YouSaid · the spoken record

Lauren Taylor Wolfe

lines on the record: 54
first: 2020-07-02
most recent: 2020-07-02
sittings or episodes: 1
sources: podcast

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“Definitely take more and bigger risks earlier on in life. I think the most excitement, joy, and personal growth, as much from failure, frankly, as from success, has come from when you take risks along the journey.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think for my dad, he's just extremely loyal and hardworking. So, I take from him being loyal to people you really care about and then from my mom, it's definitely distinguishing the big stuff and the small stuff.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Listen to good podcasts. We are like literally in the midst of a pandemic, so I have been taking to, I built a couple bird feeders and we're doing some puzzles.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's definitely short termism. I think there's an obsession with the short term, and it's been created because there's so many allocators that need simply quarterly or monthly liquidity, but that's just insane. And I think for activists, it's even worse because it encourages activists to pursue what we call a very short-term sugar high or to try to force some immediate change in the business, like a share repurchase sometimes from the activists. And I think it's a distraction and it discourages from a company's perspective. It's distracting and it discourages investments in longer term business growth and longer-term organic growth. So short-term is indefinitely.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“In general, it's when people, if you share your ice cream with people and they leave excess ice cream on the spoon, it is what it is. I don't have any, that's my main pet peeve is when people leave extra ice cream on the spoon.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, there's not much time for those, but I would say besides exercise, I would say matchmaking. So to the extent that I'm reasonably good judge of character or psyches, I'm responsible for three marriages. If you let me quickly comment on the three humans that we've created, I've taken my children, I've spoken to them about activism, taken them to protests, and I want to make sure they know that they're irrespective of their age, gender, and their size, there's power to their voice, and they should use it.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“My dream in business, but I do think that some of the unconscious bias and barriers in the workplace need to be pulled down. And then I guess for the female listeners out there, what I would say is there's a lot of empirical data written about this, which is a lot of men. I remember sitting, I was in the audience of a panel and someone at JP Morgan was saying, you know, I have about 50% females reporting to me and 50% men reporting to me. And I asked them a question, like, who is an expert on breastfeeding? And 50% of the females' hands went up and about 75% of the men's hands went up. And she was like, okay, that's like impossible, right? And it's because I think along gender lines, some men volunteer for things that they know they figure out later on. And I constantly encourage some of the young women that I mentor, you know, just say yes, say yes to everything and figure it out and take on the challenge and don't worry about doing it perfectly. And so for the female listeners.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think in large firms, there's been a lot written about when they choose to have a family, you see the promotion drop off and there's this great McKinsey did this great study where you see as you go through ranks within a large organization, it starts out pretty equal. And then somehow when you get to like the MD level, it dramatically falls off. And I think it usually coincides with the time that women decide to have families. And so I just think we need to completely rethink flexibility. And maybe the coronavirus and COVID pandemic is the trigger where women can work from home more. I think I'm a little bit unique in that I was raised with a stay-at-home mom, but I was always encouraged from both my parents that I can do anything I want. And so I've always thought, well, then yes, I'm going to do everything I want. And so, you know, I sort of want my cake and eat it too. I have three wonderful children and I also am pursuing.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Who sit on boards to make sure that they're asking the right questions in the boardroom and focusing on recruiting, retaining, investing in, developing, and promoting men and women of color and women so that we don't have this final issue in the future. And so I've been, again, I grew up with boys. I'm used to a male-dominated industry, but I think as an industry, we need to do a better job really investing in the diversity of the future talent at impact of the majority of our investment team are women and minority, and we're unique like that. But there's a long runway of opportunity for the industry, broadly speaking, to make some change.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is a societal issue, right? And it's one that's getting a lot of coverage now, broadly speaking. And I've been extremely lucky and fortunate to have developed skills and learned from many professionals in this industry, both men and women. And for that, I'm extremely grateful, but we need to do a lot more work. The more women and minorities that people see in positions of leadership, the more we'll get in the future. And I often tell my peers, so my contemporaries in the activist space, we have the luxury of sitting on boards. And when they're looking for a new board candidates, they'll constantly say, well, I don't have as qualified a female or minority as I do another individual. And my point to them is simply, well, we should be responsible for filling the funnel of diverse candidates that we want to see. And so I urge all of my”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“The vision is to build a franchise where we can help companies attract a lower cost of capital, drive tremendous business value, and become the leaders in their space, get real competitive advantage because of the changes that they're making. To the point, again, where they can change an entire industry. For impactive, we were very early in the space, and my hope for the firm is to really be a thought leader in how we pursue the ESG change with a lens around returns and value creation. And I believe that we'll see a number of other firms follow suit. And so we're having a ton of fun. It's early days for us. We want to build the business, continue to have fun, and drive value for our companies.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's usually around the capital allocation side or structuring side. So I think that's the value of being generalists. Our team at Blue Harbor, we were generalists, at Impactive were generalists. And I will say we can take a structure that we've seen implemented in one industry and one sector and say, well, what if this applied to this other industry or this other sector, whether it's an MLP or a certain type of securitization? And so I think having that multidisciplinary lens, looking at structures and vehicles that have worked in one industry and for one company and being able to apply them broadly or in another area is definitely valuable. And we do this today when we talk about our companies how to measure emissions, what to focus on, how to set goals around that. I think that is sort of a universal idea that could be applied broadly speaking.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Longer term in nature to make the investments and then work with companies to drive those longer term returns. We are the rare activists that will say, you know what, you should make this investment that might diminish your margins in this quarter or the next quarter, the next couple of quarters, because we have such high conviction in the longer-term IRRs and we have the capital that's aligned with our ability to do that.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, Christian, my partner and I, we're lockstep about a lot of things. We've worked together for over a decade. And, you know, there's a lot of pushback about the dual PM or the COPM model, someone that we both know may or not have written a book with a chapter about it. But what I would say is that when you think about Impactive's model, we're very similar to private equity. And the duration of our capital is not quite as good, but it is similar to private equity. And so it gives us the luxury to we're not making 50 different trades a day. The frequency of our trades is very low. And what we realize is sometimes not acting is the best thing that we can do. And so we were very careful about deploying the capital. And so I think that long lock capital gives us two things. One, it gives us an ability to take our time diligencing the company so that we know which companies we like at which prices. And it also gives us the flexibility to come up with ESG ideas that are”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“We do a lot less. I know it probably sounds crazy, but we constantly remind ourselves we are in such a unique position. Again, so as way of background, Kelstra was the largest investor in our prior fund. They had full daily transparency into the returns and they knew which investment partner led which investment. having that full level of transparency and knowing us individually in our character, they were able to develop high conviction quickly and underwriting us. And importantly, we're in their sustainability bucket. And so we had a lot of conversations with them about making investments for the long run and not being plagued by short-termism. And that's why having that, again, that six-year lock capital was so important. The vast majority of our other capital is in a three-year share class. And so what I think that has led to is patients making sure that we pounce, but being able to be nimble.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the inclusion, exclusion funds, taking in more capital, and generating subpar returns, or the folks like us who are pursuing it frankly just not putting up returns. So we'll lose the flows and we should, frankly, right? So I think that there has to be, you can't pursue ESG for ESG's sake. You have to pursue it because it drives business value over the long run and you have to be able to demonstrate the business value. And so if we're unable to demonstrate that business value, I think the allure of these products will definitely fall off.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Europe, they're much farther ahead, but as I mentioned about the flows, I think we're going to continue to see tremendous flows that are interested in ESG and sustainability funds that are pursuing the strategies in a thoughtful manner.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think there's skepticism because in the past what ESG funds were mostly inclusion exclusion funds. I'll only invest in companies that are solar or clean energy or I won't invest in companies that do gaming or gambling or oil and gas. And naturally when you limit your universe of investment opportunities, you're going to limit your return opportunities. And so we flipped it on its head and we said, no, we want to be the catalyst of change that we want to see. And we think we can drive returns by doing so. And so I think there was naturally in the market a negative predisposition to ESG funds because of that. And I think we're really just getting started. There's a tremendous amount of demand, I think sustainability funds demonstrating that they can outperform in terms of volatility and over long term in the market is going to stand out. And I think in the US at least in”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“The environmental and climate change is not going to be a focus. Our vision at Impactive is that while we might change one company because we can help it with capital allocation and ESG in a way that allows it to attract and retain the thickest customers, employees, shareholders will make it more competitive, they'll make the most profitable in the industry. Over the very long run, multi-decade period, not only have you changed a company, but you've changed an entire industry because all the competitors have to follow suit. And so that's the long-term vision. And I think the misconception was that it would take longer for companies to realize that, but I do think that they are realizing it, accepting it and acting upon it in a much more expeditious manner.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Thought it was going to be much harder to convince companies to focus on ESG change. And I think they really are adopting change in a much more rapid pace than we would have anticipated. And so I think it's easier to identify and ring fence the return opportunity associated specifically with ESG or sustainability investments. And I think companies are really taking them quite seriously. We started seeing this going into the is we're certainly hunkered down and focused predominantly on cash flow and liquidity and shoring up their balance sheet. So the conversation around sustainability and ESG never stopped. And the investments in these types of funds that cumulatively will generate value over a very long period of time. And I think if we fast forward 10 or 20 years from now, we're not reverting back. We're not going back to the time where”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Municipalities and states and even commercial projects will demand more environmentally friendly products or used within the overall development of the project and we believe that will drive massive tailments to their business. And so that's a company that's an example of an extremely high quality business. It wasn't trading at seven times EV to EBITDA when we were buying it. It was trading closer to nine times EVD EBITDA. But we think it's going to both grow their EBITDA at a very rapid clip and they'll also get multiple.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Stormwater market. However, they've taken that share over time because using their pipes and products entails about 30% labor savings. And so what we've seen is in times of economic distress and weakness, they actually accelerate their share taking. So extremely high quality business has pricing power, driving high returns on incremental invested capital. And now they haven't even told their ESG story. They're again the fifth largest recycler in North America. So we think that they have a unique opportunity now, one, to tell their story. They're going to be coming out with their new ESG report that discloses a lot more about how sustainable their products are and their businesses. And we believe they'll have a tailwind to growth because of the labor savings and the cost advantages that they offer to their customer as well of sort of ease and safety of install. But over the next decade, what I imagine is that”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Market they have over 70% share, which is over 10 times the next largest competitor. And what we've seen over the past 20 years or so is HGPE has taken a tremendous amount of share from the incumbents, which are concrete and metals. Those incumbent provider products are far less environmentally sound. For instance, the HDB pipes are about 44 times less carbon intensive than concrete, just to put a fine point on it. And so our view is that, yes, the cycle, it's questionable where we are within the non-RESI cycle. But the point is this is a company that has tremendous pricing power because it is the dominant player in its field. And despite whatever cyclical pressures they might experience, they certainly have secular tailwinds. And the secular tailwinds are coming because today they have about 30% share of the overall piping for”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Give you an example of a company that we bought in the March sell off, and that was advanced drainage. And this is one where it's an extremely high quality business. It had a higher than we are used to valuation and it has a unique and unusually large opportunity, an outsized opportunity around the ESG front. But let me tell you a little bit about advanced drainage. It's about three and a half billion dollar leading manufacturer of HDPE storm and wastewater drainage structures. So these are piping. It's high density polyethylene piping. Now, they're sold into commercial markets, infrastructure, resi and agriculture end markets, but importantly, they are the fifth largest recycler in North America that you've never heard of, and they do their own recycling. So over the vast majority of their products are actually made of recycled plastics. And as the dominant player in the HDP,”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“The reporting, frankly, is challenging because there's no standards. Again, we really like the SASB materiality map, but there's a great professor at Harvard. His name is George Seraphim, and he actually just put out research that demonstrated the more a company discloses about ESG factors, the greater the dispersion in ratings from folks like MSCI and Sustainalitics. So I'm very eager to participate. I think the industry has a lot to do in terms of setting certain standards. But I think as you think about why these ratings”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“On the credit side, green bonds, climate bonds, sustainability link bonds, there's over about $5 billion invested there. And if you believe what Larry Fink of BlackRock says, he thinks he's taking his $90 billion in sustainability equity funds. He thinks that will surge over a trillion in the next 10 years. And I think we started to see it last year. There was $200 billion in capital outflows from the traditional equity funds and about $70 billion of inflows into ESG and sustainability funds. And these funds are sticky pools of capital that effectively lower the cost of equity for companies that meet and sort of lead certain ESG requirements and ratings agencies. And so our view is that making sure your profile and your story is soundly told will allow you to attract a lower cost of capital, which would be increasingly important.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Keeping stamp of approval for good ESG stamp of approval. We have a lot of management teams actually calling us for inbound requests on what can I do to improve my profile and what should I be focusing on. And I think a lot of it speaks to management teams and boards are waking up to the fact that they're going to be rated and they're also importantly waking up to the fact that there are growing pools of capital interested in sustainability and ESG. And one of the themes running through our portfolio since we invest in small cap companies, many of our companies are in growth mode, right? They're in capital deployment mode and the ability to attract a lower cost of capital relative to competitors is a structural strategic advantage. And so I remember before COVID happened, most people were asking, wow, is ESG just a bubble? And actually what we've seen is that the sustainability funds in the ESG funds have actually performed quite well despite the volatility. And the sustainable equity funds demand and inflows is rapidly growing.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think it's changed a lot over time. Ten years ago, I don't think management teams would have listened to you at all. For most activists, it was really when you break apart the environmental, social, and governance change. It was always a governance conversation. And today, I think good corporate governance is simply good corporate hygiene. And so management teams get that. I think they're starting to listen now around the environmental and the social side of things. I would say I can tell you a story. One of our investments on our first meeting with the CEO before we had taken any stake, before we could even introduce ourselves, he had a whole story prepared for us on why he was good for the world and why he was good for his society. And it's interesting because usually sometimes activists, when they meet with CEOs and managements of companies, there's naturally some level of guard that's put up. But what we've found is that because I think we have this moniker of this good house.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Opportunities for improvement, I guess, is what I would say, and especially since there's just, again, we're in the infancy of this type of investing, I think you're going to see more and more companies try to stand out and have high signal-to-noise in terms of the value that they offer.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So I think there's naturally a high correlation, the higher quality management team running the higher quality business tends to get the benefits of positive ESG improvements. And some of the things that we learned were activists sometimes encounter pitfalls is when they invest in low quality businesses and pursuing some short-term change. And that might work sometimes, but usually they find themselves falling into a pitfall of having a highly illiquid position in a low quality business where time is certainly not your friend. And that overall can diminish the overall value of the portfolio. Now with ESG specific change, I would say we're in such early days, specifically we target small cap companies. So you don't find very high quality management teams and businesses that have perfect ESG scores. There's always opportunities.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Lot of times you think about activism as a discipline, you think about taking companies that are underperforming and trying to make them better. When you think of that ESG lens, how much are you trying to find good stewards of ESG compared to those where maybe they're not as good and you can get them better or they're doing fine and you just find areas of improvement?”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, our portfolio construction, we have about eight to 12 positions at any point in time, each eight to 12% of the AUM. And so today we have about 10 positions, almost half of which were put into the book between March and April of this year during the pandemic, so we are very much busy in actively at work.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Long tenured mechanics, equity opportunity. This is the first time these professionals have ever been able to get equity in their business. It changes the culture of the business. It also has allowed them to attract and retain more technicians to their auto dealers. And importantly, what it's going to do is allow them to drive greater growth in the most profitable portion of their business that is capitalized at the highest multiple. And so you can look at over a long period of time if they can improve, for instance, the utilization in their average utilization in a parts and services bay is about 50% across dealers. If they can improve that utilization, just 10% by attracting, retaining more mechanics and particularly women, they have an opportunity to drive their enterprise value high double digits, so call it 15 to 20 percent.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“About 2%. So 2% of auto mechanics are women. And what we know from any macroeconomic data or even other industries like construction or healthcare is that when women participate in the labor force in a greater rate, productivity improves, output improves. And so we thought about how can we investigate ways to get women more involved to solve their technician problem. And so we worked with the company. I think the company is the first publicly traded auto dealer to offer disability and paid maternity leave to mechanics. They're moving to a four-day work week. They're going to flexible shifts. And this is very helpful, particularly for attracting women because the burdens of childcare and elder care disproportionately fall on the shoulders of women. This all sounds good and that investment in moving to a four-day work week and offering special benefits. They also offer”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Nowadays. And so a fender bender five years ago, Geico would tell you, take your car to the mom and pop collision center nearby, and they'll be able to fix it and move on. Well, today, a fender bender caused far more because of, again, the body of the car being so technologically dense, you simply have to go to the auto dealer to refit and repair those businesses. And so we got very excited. It also is when you look at Aspury, it's a business that has just under 30% ROICs over a cycle for the past 10 or 15 years. And a lot of that return is coming from the parts and services business, which has far north of 50% ROICs in our estimation. And so we peel back the young and we say, what can Aspury do from an ESG perspective to really drive incremental profitability and value? And the main issue challenging that overall industry, both for the collision players as well as”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“A great one. So, one of our biggest positions is a company called Asbury Automotive. And it's the seventh largest auto dealer in the US. And just thinking through our quality, value time and activism, Aspury Automotive is extremely high quality business. They're effectively locally granted monopolies, but it's really misunderstood. So we were buying the shares at six or seven times earnings. And, you know, people, when they think about auto dealers, they don't think great ESG players. And they think very cyclical businesses. But when you peel back the young in and really get to know these businesses, the vast majority of their profitability of their EBITDA, two-thirds of their EBITDA is driven by the parts and services business, which is a sticky business. It usually is recession resistant, and we're seeing what we believe are secular tailwinds to the parts and services business, meaning cars have become incredibly technologically dense. They're more silicon than”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“And they have these large and very thoughtful investor stewardship groups that are requesting change and engaging at the senior levels of both the management teams and the boards. And they might have 10 or 15 ideas for ESG change. And of those, call it 10 ideas, five might be value neutral. Three might be value destructive, a waste of time or a waste of capital without returns. And two might be value accretive. And our role at Impactive is to really focus companies on those items of ESG change that are value accretive and to prove to the companies it's worth their while.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“The vision for activism is you're looking to make a company more competitive over the long run. When you make a company more competitive over the long run, you make it more profitable over the long run. And ESG tools are really tools to attract and retain the stickiest customers, employees, and shareholders. Doing those three things will improve your profitability. When we think about measuring and guiding companies towards ESG change, we really focus on those three metrics. How can you lower your cost of human capital? How can you lower your costs of capital to finance the business? And how can you lower your customer acquisition costs? And that's usually how we're defining it. Many of the management teams and our boards start out somewhat skeptic around making ESG change. When you take a step back, you have the three large passive companies, right? The passive institutional allocators are BlackRock, State Street, and Vanguard. They own anywhere between 20 and 30% of every public company.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically, the markets in any tend to focus on a few key aspects of what's going to drive a business. How do you think about where the markets will respond to something that in the case of Wyndham, that is incremental economics and it's good, but it may not be a big driver of profitability or returns?”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because ESG is really in its infancy and most management teams are trying to figure out for themselves what's most important and what to focus on, we are putting forth proposed return opportunities based on our assumptions the same way that we put forth return opportunities based on our assumptions around capital allocation. And so in these cases, there's a number of different examples I can give across our portfolio where we are trying to quantify if you make this investment and it's usually an investment small amount of capital and some time in pursuing this specific change, you have the opportunity to drive profitability like we mentioned with Wyndham or you also have an opportunity to lower your cost of capital as there are growing pools of capital interested in ESG specific products both on the equity but also the credit side.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“It because they're generating better cash on cash returns, and you have Wyndham benefiting because they are more likely to attract the marginal franchisee because of those more attractive returns relative to their peers. So that's one area that we pursued where the measurement is really based on their ability to attract more franchisees. Another one was the simple towel and linens, you can get points for foregoing the washing and cleaning of towels and linens every time. And that's also a win-win for the guest because the guest is getting 500 loyalty points for foregoing the cleaning up their linens. The franchisee loves it because he has, or she has a tremendous savings on their overall spending to clean all the rooms. And then window benefits because there's user engagement in the loyalty program. So it encourages more guest stays, which drives more Revar, which drives profitability to the bottom line.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Products that they can implement for their franchisee location, then we had to be very careful about which products to recommend based on the payback and based on the returns because again, these are hotels not generating $200 in ADR, they're generating $85 in ADR. But we put together a package of LED lighting, motion sensor detectors, smart HVAC systems where the paybacks and they disclose their paybacks, by the way, in their corporate social responsibility report, but the paybacks are usually one to two years. Doing that, you can save the franchisee anywhere from 10 to 25% of their overall cost. So that's 100 basis points to 200 or so basis points of margin opportunity. When you step back, that's a win-win-win for everyone because Wyndham isn't expending any capital. They're simply flexing their muscle in terms of their purchasing power, their franchisees have an outlay, but it's associated with almost an immediate return and a margin enhancement opportunity. And so you have the franchisees left.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Highest level of priority in terms of the levers that we can pull to drive the highest return for that specific business. So another way to look at it is if you take a Venn diagram and you look at all the potential ESG change that a company can pursue in one circle and then all the positive MPV projects that a company can pursue in another circle impactive focus is solely on where those two circles overlap. And so a good example I would think when you think about measuring and materiality is one of our hotel companies, which is Wyndham Hotels and Resorts. Wyndham is the largest franchise operator of hotels in the economy and mid-scale segment globally. And so it's an extremely high quality business, asset light, very cash generative. And part of our thesis was actually, you know, we're taping this amidst the pandemic where the hotel industry has been unusually impacted. And part of our thesis.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“You look at some other investment firms, they'll have like a dedicated ESG analyst. We don't have that impact of the ESG analysis is part of the DNA of the investment team. And so when we look at any investment opportunity and we think about the activist levers to pull, we look at the same way that we would evaluate and measure, oh, this company should pursue this spin out or it should do this levered recap because of the profitability and value it can drive over the long run. We do the same thing for ESG change. Our first point of triage, so there are a number of tools and frameworks out there, but we really like the SASB materiality map, which breaks down environmental, social, governance change, and leadership, human capital. And we look at the materiality map, which is based on industry and sector, and then we decide, do we agree with these items that SASB is saying is material for this business and this industry in this sector? And if so, if we agree with it, what is the”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Capital allocation oriented toolkit around strategic initiatives, capital structure initiatives, and operational initiatives. And then we added sort of a fourth leg, and that's ESG initiatives that drive return. And so when you think about it, activists in the past have looked at ESG almost with a risk orientation, so a risk lens. And it became clear to me a number of years ago that ESG can be used as a critical tool to drive business durability and to drive sustainability. And I think today there's a lot of discussion around ESG. It's in every headline. And we think that it will become increasingly one of the more important tools in the activist toolkit. And it will be a source of profits and value to drive, again, sustainable businesses in the long run. However, for any company to take ESG seriously, the ESG change has to be linked to a business case and business rationale.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“How on earth are you distinguishing yourself? And I think it's because our time horizon, whereas there's so much short termism in the market today, we can look out over three to five year period and think about will this company be worth 2 to 3x or how can we help this company be worth two to three x? And so oftentimes our opportunity sets come where there's a very highly compounding business that endures a hiccup and we're able to sort of pounce on that opportunity because we have a longer term time horizon. So many of our opportunities are ones where everyone agree this is a very high quality business. It will certainly be worth much more two to three years from now, but they also think certainly it's going to be flatter down by the end of the year and because that's when they're compensated they generally stay out of that position and that would not be the case for us. Therein lies our opportunity. And so that gets to our fourth, which is activism. So our activism is we use the traditional activist toolkit, which is predominantly”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think a lot of it is around the time. So just to take a step back, Impactive was put in business by Blue Harbor's largest LPs, Calisters, and we were very lucky. They backed us with six-year capital, which is unusual in the public markets. And that really allowed us to pursue what I think is one of the last areas of competitive advantage, which is our time horizon. So it impacted we have four key criteria that we look at in our investment strategy. They're all pass fail. So every one of the companies in our portfolio must pass this. It's quality, valuation, time, and activism. And so we just spoke a bit about quality. Valuation is we're looking to underwrite high-teen solo 20 IRRs. We generally like a three to one risk reward on entry. And I think what you're getting to is that everyone's looking for a high quality business at a very attractive valuation.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, so a high quality business for Impactive is a business that has pricing power, businesses where the moats are widening and they generally can generate higher incremental returns on invested capital. And so we look across industries and businesses for companies, again, that have that pricing power that are the dominant players in the industry and in their end markets.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was an incredible experience. So, again, I spent a decade there investing in all sorts of companies. So we were generalists at Blue Harbor, but I spent most of my time looking at consumer businesses, technology businesses, business and healthcare services companies, and learned a ton about building consensus, learned a ton about garnering influence with a management team and a board to pursue the ideas that you were proposing. And I learned a lot about backing really high quality management teams and about distinguishing between high quality businesses and low quality businesses. And so I think one of the key takeaways, and there were a lot of takeaways from Blue Harbor that informed how we structured Impactive, but one of the key ones was around making sure that we're always backing high quality businesses and high quality management teams.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source
“Wanted something more institutional, so I had completed my MBA. I made a commitment to stay there throughout, but I was really looking for something that was larger institutional and that pursued solely activism. And the way that Blue Harbor was doing activism really resonated with me. It was very much a private equity approach to the public markets. And so I just loved what they were doing. And at the time, they were small. They were about 600 or 700 million dollars of AUM.”
2020-07-02 · Capital Allocators · Sustainable Investing 8: Lauren Taylor Wolfe – Activist Perspective (Capital Allocators, EP.146) · IDENTIFIED FROM THE TRANSCRIPT · source