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Chris Heller

On the record 2024

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SITTING OR EPISODE

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2024–2024

ON RECORD

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

“So, I think the thing that we think about most is our single biggest advantage is time. If we're doing our job correctly, we are not looking at assets or looking at deals with a ton of competition where you have to have an LOI or a term sheet in within two weeks and a deposit down within three weeks. Otherwise, you're going to lose the deal. By definition, that's the wrong space for us. And so when we think about finding these new spaces, it takes us a lot of time to underwrite them. Whiskey has something that when that came across our desks six years ago, we knew nothing about investing in whiskey. Literally nothing. Three different groups pinged us and said, hey, you got to look at what's happening in the aging curve. I didn't even know what the aging curve was. I didn't know anything about what it meant. So that took 18 months to underwrite that deal, and which you're”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“For data centers, but underlying it might be some actual same thing, liquidity metric that might keep them all a bit more correlated. So we do a lot of work around looking at our portfolio and say, okay, at the top level, they don't seem correlated, but one layer underneath it, they might be.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“Public, but there are some things that we do, so we want to have a diverse set of these things, but secondly and most importantly is if that is the case where we're going to an environment where there's not a lot of liquidity, that it doesn't really matter for us. We'll just run the business. It's a non-correlated asset. The fact that we're probably highly correlated are illiquid environments and also GDP or the economy is generally not doing as well. And that's okay. Actually, those environments can be fine with us. We just run those businesses through those environments and then find a better time on the other end to get out of it. And the last thing I'll say is you can have assets that look very disparate, that sound like they have nothing to do with each other, but might have one layer underneath it, some correlation to them. And so we have the theme around specialty inventory finance and the way that that manifests itself is in very different things like whiskey and wireless spectrum licenses and land.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, without a doubt. So the first second order correlation piece that we think about most often is exit. And we might find the most non-correlated business and that's cash flows are not correlated with general GDP cycles. But if we own that asset or that company and we want to exit it to another private equity firm or take it public, even though we might have a non-correlated cash flowing asset, a general lack of liquidity like a 2008-2009 environment would bring on this secondary correlation effect that says, great, you have this non-correlated asset, but you can't do anything with it now and you can't sell it. And so we need to make sure as we think about portfolio construction, we have lots of different ways to exit our assets. So a lot of things that we do are self-liquidating. Most of what we do, we don't have to sell to other private equity firms or take”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“Space. We obviously like to look for things where there's not a lot of capital in this space. And then very quickly we get to who's the right operating or management team. We've gotten a lot better over 10 years at figuring out, okay, if this is an interesting idea that is fragmented, there's not a lot of capital to it. It's not correlated. It can meet our return hurdle. Who's going to operate and run this business for us?”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so for us, very specifically, the things that we like fragmented industries, we like things that are owned by mom and pops. One of the first things we look for is who owns an asset? So boat marinas is a good example. We've been invested in boat marinas for a long time. They're institutionally owned. It's probably not for us. If there is a big PE firm or a big hedge fund that owns these things, that's not where we like to play. The people that we see in our deals are family offices. and high net worth individuals. That's a good place for us to start. The second thing that we've gotten really good at identifying but is non-correlation. Can we be convinced quickly that some asset is not correlated? And really we think about equity markets. The main factor that most of our clients have running through risk factor that have running through their portfolios is equity. And so we try to look for things that are not correlated with the equity market. How much capital is in the...”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“And lots of other media and content related to music. And so while we've moved on from music publishing and music royalties, there are other things in the live music space and other media royalties that we invest in and we learn from our previous deal. So there's just a lot of connecting the dots. The other thing I'll say is thematic. About half of our deal flow comes across our desk. And about half of our deal flow is thematic. So we're outwardly looking for something very specific. And I'd say over 10 years we've gotten much better at identifying themes. And it's really just about pattern recognition. The ability to identify themes and pursue those themes and not pursue other themes and not run down dead end alleys. We've gotten a lot better out over time.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“When we started 10 years ago, obviously, no one knew who we were today. We're not a household name, but for those that traffic in weird niche off the beaten path things, people know we're here. So I'll say 10 years of just being here and plugging away and having our names get out there has been helpful, which means the top of the funnel is just much wider today than it was 10 years ago when we started this, where we really had to be out there beating the bushes, telling people we're around today. We get deals coming across our desktop tens a day because people know we're out there. So that's helpful. Let's see the other thing is just 10 years of doing deals and investing in this space. Our best source of new deals and new opportunities today are the things that are tangentially related to deals that we have done in the past. I'll just throw out music and music publishing. By being invested in that space, we learned a lot about the music industry.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“You mentioned litigation finance. It's another great example because of the way you invest in portfolios and then they liquidate over time. It de facto creates a cash flow stream that got snatched up very quickly as well. We're seeing it change in today's interest rate environment. It's not as predictable that anything that generates yield is going to be the first thing that gets snatched up. But some human being evangelizing an idea and being very loud out on whatever it is and just the world saying, okay, that sounds interesting. I'll go do that. It's pretty hard to predict. And that's why we have to be pretty facile. We'll let things go. As soon as a big player has raised a big fund around it or something has happened that is widely adopted and returns have been arbed down, we're moving on to the next thing. And that's a huge piece of our ethos.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“Some of those things that you mentioned we used to do, and we did a long time ago. And certain things that we have done, let's call it starting 10 years ago, have been adopted very quickly, to your point. Other things that we've invested in, we've had to ourselves for five, six, seven, eight years. And trying to predict which of those are going to become well adopted and which are not, we've actually found not a lot of predictive qualities in anything that we do. The one thing that I will say that we have found to have been a key factor has been in the interest rate environment that we used to be in, anything that we found that was yielding or generating cash flow would get adopted the most quickly. So if you think about music publishing and music copyrights, which we started to do 10 years ago, which we don't do anymore, it cash flowed and it cash flowed really predictably. And so it got snatched up.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“and actual risk. This pond has lots of things that people like, oh my goodness, that must be risky because I've never heard of it that actually have a really compelling reward per unit of risk metric to it. That's what we try to do every day is fish in this pond that people think is risky. And I'm just going to stay away and find the things that have really attractive return three unit of risk and leave behind the things that don't. And because there's less competition in this pond, we love fishing in it.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“That liquidity, but I don't view that as any different than in any other more traditional alternative space. There is a spectrum around how much liquidity something has in our assets, even though they are funky, also have the same thing. And we have to just think about what we're giving up. The other thing that I would touch on is risk. I think the thing that we typically get is, oh, you're investing in weird stuff. It must be riskier. And so that's sort of the trade-off that you're making. And I think our original supposition and now bolstered by 10 years of being in this business is that that's not actually the case. Now there are absolutely risky things in this niche. And there are lots of things that you don't want to invest in. But what we think about every day is when we're fishing in this pond, all we're trying to do is exploit this gap between perceived risk.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“A really good question. I mean, see, there's no free lunch out there in the world. We are pursuing these types of assets because there's less competition, which means we can structure around things and we can pay prices that we think are interesting. On the flip side, what do you give up time? We have to spend a lot of time to find these things. We have to spend a lot of time to structure these things. We have to spend a lot of time to understand these things. And I think it's something that A lot of other private equity firms, asset managers don't really have time to do. In some instances, what we do does have some liquidity aspect to it. Now, some of what we find is actually cash flowing and is fairly liquid. Other things that we find aren't as liquid. And we obviously have to take into account what are we being paid or what are the return for giving up.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“By being early to finding an asset or an idea or an investment, you can extract outsized returns before the world finds them. And secondly, finding assets that have non-correlated idiosyncratic risks or diversify your portfolio is a worthwhile enterprise. And so that's what we do today. And that fundamental essence of it hasn't changed in 10 years, trying to find today's alternatives.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“The original premise of us starting the firm was really that, and I'm going to put this in air quotes, that alternative assets are not alternative anymore. This was 10 years ago. If you think about private equity, it's a $9 trillion industry. Hedge funds, three to four trillion dollar industry. And so they got this moniker and called it the late 80s, early 90s as being alternative, and they were. And you fast forward to 2014 when we started our business in now 2024. And I think it remains the same that those are not alternative. And in fact, they've grown significantly since we started the business. We think about what we do today as trying to go back to the basics of finding today's alternatives. It's the same as when we started. I think this has not changed. What was the original promise of alternatives? It's twofold. It is first.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source
“Lack of a better word, we invest in weird off-the-beaten path, what we call niche non-correlated assets. So we are trying to find the nooks and crannies of the capital markets, trying to look for assets and fishing upon that other people aren't.”
2024-12-02 · Capital Allocators · Chris Heller - Ten Years of Weird Alternatives (EP.420) · IDENTIFIED FROM THE TRANSCRIPT · source