Joel Cohen, what is MITIMCo looking for in Emerging Managers?

Here you can enjoy our conversation between Joel Cohen of MITIMCo and Rob Vinall. In this Q&A format, both have discussesd what MITIMCo is looking for in Emerging Managers.

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Here the following topics were discussed:

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Introduction

[00:00:00] Robert Vinall: So it’s a great pleasure to have next to me here Joel Cohen. Joel and I met about 10 plus years ago, I want to say, and he works with MIT’s endowment. We’re talking about MIT a little bit later. What impressed me the most about MIT is it’s one of the largest endowments, obviously, one of the largest universities in the world. I intuitively thought the larger the investment company, the larger the manager, they would orientate themselves to do too. But MIT was really the opposite. They were the first institutional investor to ever reach out to me to spend the time, to come and visit me, to hear about how I invest. I was incredibly impressed then and everything I’ve experienced in the 10 years since has impressed me even more. So it’s great to have you here, Joel.

Joel Cohen’s story

We’re talking about MIT. But what we would all love to hear about first is tell us your origin story?

[00:01:02] Joel Cohen: Sure. Well, first, thank you for having me. It’s a great honor to be here. It’s a fantastic event, really a unique setting and a unique group of people and unique topic, I think, as well. It’s fun to be able to contribute in some way. So I’ve been with MIT for 12 years. I joined right out of college.

[00:01:23] Robert Vinall: You were both of them.

[00:01:24] Joel Cohen: Yes. It’s been my only job. I think I kind of wrestled with what I wanted to do when I was in college and how do I want to spend my—

[00:01:34] Robert Vinall: Were you also in college at MIT?

[00:01:35] Joel Cohen: No, I didn’t go to MIT. I went to Brown. So I was kind of familiar with the northeast, but not so much MIT. I found my way there just because I was sort of looking around at what would be an interesting career, where do I want to be in 10-15-20 years. I knew a few of the ingredients. I sort of figured out, that I’d had a little bit of exposure to investing from classes that I took in college really in a more academic way. But enough to know this was an intriguing field, but that I didn’t know exactly where in there I wanted to be. So I knew that was one piece of the puzzle. And then I knew that I wanted to work for some higher purpose that I wanted to do not just interesting work but do it on behalf of some cause that mattered to me, that would kind of give me extra motivation every day.

But those are two very kinds of general things. So I looked really wide at different places. One of the things I stumbled across was endowments, they have these large pools of capital. They invest all over the world, and in all sorts of different asset classes. They directly support the mission of their institutions. I thought that sounds like an amazing place to be. Maybe I can do that in 10 or 15 years. Figured why would they hire someone right out of school when they can hire someone who actually knows what they’re doing. But I did discover that some of the larger institutions will actually hire people right out of school and kind of train them. So I thought, well, that sounds even more amazing, like what an incredible place to learn the investment business to get exposure to interesting people, different asset classes and strategies all over the world, and to be part of MIT, and to continue to kind of be on a college campus. So that was 12 years ago, and I knew that there was a potential that it would be something I would do for a really long time. Here I sit 12 years later, and it’s just been an amazing experience and an amazing place to learn. Continues to be incredibly fun. So I wouldn’t be at all surprised if I’m still sitting here another 12 years, doing the same thing.

Joel Cohen’s role models

[00:03:41] Robert Vinall: Yes. You’re a passionate value investor. Was there anyone who was the sort of role model? Or what was the kind of the trigger moment or the aha moment when you figured, “Okay, this is the way I think people should invest and this is what I’m going to look for in other people.”

[00:03:58] Joel Cohen: Yes, I think it really didn’t come until after I started at MIT, that I really hadn’t even had much exposure to value investing before that. So it was just in being at MIT. And suddenly you have access to all of MIT’s investment firms that we work with. And your job is to go out and find amazing people for MIT to partner with. So it was really managers that we’ve gotten to know through that process that has become kind of inspirational, at first, a little bit from afar. And then as I’ve gained more experience, there were managers that I would meet and I would be the one championing the investment process and get a chance to build a direct relationship with people whose investment work I really respected.

And then as I’ve gained more experience, there were managers that I would meet and I would be the one championing the investment process and get a chance to build a direct relationship with people whose investment work I really respected.

[00:04:43] Robert Vinall: Almost like an apprenticeship, it was through seeing different types of managers, you sort of slowly were able to form your opinion on what you’d like, probably also disliked.

[00:04:51] Joel Cohen: Yes, for sure. I think MIT, we have our own subset of managers that we tend to gravitate towards. We’re not trying to be experts at every single kind of investing all over the world. So I think there’s a strong grounding in bottom-up value investing. But then I think if you do this for a long time, you start to find the types of things that you personally gravitate towards. And MIT invests in a lot of different types of firms and strategies. There are public managers and private managers, venture capital, real estate, and all those sorts of things. But I think I found myself really gravitating towards long-term stock picking, one and two-person shops owning great companies for long periods of time, just as such a proven strategy over time and it really works in my head. And I think one of MIT’s big competitive advantages is having the patience to see those strategies through and withstand the volatility along the way. Not only does it really resonate with me, but it plays to one of MIT’s biggest competitive advantages in the market as well.

MITIMCo’s mission

[00:05:55] Robert Vinall: Yes, the long-term patient capital. You mentioned the sort of the concept of mission and the purpose of the endowment was a big motivation for you. Maybe a few words about MIT and the mission.

[00:06:09] Joel Cohen: Yes. So we manage all the financial assets of MIT. It’s a big contributor to the operating budget every year. I think somewhere between 25-30% of what MIT spends every year comes from the endowment. So it’s really critical that we do our job right and make good investments over time and hopefully grow at a faster rate than our spending so that MIT can spend even more money on all the problems that it’s trying to solve for the world and spend more money supporting the student community and the research that’s going on at MIT. So it’s really special to see that direct link between our work and what happens at MIT. And basically, the strategy that we have is we try to go out and find the best investment firms all over the world.

The best way to compound MIT’s capital is to partner with the best investment firms that can compound at above-average rates for really long periods of time. So we’ve really organized our entire investment process around finding and partnering with those special types of firms. We’ve sort of tried to cast out some of the things that got between us and that mission. We used to have sort of a top-down asset allocation, like many institutions do, where we would say, we want to have 10%, in domestic equities and 20% in private equities and 10%, in emerging markets equities and so on. And we found that that didn’t make us better manager investors. It didn’t make us better investors. We didn’t feel like that was anything that we had a competitive advantage. So we said let’s work bottom-up, let’s focus on just finding these amazing people that we can work with, and let’s not try to bucket them. Some of the most amazing firms actually don’t fit into any bucket. Maybe they invest publicly and privately and maybe they take some approach from private markets and apply it to public markets, or what have you— And so we just wanted to evolve our process to try and do more of what we thought was the best at. So we’ve changed to be much more bottom-up with no sort of asset class targets of any kind.

Partnering with Emerging Managers

[00:08:23] Robert Vinall: So fascinating idea, because I see a parallel investing, often the very best types of companies are the ones which are difficult to really put into a particular bucket. They’re kind of a pharmaceutical company, but also consumer goods, or they kind of struggle with different things. It’s interesting to see the parallel there. Obviously, manager selection is a big part of your work. But what I also see you do is also try and expand the pool of potential managers. And you have the initiative for emerging managers. So maybe you can talk a little bit about that.

[00:08:58] Joel Cohen: Sure, yes. I think the evolution that we had towards partnering with emerging managers and working with emerging managers was kind of a natural organic one that started about 10 years ago. It really wasn’t a top-down plan. We’re going to suddenly start— We’re going to have an emerging manager program, and we’re going to partner with 50 emerging managers or something like that. It was in the course of being out at different events. We would meet really interesting people that we thought were headed somewhere really interesting and doing something different and unconventional. But they were just getting started. They didn’t have a track record. Maybe they were really young. But they just seemed like the kind of people— If your goal is to partner with the best people, they just seemed like people we should partner with. So it really happened to bottom-up.

We started meeting people that we thought we should be in business with and so we sort of created a framework around that goal, to start working with emerging managers without any kind of systematic or programmatic approach. Just here’s somebody sitting across the table from us that we think we should work with, let’s find a way to do it. And we did. Then over time we met others and continued to pursue that approach. Now, we’ve been doing it for about 10 years. We’ve learned a ton along the way. In the beginning, we have no special insight into what makes you a great emerging manager or how to build an investment firm or anything like that. We’re still certainly not experts in that topic. But we’ve learned some things over the years that we thought it’d be great to find ways to communicate and share that knowledge that we’ve gained.

[00:10:36] Robert Vinall: So you created a community website?

[00:10:38] Joel Cohen: Yes.

[00:10:40] Robert Vinall: www.emergingmanagers.org

[00:10:40] Joel Cohen: Yes. We created a website a couple of years ago, called emergingmanagers.org, where we just started collecting some of the resources that we found helpful from things that different people have spoken about on this topic and different resources some of the service providers that we know that emerging managers use, and so on. And a lot of it is we haven’t been in the position of starting an investment firm. So there’s a lot that we don’t have the authority to speak on. But anytime we find someone who’s actually done this, like you or Dennis or others, we want to collect those insights in one place so that they’re sort of in one place that people can go to learn more on that topic. And so we’ve tried to make more and more resources public. I think, partly because we found that this business is not always the most meritocratic business. The most passionate, the most deserving people who might actually be really good investors. If they don’t come from a background of being investors, or they don’t kind of land a great job right out of college and so on, just is a bit harder for them. And there’s a lot that if they’re not kind of in the inside of the community that they wouldn’t necessarily know, or have insight into. And so if we can make that public and help people understand that better, there are more people out there who can do what they want to do.

The most passionate, the most deserving people who might actually be really good investors. If they don’t come from a background of being investors, or they don’t kind of land a great job right out of college and so on, just is a bit harder for them.

How to get started as a fund manager

[00:12:08] Robert Vinall: Yes. I think it’s great what you’re doing. The biggest challenge for a young manager who’s been successfully managing their own money, but we’d like to start a fund and start managing other people’s money as well as getting the seed capital. I remember I described it as a kind of a chicken and egg problem when I was starting. Because in order to attract capital, you need to have a track record or a lot of people think you need a track record, but you can’t build a track record without having any capital. So how do you get started? So what sort of solutions to that have you seen and which are some of the best ones?

[00:12:43] Joel Cohen: Yes, I think it’s a really interesting topic. And it’s a really tough one. And of course, I sit here in the comfortable seat of never having to actually do that, never having started a fund and seen my checking account balance dwindling, or taking hundreds of meetings with people who turned me down, and so on. So I have a lot of humility about what I can really contribute to the topic. But we’ve certainly seen a lot of people try to do it. I guess I see a lot of people, if they have a plan of starting a fund at some point, they start laying the groundwork long in advance. And they don’t just show up on people’s doorsteps saying, “Hey, I just started a fund, will you fund me?” But throughout their career, if this is the aim that they have in mind. They’re trying to build relationships with people. Hopefully, along the way, they’ve impressed mentors or bosses or people that they’ve worked with. If they’ve done really high-quality work, then likely they have people who have been impressed with them, who would like to help them and feel like they have that trust. We’ve seen people sort of build that over a period of years, start building relationships with people who have capital and start introducing themselves to people long before they actually are in a position to start their fund. That’s certainly one approach.

[00:14:05] Robert Vinall: Kind of building and participating in an ecosystem.

[00:14:08] Joel Cohen: Yes. And I think this event is a big contributor to being able to do that, which is one of the best things about it, I think. I guess the other thing that we’ve seen is if you can get the costs really low, then the starting AUM that you need is fairly low. And if you can get off the ground with sort of a minimum sustainable amount, and cut every cost out, that’s not absolutely essential, you can give yourself the chance to build that track record and prove that you’re a good investor and a good capital allocator. We’ve certainly seen people be very creative and things that they’ve done. I mean, you’ve written about traveling and sleeping on friends’ couches and working from home before it was cool during COVID long before that. So I was…

[00:14:56] Robert Vinall: I saw this pandemic coming more than 10 years ago, and I’ve been prepping since.

[00:14:59] Joel Cohen: Yes. So we’ve certainly seen people do that. And we admire the scrappiness that people show in wanting to give themselves a chance and get the lowest cost structure that they can to get going. So, those are all things that you can do. But clearly, it doesn’t make it easy. It’s still going to be a hard process. And so I think you have to be ready for it to be hard and have to be so passionate about wanting to do what you do that you can’t imagine doing something else because it’s not going to be easy.

And so I think you have to be ready for it to be hard and have to be so passionate about wanting to do what you do that you can’t imagine doing something else because it’s not going to be easy.

[00:15:28] Robert Vinall: I really want to underline that point. And I think it’s so important for people to hear that from one of the largest endowments in the world, you’re not looking for a large cost structure. In fact, it most likely puts you off.

[00:15:40] Joel Cohen: Yes, for sure. We’re big believers in very simple operations. I mean, there’s a wide variety of different ways to do it. We also partner with people who have bigger teams and more operational setup in-house for some strategies, and some people that make sense. But we’re also very happy partners with some people where there’s one owner-operator, capital allocator, investor, PM, analyst, it’s all one person. And everything operational is outsourced. That’s perfectly fine with us. For a really simple investment strategy, especially one like yours that actually probably is optimal in a lot of cases. Some people think of that as a more fragile setup. I think we sort of think the opposite, that the lower the cost base, you don’t have to worry about if this manager has one bad year, or if AUM is down a bit that they have this big cost structure if they have one redemption. One unpredictable thing happens that all of a sudden, they’re in trouble. The lower the cost base, the more margin of safety you have there.

The lower the cost base, the more margin of safety you have there.

Legal and fund structures

[00:16:44] Robert Vinall: So if a manager is fortunate enough to attract sufficient capital to get started, the next question that they need to ask themselves is structure. So obviously, I don’t want to get into a discussion on different legal structures and different countries have their own systems, but at a very high level, what are the kinds of things to think about when you’re looking to put together a structure for the fund?

[00:17:04] Joel Cohen: Sure. I guess the first thing to say is maybe obvious, but I think the first thing to say is that it is really important. The more time we’ve spent thinking about structures, the more we’ve appreciated how important that is and people’s success. It really is worth spending a lot of time thinking about what is the ideal structure for what you’re trying to accomplish. What do you want to incentivize? What behaviors do we want to incentivize for the GP and for the LPs and everyone around the table? What’s optimal and what’s going to put you in the position to make the best investments that you can possibly make, and do exactly what you need to do?

I think the people that we work with tend to spend a lot of time thinking about it and not just something they start thinking about right before they launch, but something they kind of contemplate for years. But in some ways, it’s deeply personal, what structure makes the most sense. I don’t think we found one that works for every case. I think for you, as the portfolio manager and the GP, it needs to be something that really aligns with the way that you think. And that you’re really happy with and excited about. There are lots of different ways to do it. But kind of thinking about what makes the most sense to you, how do you incentivize the right behaviors? I think having the right LPs around the table really gets you along part of the way there. Having the right people who have the exact same goal that you have and are on the same mission that you are, I think is a big part of it as well.

I think the people that we work with tend to spend a lot of time thinking about it and not just something they start thinking about right before they launch, but something they kind of contemplate for years.

[00:18:40] Robert Vinall: Yes. And I think it seems it sounds very simple and intuitive when you say building the structure which is going to allow you to make the best investment decisions, but it’s worth underlining that oftentimes, that can be conflicting with the best structure for raising capital or for building a profile. 

[00:18:57] Joel Cohen: Yes. I think in many cases, that can be the opposite. And maybe that’s something to say about the chicken and the egg thing as well. One of the ironic, I guess, or interesting things about it is that the easier it is to raise capital, the more generic your strategy might be. If it was really easy for you to raise capital, then it’s probably easy for a lot of other people to raise capital to do exactly what you’re doing. If it’s really hard to raise capital, again, easy to say, from where I sit, but in the long term, that probably means you have a more differentiated strategy that’s much harder to replicate. And I think that’s probably the case with structures as well. Almost by definition, some of the most interesting best-aligned structures are things that people won’t necessarily sign up for because they’re a little bit unconventional and different from what people are used to.

[00:19:41] Robert Vinall: Yes, it’s such a powerful and counterintuitive idea to seek the structure, which is least attractive to people. It’s a powerful idea. Any thoughts on the question of separately managed accounts versus funds. Any advice you’d give to people toying with those two different routes you can go down?

[00:20:02] Joel Cohen: Yes, I think it’s a little hard to generalize because every jurisdiction is different, every person is different, every strategy is different, and every LP base is a bit different. We did a webinar with our operations team, where they kind of talked more about just in general, what those two structures look like that’s on our website. I think a lot of people have kind of told us there’s…

Well, first we’re fine with either we were open to both. I think our goal is to partner with great people and find structures that work the best for us and for them. We like SMAs, but we also have fun investments as well, both can work. I think we’ve heard from a lot of people and found that sometimes the initial cost can be a bit lower with SMAs. You don’t have as many admin costs. You don’t have necessarily audit costs. I think it’s easier for people to sign up with you on day one when it’s an SMA structure where they kind of have control and visibility into what you’re doing. It’s a little bit less scary than signing up for a pool of capital where there’s a GP that has a lot of power and you don’t have perfect transparency into exactly what they’re doing. I mean, you can create that transparency in other ways. But sometimes an SMA structure can be a little bit easier to get started with. On the other hand, over time, you may not want hundreds of SMAs or dozens of SMAs. So fun structure can make sense as well, to have all the people in one pool of capital, or sometimes people end up with both, one or two SMAs for larger partners and a fund for lots of individuals. But either one can work.

Operational structures

[00:21:43] Robert Vinall: So, emerging managers, have their seed capital, they have this structure. Maybe the next question they’re asking themselves is about teams. How many people to operate with? So, you indicated you prefer lower simple structures and lower costs. So assuming the smaller the team, the better. But of the successful ones you’ve seen, who have built small teams. Maybe you can describe what type of characteristics you’ve seen them? What type of decisions they’ve made?

[00:22:10] Joel Cohen: Sure. I think one of the things that we’ve really learned is we come back to this principle of alignment. And I think people think about alignment a lot and talk about how important it is. I think it exists not just between the GP and the LP, but across everyone in the organization, and every service provider, every employee, and every, partner. I think you want to hire people who have the same vision as you and are really excited about what you want to do. I think one of the things we’ve seen people struggle with is you might have the goal of staying small and focusing on performance and turning down capital that you don’t think is ideal. But if you hire an ambitious person earlier in their career who maybe they hear you say that, but they don’t necessarily believe you, they think, “Well, over time, they’re going to go raise money because they’re going to have the opportunity of the smaller the organization and the simpler.”

I think the easier it is to have a really unusual vision, and the easier it is to actually stay small. There’s just a bit less pressure to grow and to change and to become more conventional. Maybe that’s one of the powerful things about being a one-person operation, is it’s a little bit easier to keep that unconventional bent, the more people you hire. Maybe that gets a little bit harder. But I think it certainly can be done. You just need to make sure that the people you hire are aligned with that. Or maybe they just want to work with you for a few years and go on to do something else. But just making sure the long-term vision that they have aligns with yours. We’ve certainly seen one-person shop operations work well, and we’ve seen teams work well as well.

I think the easier it is to have a really unusual vision, and the easier it is to actually stay small.

Characteristics of teams that worked well

[00:23:49] Robert Vinall: What have been the defining characteristics of the teams that have worked well. Maybe be more precise. Is it sort of hierarchical with one very clear person with the responsibility and people working with him? Or is it more kind of collaborative work?

[00:24:12] Joel Cohen: Yeah, I think it can be both. That’s one of the interesting things, I guess is we keep finding these people who do things differently. There’s not necessarily one way. We have managers who have made it work in lots of different ways. I’m trying to kind of thing because a lot of the people that I personally work with are one-person shops and are kind of very small organizations. But I think we’ve seen people work with having an analyst. I think we tend to find that one ultimate decision-maker tends to work best. The smaller the decision-making group, the better. Again, we’ve seen exceptions to that. We’ve seen two-person Portfolio Manager teams work really well too.

I think we tend to find that one ultimate decision-maker tends to work best. The smaller the decision-making group, the better. Again, we’ve seen exceptions to that.

[00:24:54] Robert Vinall: Probably not investment committees.

[00:24:55] Joel Cohen: Yes, definitely not investment committees. But two people who have known each other a long time and have the exact same vision and philosophy and kind of bring two different things to the table. I think that can work well. But I think it matters to know what the strategy is. If you have a higher turnover or a larger portfolio, having an analyst can be really valuable. I guess, having a clear in your mind, what is it that the analyst team or analysts really bring to the table? What is the tangible value add that they bring? Is it doing extra research? Is it a different perspective? Is that some different ideas, someone to push back on what you think? Having some clear idea of what that is.

I guess, with one-person shops that we’ve seen, they still value that, but they often build a network of like-minded investors who can talk to you about ideas and people who push back on them, but they don’t necessarily need to employ those people. They actually prefer to have a peer, and you might fall into that category.

How to connect with MITIMCo

[00:26:05] Robert Vinall: Yes. I mean, one of the things I enjoy the most is discussing ideas with my peers, and events like this one is a great way to expand that network. Now, the tricky topic of marketing, investors quite rightly don’t like to see managers spending all their time marketing. They want to see them trying to make the portfolio more valuable. On the other hand, a young manager probably wants to attract an MIT. So how would someone get on your radar without spending their whole time traveling around the world seeking meetings with you?

[00:26:47] Joel Cohen: Yes. I think you’ve written thoughtfully about this topic. I think maybe marketing is the wrong framework, but kind of thinking over time, how do I build the LP base that I’m really happy with and that complements what I do. I think it comes down to having a really low-cost structure means that you don’t have a gun to your head to go raise money in the next six months, and you can take maybe a multiyear approach to building relationships with different people who might be a source of capital over time.

I think we’ve found that really amazing investment content and investment research are still a rarity, even with all the things that are out there. And writing really thoughtful content, whether it’s stock write-ups or just really good letters, tend to be found even if you don’t publish them anywhere. If it’s really good and you’re contributing something to the conversation, people will read it, and people will share it. And you can kind of build a community and a network that over time doesn’t necessarily directly lead to someone picking up the phone and calling you and saying I want to invest $100 million, but over time that’ll lead to someone else that you meet that maybe they make an introduction that will lead to something over time.

So, kind of taking a holistic approach and thinking about over a period of years, how do I get the word out there a little bit about what I do. How can I show that I deserve to be able to manage more money? How can I show that I’m qualified to do it? So that would be part of it, I think.

And writing really thoughtful content, whether it’s stock write-ups or just really good letters, tend to be found even if you don’t publish them anywhere. If it’s really good and you’re contributing something to the conversation, people will read it, and people will share it.

[00:28:29] Robert Vinall: Yes. I know, you guys are very, very diligent in searching under lots of stones and kissing lots of frogs to find the prince. And I’m sure anyone putting good content out there at some point that MIT is going to find them. Yes, let me check how we’re doing timewise. So should we turn it over to the audience?

[00:28:51] Joel Cohen: I guess the other thought on the marketing piece is, I think I would underscore this idea that if you generate great returns if you show that you’re generating great returns through a really thoughtful investment process with a lot of rigor, over time people will fund you. Even if they’re a bit hesitant upfront, even unconventional setups become more appealing to people over time if the returns that are generated are amazing. With near certainty that happens over time.

[00:29:26] Robert Vinall: You just need to give yourself enough runway and that comes back to where we started the conversation, just keeping costs low.

[00:29:32] Joel Cohen: That’s right.

[00:29:34] Robert Vinall: Great. So over to you guys. Who’d like to ask the first question?

Why are there so few female managers?

[00:29:46] Claudine: Hi, Joe, it’s Claudine from Spain. I have out of the box question. As you meet so many managers or potential managers, why are there so few women doing this job? 

[00:30:03] Joel Cohen: Yes, I think there’s a big question there. It’s like a big industry-wide question of why there are so few women in this industry, which I think extends far beyond us. I think one of the reasons why we try to put out as much content as we do is to make sort of try to open source the industry a little bit as much as we can and not have our process of finding managers and backing managers, be something that happens behind closed doors, but kind of be very open about exactly what we do and what the best managers that we work with do and how other people might be able to do that. That’s sort of the best so far that we’ve been able to come up with, is to try to make accessible all the resources that we’ve used and managers that we’ve known have used to get into the industry.

But I think it’s hard if there are not a lot of women in the industry. Our portfolio is going to mirror that to some extent. We can’t have such a dramatically different pool than the industry has. So we think of it as kind of an industry-wide issue, and I’m sure everyone in this room would have thoughts about how we might solve it. Our solution so far has been to just try to be more open about what we do, and share resources that’ll be helpful for people breaking into the industry. We’ve even written a bit about that topic as well. I don’t know if Rob if you have any thoughts on what we might be able to do better in general?

[00:31:41] Robert Vinall: Well, the single most traumatic social media experience of my life was about five years ago, there was a comment and I’m very fortunate that comments on my YouTube channel or everywhere else are generally very, very positive. And there was a comment a few years ago, along the lines of where are the women at your event? My immediate reaction was, that I’m not a sexist. My immediate reaction was to feel angry. But then after I sort of had the chance to reflect on it a little bit, I thought, yes, that’s actually a very fair comment. And I think there are lots of unconscious things that happen that make it more difficult for women to enter this industry.

If I take this event here, I simply send it out and put it up on my website and say, “Hey, anyone can try and register.” But I think even something as simple and as apparently harmless is that there’s probably a greater propensity or a willingness for men to sort of getting onto the plane and see a complete stranger on the other side of the world, and then perhaps for women to do that. So I think there’s a lot we can do. Since I saw that comment, I’ve always been very specific that although registration for this event is limited if you’re a woman or part of any other sort of ethnic group, or another type of minority group who’s generally underrepresented in the industry, you immediately get a free pass.

I also emphasize this event as a family event. You will see my wife, my children are here. Other people bring their wives and children or partners. So it’s a very safe environment. It’s a very friendly environment. And if there are budding female investors out there who are sort of on the fence, should I come? Should I not come then? Hopefully, they can hear my comments here. And we’ll see more of you next year. But thanks for the question, Claudine.

Underperformance

[00:33:44] Alex: Hi, Alex from Italy. So when you sign up a manager, obviously you have expectations of him, and when things don’t work out as expected. So I wanted to assess your capacity to suffer. So what’s the shortest period that you would part with a manager? And what was the longest record where you showed the capacity to suffer?

[00:34:13] Joel Cohen: Sure. Great question. So, when we partner with managers, we take a long-term view, and we try to have a really clear in our head why we’re backing them. It’s not because of the last two years of performance. If we start the relationship and the first two years of performance are bad, then that wasn’t the reason to hire them. So that’s not the reason to part ways. So I don’t think that we’ve ever had relationships that didn’t last three, four, or five years, just because it’s such a short period of time in the grand scheme of things. I don’t know what the exact statistic is on the very shortest but it’s going to be a lot longer than a lot of relationships in the industry broadly. For the longest I mean, we have venture capital relationships that started in the 70s where we’ve been partners with the same firm for 30-40 years.

I think in a lot of ways, that’s sort of the ideal is to find people that we can partner with who are doing something sustainable that works in a lot of different environments. And they can do it not just for five years and we get a great return, but they can really compound the capital for 10-15-20 years. And if you do the math on that, it’s just really powerful to get that compounding even 5-10 years of extra compounding makes a huge difference. It’s like that. The statistic that a huge portion of Warren Buffett’s wealth, like 99% came after he was 60, or something like that. If you do the math of the compounding, if somebody compounds at 15%, net, if you stay an extra five years, then you get twice as much money from the relationship, and the profits are twice as much. So we really have a big focus on longevity. And there are all kinds of reasons why it’s really hard to generate a 20-year track record, but we’re really trying to select the people who have a shot at it.

I think in a lot of ways, that’s sort of the ideal is to find people that we can partner with who are doing something sustainable that works in a lot of different environments. If you do the math of the compounding, if somebody compounds at 15%, net, if you stay an extra five years, then you get twice as much money from the relationship, and the profits are twice as much.

[00:36:00] Alex: Do you have a manager that underperformed for seven, eight years, nine years, and you’re still with them?

[00:36:16] Joel Cohen: I think there might be one, it’s sort of a stale example. It was from before I joined. But there was a manager who focused on a specific sector. And that sector had a really rough period of time. They had generated great returns in the past. And then their sector kind of really struggled for a long period of time. And you sit there and look at that performance and think they haven’t made as much money in a long period of time. We really felt like the competitive advantages were still really strong. We kind of understood why they wouldn’t have done well. We have an appreciation for the fact that not every environment is ideal for every manager. We want managers who will do okay in every environment, and who will generate great returns through different market environments. But we understand that there are some strategies that go out of favor or sectors that go out of favor for a long period of time. So yes, I think there was one, a while ago. Seven or eight years of underperformance for a really great firm is it’s not super common but it certainly does happen. And yes, I believe there was one example of that.

We have an appreciation for the fact that not every environment is ideal for every manager. We want managers who will do okay in every environment, and who will generate great returns through different market environments.

Joel Cohen

[00:37:23] Robert Vinall: Great. I see a few hands up at the back there.

Manager assessment

[00:37:27] Speaker: Thanks for the talk. So how do you judge people? And what do you look for to get a sense if a manager is honest or thoughtful and so on? And also what traits do you find to be the most successful ones? What traits do the most successful managers like you have to have?

[00:37:51] Joel Cohen: What was the first question? How do we—?

[00:37:52] Speaker: Judge people. How do you judge them? And how does it differ in Zoom and in person?

[00:38:02] Joel Cohen: Sure, yes. I think we tend to gravitate towards unconventional types, generally, who just do things a bit differently. And there are lots of different ways that can manifest themselves. But they’re not trying to copy necessarily what’s worked for other people, but they’re trying to do something unique to themselves, that they have this idea of how one might generate great investment returns, building on different things that have worked for people in the past. But they sort of come up with their own authentic approach of willingness to do things differently and not copy necessarily what other people have done.

We spent a lot of time getting to know people. I mean, the Zoom world has made this a lot harder. But I think, we’ll definitely get back to traveling and meeting people in person. There’s just no substitute for that. I think if you spend enough time with people, you start to see their real character and motivations come through. If you do that in a variety of different settings, not just sitting across the table in a conference room, but visiting someone’s house, going for a swim in the lake with them. Going out to dinner, just seeing how they are in different environments. Maybe taking a trip with them and seeing what happens when the train is running late, and you’re going to be late to a meeting. Are they losing their mind and yelling at people? Are they totally cool? How do they act in a wide variety of different circumstances? That sort of gives you a mosaic of what someone is really like and what their behaviors are because I think you can hide your behavior in a one-hour meeting across a conference room table. You can sort of pretending to be something you’re not. But over a period of months or a period of multiple days in a row traveling with someone in different environments, you really get a sense of what their behavior is like, and what they would really be like, as a partner.

I think if you spend enough time with people, you start to see their real character and motivations come through.

Joel Cohen

And talking to lots of different people that they’ve worked with in the past. Between all of that work, which is a lot. It’s very intensive and time-consuming to do. But it’s also very important to just really understand who you’re getting into business with and whether there’s someone you trust. Because there are so many ways that can go wrong in this business if you work with someone you don’t really trust, or your trust is misplaced. So we put a lot of effort into that.

I think there are lots of traits that we look for. We tend to have a bias towards really unconventional types who are doing things differently. I think there are lots of different strategies and investments that we make. I think, for public stock pickers, there’s such a huge behavioral side to this game. It’s so much easier to say we invest in eight companies and we hold them for the long term. It’s easy to buy them and so on. But it’s a lot harder to stick through when companies stumble, or when the market decides to hate your companies for a period of time. Sticking through it and actually keeping that long time horizon is really difficult. Keeping that time horizon when there are crazy things going on in the world is really hard. I think we found that can be a huge differentiator for people who are really set up to do that, who has the temperament to do that, and who have been thinking about creating an environment around them that encourages long term thinking across everything they do between the investor base and the physical environment that they’re in, the city that they’re in. I think all of those things contribute to keeping that long time horizon, keeping the ability to think independently, and also not getting caught up in the noise. Those would be a couple of really important things.

[00:41:33] Robert Vinall: Sounds like living next to water is a very important factor.

[00:41:36] Joel Cohen: Definitely.

Great managers

[00:41:38] Robert Vinall: But if you’re based in London, please don’t take your investors to the Thames. Giorgia, you had a question?

[00:41:45] Giorgia: Hi, Joel, can I follow up on the topic of longevity? Can I ask what you’ve learned in terms of characteristics for those managers who are able to sustain a multi-decade track record for maybe others who are equally talented, but couldn’t give you that long runway to compound?

[00:42:04] Joel Cohen: Sure, yes. It’s a topic that we think a lot about. It’s striking just how few 20-plus-year amazing track records there are. We’ve always been very curious and introspective about why that might be. I think part of it is there’s just so much pressure to conform over time. So much pressure, even if you start out. With a different vision, there’s so much. Everyone expects you to evolve in a certain way and act as a big manager should. If you grow the scale of capital, you feel like you should do the things that other big firms have, you should have a bigger team and you should have a diversified LP base, and all these things that just kind of take you away from the unusual unconventional things that got you started and built the first 5 or 10 years of track record. I think that’s a big part of it.

If you do a good job and compound over the first 10 or 15 years even if you don’t raise a huge amount of money, the asset scale will grow a lot just by the beauty of compounding. And so, if you add to that, being willing to raise a lot of money, that the assets scale can grow quickly and that definitely hampers future returns.

If you do a good job and compound over the first 10 or 15 years even if you don’t raise a huge amount of money, the asset scale will grow a lot just by the beauty of compounding.

Joel Cohen

I think we also look for people who have motivations beyond just money. I think money can be a powerful motivator and we have respect for the power that it has. But I think people who at least have other motivations as well and really care about generating great returns are willing to do things that go against the short-term pocketbook for the ability to generate long-term returns. We have a lot of respect for that and appreciation for that. But it almost takes a crazy person to do that, to resist those pressures and resist the desire to raise larger amounts of money and build this great generational firm and do all the things that other people do when they grow big. You have to kind of be a little bit crazy to keep that unconventional bent and to keep focusing on returns. I think that just makes it a really rare thing for lots of different reasons. Yes. Those are a few thoughts there.

[00:44:20] Robert Vinall: Were some we’ve got time for one final question.

The decision process

[00:44:24] Florian: I’m Florian from Hamburg. Just a question on your decision process. I suppose it’s probably a quantity process and a quality process. And you probably have sort of a score card and some numbers that you finally derive from a manager. But I was wondering how much it is like a score a quantitative approach to get the gut feeling you have on him to find his side?

[00:44:54] Joel Cohen: I think it’s a very qualitative process. I think there are quantitative things that matter, but we don’t spend a massive amount of time slicing and dicing a track record or numbers or anything like that. There aren’t really statistics necessarily that tell us that someone’s a great investor. I think it’s more qualitative than that. I don’t necessarily think it’s a gut feeling, either. I think there’s a lot of reason and thinking that goes into it. But it tends to be a qualitative sense of what someone’s trying to accomplish, how well they’ve set up their organization to accomplish those goals, and what are their real motivations? How thoughtful is the research process? are there things that they and do that strike us is kind of unusual and really interesting? Tends to be a very qualitative process that’s just sitting across the table from someone or across zoom, unfortunately, some of the time and getting a sense for what they’re doing and how unusual it is and how that compares to all the other people that we’ve met and whether they might have some sort of competitive advantage or an edge and doing it.

There aren’t really statistics necessarily that tell us that someone’s a great investor.

Changing the underwriting process

[00:46:03] Robert Vinall: We’ve got time for one more final question.

[00:46:07] Sophia: Thank you. Sophia from Boston or Cambridge actually. My question is about how you underwrite change. How common is it that the person that you’re underwriting undergoes some type of change? Whether it’s like an investment philosophy or any other characteristic that when you underwrote them, that was super important? And how do you kind of deal with it when that instance happens? Thank you.

[00:46:37] Joel Cohen: Sure. Yes, it’s a really interesting question. Because I think the other reason why there aren’t as many 25-year track records is that people often don’t evolve in a thoughtful way along with the market environment. And I think a lot of the best firms that we work with, and that we’ve observed over time have evolved in some thoughtful way. And I think that’s probably part of why having a great LP base is really important. Because if you have LPs that take the view, I hired you to invest in small companies, or I hired you to invest in Europe, or what have you. And suddenly you decide the best opportunity is not in German small-cap companies, but maybe American tech companies, maybe to use an example. That might be where the best opportunity is and where the most, the best long-term returns are to be had.

So, you want people to not feel constrained necessarily by what they’ve done in the past and to go where the best opportunities are and to evolve. But at the same time, you have to monitor if people are doing something different from what you expected. You have to kind of do some work and figure out if you like the direction that people are headed in. And so you need LPs who don’t put you in a box necessarily, and who are open-minded and thoughtful about what evolution might happen. But yes, absolutely. We see people evolve over time.

[00:47:56] Robert Vinall: Great. Joel, this has been so much fun. Thank you so much for coming and being such a great participant in this event and helping so many people. Hope to see you back next year.

[00:48:07] Joel Cohen: My pleasure. Thank you.

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Tilman is a very enthusiastic, long-term investor. Over the last years he has taught himself important investing concepts autodidactically. He tries to combine a positive climate and environmental impact with his investments.
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