that we seek to leave an impression on them is doing things such as promotions on LinkedIn, where we seek to put ads specifically targeting them and their TRA all the way to the other side of the equation where we see to get in front of them and in-person doing an educational seminar or topic. We also have done things such as cameos where we have sought to understand who their favorite sports team might that be college or pro. And by doing so, picking their favorite athlete and sending them a personalized cameo with that athlete suggesting that they engage with us in a potential sale that have included the likes of a Jay Williams, a Lavar Ball, all the way to college sports.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Can imagine a situation where the seller of a business going into an IPO has a lot going on. How have you gone about engaging these people who are super busy about this asset that they have, that they may not value, that they may not care about?”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sell the TRA should they ever want liquidity as you think about some of these holders that run the gamut from a sponsor down to a management team member, they may for different reasons want liquidity. Might that be finite fun life considerations or just a desire and an opportunity cost conversation? And so our job is to serve as the educator to them as to what their options are as it pertains to for many of them what is a latent and stranded tax asset.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“As we think about it, these are large public companies who oftentimes file among other things the overall TRA document or the underlying LLCA. And should they not, there is some grunt work that is undertaken to understand who the pre-IPO holders are. Once we have a list of those names, it's a matter of enhancing the underlying information and then seeking to get either warm introductions or seeking to co-email them as part of the overall sourcing process. Our job is that oftentimes we are the educator of the holder of the asset, fresh of the IPL. And so a lot of what we do is getting in front and staying in front of these holders, educating them about the TRA, the value that it can deliver them over time, but also providing them the option to.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot of brain damage, I would say there are no intermediaries in the space that we deal in as a function of a number of things, domain expertise, as well as the size of each underlying opportunity prevents many intermediaries from engaging in earnest on this space.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of these are large scale businesses. And so one of the things that they don't want to do is to publicly announce that they are undertaking an IRS audit. Among the other things that a TRA holder has is information rights as to understanding how the company filed its taxes, the accounting policies, as well as practices that they necessarily utilize in the filing process. And that allows us to monitor as a TRA holder with information rights how the company was undertaking these large public companies do not want to be perceived as having to be too aggressive in the view that should they undertake an IRS audit, it would be something that would have a negative implication onto their public stock.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Company would file its corporate tax filing if and when they filed that taxes and they are able to utilize the deductions that a TRA is assets are able to deliver them, they would then pay 85% of those savings to the holder of the TRA. should the likes of a Blackstone save $100 million on that tax return they would then pay 85 million to the likes of a Steve Schwarzman who might be the holder of that TRA and then keep 15% for themselves”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Often the one thing that people fail to understand is you never lose a tax asset, you merely defer it, which has the impact on your IRR, but not necessarily changing your MOIC on an opportunity.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so net operating losses are incredibly challenging for us to underwrite because our entire value prop to many of our investments were endowments and foundations is that we seek to deliver an uncorrelated return. A net operating loss TRA is incredibly correlated to the economic performance of a company. I would also articulate that oftentimes there is a bid ask between us as well as the sellers insofar that they have a more bullish view of when a company would utilize its NOL versus relative to what we might be willing to underwrite where we are more focused on is the step up TRA primarily because for many of the names that we are underwriting, they can see almost a 60 to 80% drop in their earnings metrics might not be an EBITDA oriented metric and see no changes to their overall payment.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that sounds more like a step up type business than a business with an NOL. When you look at those two different investment opportunities, how do you assess the pluses and minuses of those two different types of TRAs?”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are two other risks, the first of which is bankruptcy risk. As mentioned, they are an unsecured obligation, and so a lot of our work relates to the credit worthiness of these companies. I think the item across the industry that is not well understood is that there are oftentimes IG or near IG names. And they oftentimes are large scale and with access to public markets. And so on average, we see the industry being approximately 400 plus of EBITDA less than two times leverage or less than a billion of indebtedness. And they oftentimes have a market cap in the 5 to 10 billion dollar zip code. And so the LTVs across the opportunities that are relatively low.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think about not operating loss. About that, as the volume equation, think about the tax rate as your price. Let's say the not operating loss is $100. The tax rate is 25%. The multiplication of the two would result in a total cash savings of $25. So should tax rates go up to 40% where they were, we would get $40, 100 by 40 in the same way if tax rates went down to 15%. It would be 100 by 15 or 15 dollars.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“The first is in the same way that we have call optionality on potential increases in corporate tax rates. We also have a linear relationship. Should corporate tax rates go down?”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“What we seek to deliver to our investors is a uncorrelated cash yielding investment that serves as really a call option on corporate tax rates on a go-forit basis. So those attributes are incredibly valuable to us in many regards because it reminds many of what pharmaceutical royalties were in the early 2000s, but whereas where musical royalties were in the 2010s long dated annuity like cash flow streams.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“So on an annual basis thou are, call it 25 to 40 IPOs with TRAs depending on the IPO market, just to frame it, in 2021 there were 75 that went public with ATRA. So there was a huge upgrowth in the opportunity”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Man, this market has grown like weeds. In 2017, the market opportunity was called $7 billion on the back of euphoric equity markets and more importantly adoption by private equity sponsors. That number is now closer to $30 billion. It runs the gamut from the likes of TPG to a European WAC Center or even a Portillos in the more recent vintages.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“So those are incredibly challenging. Yes, they could definitely create a TRA venture capitalist who back these companies oftentimes don't fully appreciate the value of tax assets because many of the corporations are not oriented to being profitable and won't orient it towards growth. And as such, the adoption in the venture capital community has been relatively slow. That said, as a result of the flurry of both IPOs as well as SPACs in 21 and 22, there was a significant uplift in terms of number of TRAs created that were shared by both growth equity firms as well as venture capital firms. And so many of them are now trying to understand what they even own. And so we've been at the forefront of trying to educate them as to the value of those latent tax assets that they have.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's most prevalent in the REAT and MLP world where they are purchased by buyers who are focused on a cash flow yield. As I mentioned earlier, many public investors are focused on revenue growth, EBITDA multiples, perhaps a PE multiple. They don't model down to free cash. We all can't do that accurately. And so as part of that MLP's trade at such a premium because of the valuation metric that they are oriented towards that the creation of the TRA would actually be an obstruction to the realization of that overall value.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely, it's a step up, which is relative to cost basis of the original founders. It allows the public company to receive a full step up. The full step up effectively is the price at which the founder is selling his stock for, thereby delivering a large step up which over time is amortizable for tax purposes and delivers a large tax asset.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“The transaction that creates is known as the UPC, which has effectively for all intents and purposes just a step up transaction. This technology really came from the real estate world, from the up reth. The first up read was created in the 1980s via Taubman shopping centers. And subsequent to that, TRAs inherited that technology when corporations started going public, the new ones and why this is necessary is because in order to be a public company today here in the US, you need to be a C Corp. And so clever tax structuring lawyers decided to utilize the same technology utilized in the REAC world for corporations.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Primarily done by private equity firms in the context of Dowportfolio companies, and it runs the gamut of industries from the likes of Bumble to GoDaddy all the way to Shakeshak, my personal favorite. I admit that it's somewhat odd whenever I sit down at Madison Square Park to enjoy a shock stock, to think about what this all meant from an IPO M&A structuring perspective.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Effectively been already done through the creation of the TRA contract, we are merely secondary buyers of it. And so we're stepping into the shoes of the previous owner of the contract and buying their rights to those cash flows. Longer term, our goal is to become a primary originator of the opportunity. Today we are secondary monetizations of these.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let me take that example of a net operating loss. So you have a business that's lost money in the past and you then are saying that in the future, if they make money, they won't pay taxes. And so therefore there's some tax savings each year. Are you effectively securitizing that stream of future cash flows into a vehicle?”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Investors oftentimes don't ascribe much of any value to tax assets. If you think about a business, they might look at it on a revenue growth basis or an EBITDA multiple, both of which don't capture the inherent value that tax assets deliver to a corporation. Knowing as such pre-IPO holders might that be leveraged buyout firms, co-investors or management team members are attracting it for themselves through the utilization of a tax receivable agreement.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“The simplest way to think about it is a tax receivable is merely a contract between a oftentimes public company with a pre-IPO holder, so names and all portfolio that some might recognize include the likes of a Remax, a Shake Shack, a Duff and Phelps. So large scale businesses. What it is is the contract effectively refunds the holder for the cash tax savings a corporation may receive. So tax assets that one might recognize I'll be familiar with include the likes of net operating loss. These net operating losses will be realized over time and generate cash tax savings, which would be valuable to both the corporation and the pre-IPO holder. The reason this option is that even exists today is primarily a function of the fact that public equity”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's a combination of being semi intelligent, but also more importantly, hyperactive. My mom and dad were always at a loss as to what to do with me when I was growing up. And I don't know if this necessarily was foresight, but they found that the avenue through which they could satiate my appetite and intellectual curiosity was to put me in classes that were several grades ahead of me. I kind of think of it as babysitting for all intents and purposes”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“Can probably appreciate my amusement being a 17 year old resident advisor taking care of otherwise 21, 22 euro residents who are of legal age and confiscating their alcohol and having to pour it all down the drain.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was interesting in many regards, insofar that when you're a freshman, no one ever asks you how old you are. The common ages would be 17, 18, 19. And so it was a challenge fitting in, but my sister had also gone to college relatively early at 15. And so I basically just followed in her footsteps. That dynamic definitely did create some interesting stories. My sophomore year, I was a resident advisor for a senior heavy dorm. And on the campus of Illinois, we have a tradition for St. Patrick's known as unofficial. As you can probably tell from the name, it was a day where the campus just basically goes buckwheat. My job as a resident advisor was to police the halls and ensure that nothing got out of hand.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was basically told the only way you got promoted here is for you to create something. And so there were a number of items that I looked at in earnest. But the one that really got us off the ground was in the creation of two TRAs in our portfolio. After the creation of them, the firm asked me, how much can you deploy annually into an opportunity set like this? And I said annually $150 million to the firm that was incredibly small. The partners basically said, Andy, why don't we give you some money? And if it doesn't work out, come back in two years. I left in 2017 pursuing a rather esoteric opportunity set, monetizing tax receivables.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm from the middle of nowhere, Champaign, Illinois. I had the opportunity to go to college a little early. I went to college at 15 and wanted to be an archaeologist, being Asian, puppetly wasn't having any of that. And so I ended up doing finance and accounting. When I graduated, I was a little too young to move to New York. At which point of time, I did a master's in accounting with a focus on taxation, which really leads us to when I finally got to New York, I was at City and M&A. And there I had the opportunity to work on a TRA primarily because the head of the group basically came out of the office and said, don't you have a master's in tax? And I was like, it's not quite worth the paper it's printed on, but I ended up working on it. It was a transaction between Real Tinto and Cloud Peak, a coal producer. And I found it fascinating. And I said to myself that someone should provide third-party liquidity for it. Post Menet, I went down to Lone Star funds down in Dallas, Texas. And there.”
2023-03-30 · Capital Allocators · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · IDENTIFIED FROM THE TRANSCRIPT · source