What are challenges of Emerging Managers?

What are the challenges of Emerging Managers? On this panel Rom Wilson of ACM Capital Management, Txomin Zaratiegui Osés of Arlas Capital and Pratyush Rastogi of Farrer Wealth Advisors are discussing their journey of building an investment firm in different geographies.

As a service for our readers, we are sharing the transcripts of the RV Capital meeting 2023 in Engelberg with you.


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[00:00:00] Rob Vinall: So it always amazes me how quickly the weekend flies by. I hope it feels the same for everybody else here, but I’m delighted to now have the final session which is always for me one of the highlights of the weekend. In the past years, we’ve always ha people who invest in funds coming up for this final panel discussion. We’ve had many family offices, endowments, and individual investors come up here. This year, we’re mixing things up a bit. We’ve got three fund managers who very recently started funds, so they can speak much more to the kind of challenges of getting started and all that kind of stuff. But I want to start with a big thank you, Txomin. This idea for this panel was Txomin’s. He pointed out to me that wouldn’t it be good to be able to ask the managers these types of questions. So Txomin, thank you very much for that.

[00:00:57] Txomin Zaratiegui Osés: My pleasure, Rob.

[00:01:06] Rob Vinall: So I’m going to start off asking you guys just a few quick questions just to kind of set the scene. But the focus of this session is for you guys, the emerging managers, to ask the questions which are top of mind for you. But before we start, I wanted to say a quick thank you. I’ve had two microphone assistants over this weekend. As you all know, so big round of applause for them, so there’s Olivia, Tommy. And Tommy has brought a friend along for the final session to provide him with some support. We got Valentine here.

Okay, so Txomin as this was your idea. I’m going to start with you. Would you mind to kick us off? I’m sure a lot of the people in the audience here won’t know you, who you are, what your background is, and the fund that you’ve started.

[00:02:13] Txomin Zaratiegui Osés: Okay. So my name is Txomin Zaratiegui. I am from Spain. I launched Aras Capital Fund four years and a half ago, my family is domiciled in the Netherlands and before launching my fund I worked for eight years for Gala Capital, which is a Spanish private equity company.

[00:02:34] Rob Vinall: And a few broad strokes about the fund and the way you invest, where you invest.

[00:02:36] Txomin Zaratiegui Osés: Yeah, so I invest in Europe, Canada and the US. I focus on quality companies that can dominate and each that I can understand that I think is attractive and that they can serve with good returns on capital and measure a pricing power that I can access. So and ideally with low capital intensity.

[00:03:04] Rob Vinall: Okay, perfect. Pratyush, would you like to go next?

[00:03:07] Pratyush Rastogi: Hi, everyone, my name is Pratyush Rastogi. I’m based out of Singapore. I run Farrah Wealth advisors. We’re an asset manager that manages money for high-net-worth individuals and family offices. We have a few solutions, but our main one is our flagship fund where we invest in concentrated equity all around the world. We have about 15 positions. Generally, we look at companies that are growing market share and markets that are growing. I’m also the genius who walked up the hill with all this luggage instead of taking the lift up so take everything I say with a pinch of salt today.

[00:03:43] Rob Vinall: That’s a good hint next year to point out there is. An elevator that goes up the hotel here. Oh, I forgot to say one thing right at the beginning. Why these three gentlemen? All three of you are relatively new to me. The reason I chose you is that from our interaction so far, I’ve enjoyed them enormously. You’ve recently started, so I think your experience is much more relevant to the group than an old folk like me. I almost can’t remember it was so far back when I got started. And thirdly, each of you is from a different sort of region of the world. So we have Txomin which I’ve got you as the sort of the European fund manager, so people with questions more around sort of European structures and European regulation and all kinds of stuff. Txomin is the ideal person for that and then Pratyush is based in Singapore so can speak to Asia. Obviously, less familiar with that, but I’m sure that’s much better. And Rom, who is based in the US and can speak to the kind of North American market, Okay? So Rom, would you like to introduce yourself?

[00:04:51] Rom Wilson: Yeah. Well, first of all, thank you to everyone for taking the time and listen to what we have to say and Rob for organising this great event. I found the past events to be very educational resources. That’s a great public service for emerging managers like us. In terms of a little bit about myself. My name is Rom Wilson. I run a small fund called the ACM Capital, based out of Boston. We primarily do global developed equities. My background is in M&A and so I was the idiotic associate who was raising his hand to work on European and Japanese transactions currently. So I’ve always enjoyed sort of having a little bit more of a global perspective and also had a bit of time working in infrastructure in China. So that’s the way we’ve invested, concentrated, probably like many of the folks in here and peers on the stage and Rob and other than that I think the other thing is a little bit of a restructuring background as well, so tend to look at companies a little bit more holistically, both on the equity and the debt side before investing, so that’s a little bit about us.

[00:05:55] Rob Vinall: So happy to invest across the whole capital structure.

[00:05:58] Rom Wilson: You know, we actually did that a lot more in the beginning. We found some great debt with equity-like returns. Whether it was for example AMD or Micron debt maybe five or six years ago, I found, as we’ve scaled, we’re starting to attract more institutional clients like endowments and foundations. They don’t want the complexity of that, so we don’t do that as much anymore, probably purely concentrated equity at this point.

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And now, without further ado, enjoy the conversation.

How did it start?

[00:06:24] Rob Vinall: Okay, so the question which will be top of mind for everybody, so I’ll ask it straight off the bat is how do you get started? Every aspiring farm manager has this chicken and egg dilemma that without a track record you can’t attract capital. But without capital, you can’t start building a track record. So maybe starting with you, Txomin, how did you solve that chicken and egg dilemma?

[00:06:47] Txomin Zaratiegui Osés: Okay, so in my case, I found my sitting that this like the one question that everybody every emerging manager wants to ask. So how do you find the first capital that is going to invest is going to see your fund, so in my case–

[00:06:58] Rob Vinall: Maybe just a tiny bit slower. With the Spanish accent, it’s maybe a little bit different.

[00:07:00] Txomin Zaratiegui Osés: Okay, so in my case, I knew a family from the Middle East. I was very good friends with the son before they invested in my fund, I had known them for 8 years before, and we had almost one decade to speak about life investments, their business, my own business, and my working private equity before and especially in the years before launching my fund public equities, right when I started, I will tell you later about this, but I think that it’s very important that you guys start investing early and showing some kind of building some kind of track record that you can explain to others. I cannot state how important this is. So by the time, I told them I am thinking about quitting my job in private equity and launching my own funds to invest in public equities I didn’t need to ask them, they said. Well, we will seed you and that was the very first source of capital that they had.

[00:08:03] Rob Vinall: And I think that’s how Buffett and many of us started is having someone whom to support you and who’s willing to believe in you.

[00:08:11] Txomin Zaratiegui Osés: Yeah, so an idea for the audience if you want to launch a fund and you are, and that’s probably one of the reasons why some of you are here was that was the reason why I came here the first time. Probably you already know the investors that are going to suit you. So think about it.

[00:08:32] Rob Vinall: Thank you and Pratyush?

[00:08:35] Pratyush Rastogi: Yeah, I think before the how, it’s important to think about why you want to start a fund and that leads to the how, and this might be slightly controversial to say, but you going to think about why you want to start a fund and there are 10,000 plus funds across the world, does the world need 10,000 and first fund? So there are many good answers for starting a fund, but it’s usually either trying to solve a particular problem for a group of investors, or a client base, or there’s a particular niche of investing that you have that you look at.

And in my case, that was important because my clients who originally started with me came to me because they were having a problem. In Singapore, most wealthy individuals and family offices are backed by private banks and that causes a lot of issues because of the way private banks are incentivized and structured, I won’t go into all the details there, but obviously, we aren’t very happy with the service they were getting. So they came to me, and these are people I knew to say, can you help us build something better and help us invest our capital?

So that was the why is solving that problem for my client base and then that led to the how and how we actually started initially. Just as advisory and device is actually a pretty decent place to start to build confidence with the investor base, to build your own reputation, to build your own success, and it’s kind of low, it’s not a very big hurdle, right? Because people don’t have to invest money with you. They just listen to you and then they can decide on their own. So that was a great way to start. We started with that for the first year and a half and then we launch the actual fund in July 2021 and all those customers whom I was advising came onto the fund.

[00:10:17] Rob Vinall: Fantastic. Yeah. And then Rom?

[00:10:19] Rom Wilson: Great. No, thank you. So my how and why are a little bit different, but I would agree with the framework. I mean, mine is a little bit unconventional, which is I followed my wife to Boston. She placed it at Boston Children’s and Harvard for post-op studies. Tough thing to say no to your partner. So it was my turn to move for her and I was excited about it because I think her second choice was in North Carolina, which would also be a great place to live, but a much smaller financial services industry. So I was excited about Boston, but I think one thing that even long-running Bostonians will sell you, it’s a very networked city. It’s a very insider city and when I moved there I knew one person, a classmate from college.

So actually, the way that we got started is I was approaching the job search there and encountering a little bit of resistance despite being a great academic background and a great track record of just sort of breaking into that. There’s a very good friend of mine, a classmate from Stanford who was my freshman dorm mate and I’ve gone to know him and his mom and dad and his sister. The entire family and were just sort of catching up about life experience and he called me back a few weeks later and said, hey my dad always thought that you’d make a great entrepreneur. They’ve been serial entrepreneurs in the healthcare business and we’re in the process of setting up a family office.

He said if we gave you a few million to start like would you give it a shot? And I, I mean, I think part of the decision, in addition to knowing me, is that there it’s a Chinese-American family and they have their own struggles in the ‘70s and ‘80s of breaking into the healthcare industry and getting something started. So I guess my how was this very modest, I mean, a huge offer for them and for me but modest in the grand scheme of asset management. But thinking about it for a month or so with my wife and I’m like, well, maybe, opportunity knocking doesn’t look like $500 million on day one. Maybe this is what it looks like, and then we kind of went through the thought exercise of I do love investing. I do think at some point I did want to start something of my own and we sort of did this exercise one night where we thought about every five years. And it’s like, Okay, well will it be better to do this five years from now? And it’s like, well, five years from now. Maybe you’re on to families or you have children who have their own balance sheets. Basically, the best time to start it with either now and at the time I was 35 or when I was 65 and I’m not sure if I’ll be around and have the energy when I was 65, so that was the genesis of it and since then I think like these gentlemen up here, we found some great high net worth individuals, family offices and endowments and foundations who’ve come on board and helped scale.

[00:13:03] Rob Vinall: That’s fantastic. One last question from me, and then I’ll hand it over to the audience. There’s the chicken and the egg structure problem which you have to resolve as a manager, to begin with, but there’s also the whole kind of morass of legal and regulation without going too deep into the weeds. Can you just describe perhaps the legal structure you went for? And perhaps what the considerations were behind that decision?

[00:13:30] Txomin Zaratiegui Osés: Okay, I’ll try to be brief, but I am European.

[00:13:36] Rob Vinall: No, it’s a huge question. If you just set the framework, what is the legal structure and then people can dive in if they want to.

[00:13:40] Txomin Zaratiegui Osés: Yes, so there are three drivers for the Europe structure. In my case, I wanted to self-limit myself to European structures because even if my seed investor came from the Middle East, they are sophisticated and they have had investments in Europe before. I expect that in the future, most of my investors will come from Europe. So in Europe there are two key frameworks for fund management. One of them is the usage format that is similar to the mutual funds that are very diversified and then the other framework is the AFMC or hedge fund framework and whatever that is not a use, it is a hedge fund in Europe and there you can fit funds like Rob and mine private equity funds, real estate funds, and even funds that invest in art. So we think the hedge fund I wanted… Sorry, I mentioned before the three factors, but I didn’t tell them the three. They are, one of them is the investment strategy that you have, and how much you want to diversify. That is a big determinant.

The other one is the origin of your investors. That also determines the jurisdiction where you want to launch, and then the third one is. And the third one is the size of your investment. So if you have, if you are agnostic regarding diversification. If you have more than 20 million and if your investors are coming from all over the world, you have many good options to launch a fund. If you start, like me, with only €1.1 million in AUM, and you want to be concentrated, I mean the number of choices that you have is like three in Europe.

So in my case, I thought okay, given that I want to concentrate that my investors are going to come mostly from Europe. And my running cost should be very low because I only have 1.1 million in AUM for basically the three years this year that they could choose from where Malta, the Netherlands, and also some special vehicles in Luxembourg. And then they chose the Netherlands because I just found a partner that I thought back then while these guys seem legit, they seem to be consistent. They are sophisticated and all enough to onboard investors from all over the world. So that’s why I chose them.

[00:16:04] Rob Vinall: Perfect. Thank you. Pratyush?

[00:16:07] Pratyush Rastogi: So we run through an SMA structure and the obvious thing that people think about when SMA structure is why they start like that is because the costs are low and Jacob and the last talk talked about this. But there are two important things through why I think I’m a big fund of starting with SMA’s when you’re just getting started and there’s–

[00:16:24] Rob Vinall: So just to be clear, what is an SMA?

[00:16:24] Pratyush Rastogi: Oh, sorry, sorry. Separately managed accounts so the account is in your client’s name. They can see all their assets, you’re just basically executing on their accounts. There are two buckets of trust that I think it builds. One is with your clients. They can log in and see their own money. They can see all the trades you’ve made, and it basically makes sure you’re not the next made-off. And it builds a lot of trusts initially. It also builds trust, in my case with the regulator, the regulator is a lot easier– Sorry, I won’t say easier but it’s easier to get approved when you’re not customising your own assets when you’re not the one actually touching the money, and if it’s in the client’s accounts and it’s with already an established broker custodian, then they’re a little easier to get your regulatory aspect approved. So it’s trust with both your clients and the trust with the regulator. And so I think SMA’s worked out well for us and I’m quite a big fan of it. Starting when you initially start, there are also issues when you scale and things like that, but a good place to start.

[00:17:25] Rob Vinall: I think the SMA route is a great route to go down if you kind of want to keep cost low has lower regulation and also maybe when you haven’t quite established your reputation yet. It probably gives the client a little bit of extra comfort that the assets remain in their names, so it seems to me a great route to go down. Rom, what about you?

[00:17:45] Rom Wilson: Yeah, great, so I also think the SMA is a great structure to start. I did not start with it for different reasons. I think once I got the opportunity as I explained to you guys, I’ve always taken research very seriously. You know, I was the idiot who read through the entire college handbook of every course while choosing professors or whatnot. So one thing I did, because it takes a few months to get set up, is I just interviewed every single investment manager slash founder who will sit down with me and that ranged from the guys who started funds that were two to five million, all the way to some luminaries who gave me some an hour 30 minutes of their time to talk about their early experiences two or three decades before.

I think one thing I decided early on is I wanted to be ahead of whatever stage of development we needed to be for like the next step. There was one person, in particular, who was the CFO of, like an $8 billion fund and he recommended strongly going the onshore fund route so we don’t have like a master-feeder structure. Just go in the onshore fund route because he basically said at the point that you’re looking to get endowment and foundation investors there. Many of them are going to want that structure and you don’t want to be taking months to build that in order to get the investment in.

So we did that very early as well as we didn’t talk about service providers, but one thing I would encourage emerging managers to do is. I mean, you’re now a business owner, so put your negotiating hat on and see what deals you can make. So we were able to get, we didn’t get the gold-plated ones, but were happy to start with the bronze-plated ones and develop our process. And I think one of the pitches I made to our service providers is that like look, this is our base. This is what it can support, right? I didn’t want the additional stress of leveraging my entire personal life, but the promise that I made them is that like at these different asset thresholds, we will step you up immediately and we’ll– let’s say, for example with some of our service providers will find a way to do catch ups, either by getting additional services from you or whatnot. So we’re able to start with a pretty full suite of good legal advisors, good accountants, and good third-party admin and have more of a scalable structure from the beginning.

[00:20:04] Rob Vinall: Service providers are obviously also a big topic area, but I’ll leave that to the audience if that’s a path they want to take the conversation down. So I’m going to take two of the microphones away here and then you can just pass the microphones amongst yourself and pass them to my assistants. And yeah, if you have a question, I’m sure two young men will be very excited to give you the microphone. One at the front here.

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Managing trade-off between marketing and doing research

[00:20:38] Speaker 5: Hi, thanks for your time. Questions on how you manage the trade-off between marketing and doing research, especially when your subscale early on in your life.

[00:20:50] Rob Vinall: Txomin, do you want to go first?

[00:20:54] Txomin Zaratiegui Osés: So in my case, the minimise means low-cost funds like mine. They are extremely restricted in how much marketing you can do, okay? So basically a fund like mine can only that’s one of the trade-offs that I had to accept, but my fund can only be sold under the reverse solicitation, which means that I cannot cold call anyone or I can go on social media explaining my returns. The challenge that I need to solve is that people need to hear about my fund from ear to mouth. Go to my website register and once I have an e-mail with a time stamp that this person that they requested information then I can open my letters and send my fancy information. So I could post openly ideas or investment ideas, or I could speak about my portfolio management strategy, but there is a thin red line that I cannot cross, so in brief my marketing is very restricted. I cannot proactively market the fan, but I have created some letters that I hope that they are of interest to investors. And once you have this and you have a track recording in which the investors can infer from the letters how you are going to behave, that is the kind of marketing that I can do.

[00:22:17] Rob Vinall: And I think that could be a blessing in disguise as it allows the right investors to find you rather than you are going trying to find the needle in the haystack out there.

[00:22:24] Txomin Zaratiegui Osés: Yeah. I agree with that. I think that there are some factors in how you build your structure that help your investors self-selecting to reach you. Another one is the kind of fee structure that you have because with that you can point a little bit on your intentions.

[00:22:43] Rob Vinall: Thank you.

[00:22:43] Txomin Zaratiegui Osés: Perfect potential question for the audience.

[00:22:47] Pratyush Rastogi: So thank you for asking that question. I think it’s an important question because it also highlights that you have to remember you’re also running a business. You can say is just a fund, but it is a business and so marketing is an important aspect of it. So I think the way I think about it and your question is how do you deal with the trade-off between research and marketing because it does take time, so the way I think about it is my marketing is an extension of my research, so I’ll give an example. So I write a blog on a monthly basis and most of it it’s about anything I’ve been interested in over the month whether it’s a company or thinking about markets or thinking about a particular way of investing, and I’m already thinking about it, and it’s already part of my process and it’s something that’s helping me in my business and investing, so I might as well just write it up and see if anybody else finds it interesting. So that leads to a lot of conversations and or some conversations. and then people come to you. And then like I think everybody’s mentioned Rob, Rob does this wonderfully. You have to write letters anyway because your clients going to read them. And if you can regulatory permitting put those publicly then people can read them and find you as well so. It is. It is a task that you have to do but you can also make it so that it’s not a completely separate test. It’s just an extension of your research in your own work that make sense.

[00:24:02] Rob Vinall: What’s the name of the blog? I’m sure, everyone would love to sign up.

[00:24:07] Pratyush Rastogi: It very well fits. It’s just the blog on our site, but it’s our biweekly glass and I need to change it because we do it monthly now you can go to our website and it’s the subtext link is there.

[00:24:20] Rob Vinall: Tilman, maybe you can try and add that to the notes if you can. That would be fantastic so people can see it.

[00:24:26] Rom Wilson: Awesome, so I guess generally about marketing to share a little bit about our journey. I mean, in the first year I was like very purist about it and it was a good thing actually. I think some of those luminaries that I mentioned were just like don’t spend any of your time marketing and so first year or two, I was like, okay, just very disciplined about not spending more than like 10% of my time doing any marketing and that was good, right, because there’s a lot of pay to bail per se. There’s a lot of wood to chop in terms of getting your process right and getting your operations right, and everything like that.

I think that a mentor, an investor and one of our supporters. You know, I remember having a meeting with him and it’s one of those things that it’s not so profound when you lace the words out, but it was profound at the moment and he basically said, Rom, anyone who’s going to invest with you at this point already knows you. And or is in a position to take a risk, right? And that sort of crystallised some of the successes were having, and he actually introduced us to a few institutions and lo and behold, one of our first institutional investments came from a founder who was exactly in that position. They founded a $12 billion allocator and they didn’t look around and worry about whether they would lose their job or anything like that. They put us through a rigorous due diligence process and invested.

So I think the takeaways are to be mindful about how much time you spend marketing. Be mindful about whether you’re actually spending time with people who can allocate at your stage of development and then I guess maybe just one thing to say on the regulatory side since it was brought up. You know, I think that that’s particularly important from the beginning. Like we’re registered with our state regulator because we’re not large enough to be registered with the SECs yet but I think as part of that they put us through a very rigorous process where they’re looking back on everything that we did. So even from day one, you have to be careful about making sure, at least within the North American regime or the US regime that you’re speaking to credited investors like you’re documenting this well. Your third-party admin is documenting that very well so that becomes very important.

[00:26:43] Rob Vinall: Awesome, thank you. There’s a question there at the back, Michael.

Management versus performance fee

[00:26:55] Speaker 6: Hi, thanks for taking my question. So you have been explaining how you have your first investor, how you market, how you set up regulation and how you all do this. But can you also talk about the management versus performance fee and how you think about deciding on one or the other, or both in what mixture? Thank you.

[00:27:14] Txomin Zaratiegui Osés: Okay, so I think that like all of us here we have, I have, I was very inspired by Warren Buffett. I like the fee structure that he has in his first policy of 25 / 6% hurdle compounding. So when I launched my fund that’s that was the structure that I had, right?

[00:27:40] Rob Vinall: You copied the Berkshire publisher.

[00:27:43] Txomin Zaratiegui Osés: I copied this one. I must say that I thought that this is the fairest and I still think in the long term it is. But in my case, I think that I underestimated how difficult this is when you have some rough years. So when my fund was three years older, returns in the first six months were not great, but the two years after they were much better and when I thought about, okay, now I’m going to enter stage two of the fund, I am going to increase the capital base of the fund to admit more investors than other than my city investors. How is this going to evolve? And then what I said, okay instead of having my A class of shares, I’m going to lunch now a big class of shares and the remuneration still it is going to be 25/6 but I could charge up to 1% up to necessarily 1% up to 1% of the management fee that I take this management fee as an upfront payment of the performance fee.

So that means that if I have two years in which, let’s make an imaginary case, I have two years in which I am making no performance fee. I need to have some money to finance my own expenses. Then I’m going to charge. Let’s say not 1% but 30 basic points because that’s what I need to break even. But whatever they charge to that investor is going to be taken out of the out of the future performance fee. So in the long term, it is a pure performance fee.

That is one class of fee and then I have two other fees that help investors self-selecting themselves. So one of my obsessions was to have stable capital. So I said, Okay I’m going to have two more fees that are not going to be for my profit. They are going to be for the profit of all the investors in the fund, and one of them is okay if you invest today and you want to redeem tomorrow, you have to pay 3%. And this 3% goes down by 8 basis points every month. So in three years, this disappears. And the other one is okay, it’s up to 1% if you want to redeem outside of two liquidity windows every year, so that helps me. You know, whenever I explain that to an investor and the investors as well, I want to have monthly liquidity and I want to rebalance every year. These investors automatically select themselves out of the fund.

[00:30:24] Rob Vinall: That’s a great idea. Yeah, awesome.

[00:30:29] Pratyush Rastogi: Yeah, I don’t know if I have a great answer about how exactly you should figure out the fees. For me, it was very much a conversation with my client base and what was fair on both ends. So we have a management fee which is about 1% and it was just enough for me to kind of cover expenses and make sure I could feed my family. And then we have a performance fee and this is where different people have different ideas. Our performance fees are what we earn over the benchmark. And benchmark is the All-World Index and for me, my thinking of why I thought that was fair is because if my clients aren’t going to invest in me, their simple alternative is just to buy BTF, and if I’m not at least giving them better returns than that. Then why do they need me, right? So I feel like once I’ve given you at least that threshold, then I can take a performance fee and my clients felt that was fair as well, but it’s a good question and I don’t know if I have any sort of recipe or thing and I think it’s important that you do think about it and your LP base or your investor base is also on board with that and also thinks it’s fair.

[00:31:44] Rob Vinall: Yeah, I think that’s a great point. I don’t think there’s a cookie-cutter approach. One size fit all. It has to work for the manager and also of course has to work for the clients.

[00:31:52] Rom Wilson: Yeah, so I think like many folks in the room, I too am a great fan of Buffett and Munger and when I was approached with this opportunity and thinking of structuring it, I was thinking about structuring it in the vein of the Buffett Partnership as well. You know, starting with like a 1% fee and I would always joke. I think actually, maybe I’m wrong and someone here can correct me if I am. I think they actually started with like the zero like management and it was all performance on the above the partnership or whatnot and I would always joke with folks but Warren was also, I believe his dad was a senator or what? My dad is not a senator.

But anyway, so when we launched, we launched with like a 1% management fee and it was purely mathematical, right? It was like we were launching with a few million. Here’s what it translates into. I made the commitment to the family I think I basically put about 80% of my net worth into ACM either investing alongside them or basically sponsoring the operating costs in excess of the management fee for at least three years. That was the commitment that I made. So we started out with that fee structure, but honestly, I would love overtime to get to zero and whatever. Maybe at a point of independent wealth.

And so I think the commitment we also made is that we would step down the management fees we scaled, and we stepped it down once very early on to 85 and once we got our first large institutional investment. I think that that’s something that will continue to do if we hit these different scales that allow us to do that. In terms of structuring the performance fee. You know, I sat down with one of these industry luminaries who’s highly well regarding the allocation. And they’re like, well, the Buffett Partnership seems great, but it’s a bit anachronistic. I think everyone wants kind of a transparent relative hurdle that they can judge you by. So we took that to the family and asked them what they wanted.

So in the beginning we launched with management fee and a hurdle versus the MSCI world is a relative hurdle. But different investors have different preferences. Actually, there are many of our investments who prefer the fixed hurdle. So long story short, we have both. It doesn’t affect my investment style at all like I don’t try to maximise the fixed hurdle. I don’t try to maximise the MSCI hurdle. Basically, we’re looking for the best 15 to 20 ideas we can find. And I just make sure the clients are educated because everyone thinks they’re getting some super great deal. But I just want you to know that if you’re doing the fixed hurdle that has been years where we’ve massively outperformed and you’ll pay performance, then if you’re doing relative hurdle, there’ll be years where the markets down and we’re down less you’re paying. So just client education around that is very important, but I find that client preferences for that are highly diverse and we try to give them a choice in terms of how they pay for performance and we try to give them a commitment in terms of like look, we too want the management fee to go down as we scale.

[00:34:51] Rob Vinall: Yeah, I think Ron. Why don’t you keep the microphone so you’re not always going unintelligible? The next question, you go first, but I was just going to say I think it’s a great point that they’re the fee structure has to work for the manager as well, and if you’re not independently wealthy then you have to have a game plan. You know, because markets can go against you for very long periods of time and if you’ve got a 0% management fee you need to have a game plan for that.

[00:35:13] Rom Wilson: Oh, absolutely. And I think the other thing I do; I think feeding ourselves and our families is eminently important. And I throw that out as number one, but maybe a close second. I mean, I just talked to people about the resources of this business, right? Like you need a budget to go and visit companies or their competitors to actually kick the tyre. Like you need a budget to afford better services. You know, like a big thing of the last few years and this an interesting segue. It should be. It should be a big thing for all emerging managers to think about your cyber plan, right? Because there are certain things that can maybe kill you reputationally before you even get out the gate, right?

[00:35:52] Rob Vinall: Like cyber-attack or…?

[00:35:53] Rom Wilson: Cyber security, right? So like these things, there aren’t free cybersecurity firms or just out there advising and hardening for nothing, right? So, all of these require a decent budget to afford that client protection and to afford the research that could enable the perspective of our performance.

[00:36:12] Rob Vinall: Got it. Thank you. Who wants to go next? Oh, we got a question from the Internet. Nate?

Book recommendation

[00:36:17] Nate: Question from the Internet. We’re going to challenge everybody. Do you have one book you might recommend that helps you think about becoming a fund manager? And if not that perhaps just one book that you’d recommend regardless, and maybe not a Buffet book, given how much Buffett we’ve done today or it could be a Buffet book.

[00:36:37] Rom Wilson: Yeah. The challenge of the book recommendation, I’m going to recommend one of the classics. Sorry guys because it might take away one of your recommendations.

[00:36:47] Rob Vinall: It was a good one to have the microphone first.

[00:36:48] Rom Wilson: Yeah. This one benefit. I guess for me, probably be the Graham and Dodd and Investing Bible and the reason I would recommend that is that I reread it every 10 years or so. I mean, you don’t have to do that but the reason I do reread it every 10 years ago. So it’s like the first time I read it, I think I was like 24, 25 in business school, I may be understood like 50% of it and then like when I was 34 or 35 was like this could be interesting to revisit and I understood a lot more and there’s a lot of like there’s a lot of hidden gems. The structures of the market may not be the same. The security types may not be the same. The risks or the crisis may not be the same. But I think a lot of the learnings around how to approach situations, value them, and the psychology of like managing through them is important.

I guess without outing her too much and revealing her identity. My wife is also a psychologist, right? So we have like a lot of conversations about that. I think the psychology of the business is and I don’t have a recommendation on the book there. I don’t think that there’s a good book written about the– I mean there are good books to talk about the psychology of investment management, but sometimes I read some of her books to just understand like psychological biases, and I think that that’s an important part of being an investment manager.

I think particularly kind of knowing what your own biases are, I think through the environment of last year I spent quite a bit of time speaking with like our analyst about basically how sometimes when you’re winning, you’re losing, and sometimes when you’re losing you’re winning. You know, like and just that general sentiment of kind of the risk appetites you have when everything is going your way. A little bit of maybe I’m a genius to this investing thing creeps in when you’re having like a good run and just sort of managing that. So I would recommend in addition to all the tones and bibles about investing maybe people pick up a book or two about just psychology in general and managing the mind.

[00:38:47] Rob Vinall: Awesome. Thank you.

[00:38:49] Pratyush Rastogi: So I don’t know if I have a book on reading about becoming a fund manager per se, but I think it is an entrepreneurial journey you’re going on. So I think there are a lot of great entrepreneurial books and the one that always comes to mind is a Shoe Dog by Phil Knight. It’s a great book if you haven’t read it. It’s highly recommended based on the founding of Nike. Not what I’m saying I’m trying to build the next Nike or anything like that, but there’s a lot in that book that describes the entrepreneur journey well, the highs, the lows, the near-death experiences. And you can relate to kind of the good things that happen, the high stresses that happen.

I’ll give you an example, for a lot of fun managers, 2022 is a very hard year. A lot of people were down and it’s a triple whammy, right? Your client says it’s coming off. That means your revenues coming off. If you have percentage management plus your personal net worth. Because you’re investing alongside your clients is also hurting, and so they’re hard months in there and books like that, just you read them and you realise everybody goes through them. Everybody goes through difficult times and you just kind of have to work past it. So I think any book, good books on entrepreneurial journeys are highly recommended and that one if you haven’t read it, I would very much recommend it.

[00:40:01] Txomin Zaratiegui Osés: I am going to follow your style of recommendation. It’s not a book about investment, it’s a book about entrepreneurship. The book is called The Start-up of You, and if I remember well, it was written by Reid Hoffman who was the founder of LinkedIn. What was definitory for me launching my own fund was a process that lasted about two years, in which, besides having, of course, my day job in private equity, I started thinking increasingly seriously about launching my own fund. So what I did in these two years is to interview as many emerging managers as I could, one of them is sitting in this room is Mr Mathias Richard, who was here sitting before and so I was in touch with Mathias. I sat down with Mathias to understand a little bit about why he did it, how he did it, et cetera. So to answer the kind of questions that you guys are answering today, this book, The Start-up of You is a book that helps you think about yourself. Who is yourself? What are your resources? What are your strengths? How can you balance your weaknesses, and how do you leverage yourself to become an asset manager?

[00:41:18] Rob Vinall: Awesome, awesome. If I can throw in as well, a recommendation specifically on how to structure a fund, it would probably be Portfolio Management by David Swenson where he talks about the kind of the pitfalls and all that kind of stuff. Any more from the Internet or should we go back to the room? Okay, there’s a microphone there. Yunus?

Track performance, confidence, and own money to put in funds

[00:41:37] Yunus: Three questions. Number one, how many years did you track your performance before starting your own fund? Second, what gives you the confidence of delivering value compared to 10,000 other fund managers and number three, how much of your own money did you put into your own funds?

[00:41:57] Pratyush Rastogi: So the first question is, how long did you your track record? Right?

[00:42:01] Yunus: How many years before you studied on fund did you track your own record?

[00:42:05] Pratyush Rastogi: Okay. Second?

[00:42:06] Yunus: What makes you confident?

[00:42:09] Pratyush Rastogi: No, I’m just trying to see if I can answer them all at once. It was efficient, but you can’t. So okay, so the track record question. So mine is about five years. So, okay, as I said, I started with advisory first and before that, I was working for a family office itself. So I had a record from there. So that’s how I tracked and then and by the time we launched the fund, it was about five years.

[00:42:34] Txomin Zaratiegui Osés: So first question, in my case, I made a mistake and the mistake was that given that when I started seriously investing in public equities, I was between living in two different places that were Dubai and Madrid. I have different accounts with different banks and my investments were fragmented between were divided between accounts.

[00:42:56] Rob Vinall: So, but just broadly, how many years were you investing before this?

[00:42:59] Txomin Zaratiegui Osés: So I realised that that was a mistake. What I strongly recommend to everyone wanting to be about track records that you develop, is two years of track record as I did in an accounting Interactive Brokers, Interactive Brokers is going to give you great tools to show your track record and your relative performance, etcetera. It’s very sophisticated for what you can do with a regular account, so I did that for two years and that was enough for me to convince some investors to invest in my fund.

[00:43:25] Rob Vinall: Got it. Thank you.

[00:43:28] Rom Wilson: Yeah, so just quickly like I was doing investment banking before I was investing my own PA there. Then I joined the buy side. You know, I had about five years of track record that I couldn’t port because of their rules around that from previous employers, but I could speak to and talk to investors. And then maybe just one quick book recommendation. That’s what I was looking up, Leadership in Turbulent Times, my father-in-law gave me Doris Kearns Goodwin. The reason I recommend that is as an emerging manager, your trip is not going to be up to the right. You’re going to have difficult years like last year and I think sort of unfortunately, there’s like a lot of mythoi, and the great people who have had like turbulent times, but there’s some useful advice there off of how to process those and find your footing and decide what you’re going to do next.

[00:44:18] Rob Vinall: Awesome, keep the microphone. You can go first this time. The second question, Yunus?

[00:44:23] Yunus: What makes you confident that you can deliver value?

[00:44:27] Rom Wilson: That’s a good question. I don’t know I’m going to answer it with a parable. So if you guys follow the Berkshire stuff, I think Charlie Munger has this funny story about someone coming to him asking how to be a composer of sonatas or something. Do you guys know what I’m talking about? And Mozart says you shouldn’t do it. You’re too old, you’re too young. And I think the person like in their late teens or something and they say, well, you were eight or nine when you were composing and Mozart says, yeah, well, but I wasn’t going around asking people to… It’s a very Charlie Munger story to tell and everyone can take away different things from it. I mean, I think the thing that I took away from it is if that person wanted to compose sonatas. It’s great to ask Mozart, but he wouldn’t have cared what Mozart said, right? Like if you feel a calling to do it, obviously, the track record helps. If you had some early success and you know that you can do it well, but I think the most difficult part of being an emerging manager is managing yourself, managing through an incredibly challenging journey to scale and to fight the literally five or six years into it. Probably thousands of nodes that you will receive. So yes, a track record can help, but you have to know that you want to do this and honestly, anyone else’s answer to that question won’t matter to you because you’ll feel like you have to do it like it’s part of your journey.

So yes, a track record can help, but you have to know that you want to do this and honestly, anyone else’s answer to that question won’t matter to you because you’ll feel like you have to do it like it’s part of your journey.

[00:45:56] Pratyush Rastogi: I am 100% confident. No.

[00:46:01] Rob Vinall: That’s what we like to hear.

[00:46:04] Pratyush Rastogi: Obviously, have to be confident, right? You can’t go into be like I’m not going to do very well otherwise, like what’s the point but I mean, there’s no guarantee that anything will happen, and I think the only thing you can do is work your butt off, earn every day you come into the office. Earn that confidence that those investors have put in you and do your best on that day and be self-reflective when you mess up. Figure out why you messed up and learn from that. Be open to all sorts of new knowledge and be open to all sorts of interesting ideas and learn from everybody. There’s all we can learn from everybody and yeah, and then kind of put in that effort and the outcome hopefully will happen.

Obviously, have to be confident, right? You can’t go into be like I’m not going to do very well otherwise, like what’s the point but I mean, there’s no guarantee that anything will happen, and I think the only thing you can do is work your butt off, earn every day you come into the office. Earn that confidence that those investors have put in you and do your best on that day and be self-reflective when you mess up. Figure out why you messed up and learn from that. Be open to all sorts of new knowledge and be open to all sorts of interesting ideas and learn from everybody. There’s all we can learn from everybody and yeah, and then kind of put in that effort and the outcome hopefully will happen.

[00:46:52] Txomin Zaratiegui Osés: I think this is a path that is not done for you. This a path that you have to work on yourself. And the price that you pay for walking this path is that you have one certainty and it’s not that you’re going to make very good returns. The one certainty that you have is that you are going to commit mistakes and I think that the way how I see other managers handling their mistakes and myself is one of the best proxies for the future success of this manager. So when you see someone that is honest about mistakes, and transparent about mistakes you can self-reflect and that can learn from this. I think that this is the way to assess that, not only yourself, that you are learning from it and that you deserve to be on this road, but also to even select other managers and the kind of friends whom you want to share your ideas with.

I think this is a path that is not done for you. This a path that you have to work on yourself. And the price that you pay for walking this path is that you have one certainty and it’s not that you’re going to make very good returns. The one certainty that you have is that you are going to commit mistakes and I think that the way how I see other managers handling their mistakes and myself is one of the best proxies for the future success of this manager. So when you see someone that is honest about mistakes, and transparent about mistakes you can self-reflect and that can learn from this. I think that this is the way to assess that, not only yourself, that you are learning from it and that you deserve to be on this road, but also to even select other managers and the kind of friends whom you want to share your ideas with.

[00:47:58] Rob Vinall: The third question was? Oh, did I miss you?

[00:48:02] Pratyush Rastogi: What was the third question?

[00:48:03] Yunus: Sorry, how much of your net worth is in your fund?

[00:48:05] Pratyush Rastogi: So not including the home that we live in, the liquid network is 90% and the other 10%, I actually personally invest in other managers, some of them who are in this room and so yeah, but 90%.

[00:48:21] Rom Wilson: Yeah, just quickly. I think maybe one other thing I dent at the last one is the confidence that you can learn from mistakes and make better decisions, right? Like I think accompanying that confidence is also a healthy dose of humility because you will mess up. So I think in terms of the question I think for me it was closer to 80%. And the reason for that is at the time my wife was like a graduate student doing incredibly noble work for very low pay. So like the 20% was reserved, so literally, we would have living expenses for three years and so that’s the way that I approached it.

[00:49:04] Txomin Zaratiegui Osés: My answer is very sorry, it’s about 90%. I rent a house. I wish I could buy one that could happen in the future.

[00:49:14] Rob Vinall: Probably time for a couple more questions.

Client communication

[00:49:15] Speaker 11: Hi, how do you handle client communication and how much of an educational part is in your job? We had many discussions this week around fund managers who, for example, cannot invest in China. And let’s say you find this great company in China and you go to your client. And he says, just no try again.

[00:49:41] Pratyush Rastogi: It’s a great question and I think you got to be very careful about the type of clients you bring on and if you bring on a client that has certain issues, are causing problems. That’s your issue for not vetting them well, and it’s not their fault, it’s just not the right product for them. So I have two types of clients. I have clients who have the time to invest, but not the ability because they’re good entrepreneurs but don’t do investing. And then I have clients who have the ability to invest but don’t have the time like they’re working for hedge funds or they’re the traders or doing things. And so those are the type of two that work well for me and uh, and yeah, obviously, on the former you have to do a little more education. On the latter, it’s a little easier, but the latter also asks harder questions sometimes, and then the former, but both types are great, I’m very thankful for both types of them. And yes, sorry, to answer your question, client education communication is constant. You’re constantly writing to them. You’re trying to explain why you’re investing the things and you should have good answers for the things you do because they deserve it.

[00:50:47] Txomin Zaratiegui Osés: I completely agree with your points, I will just add that. One thing that I have discovered is that client selection is extremely important, not because you want to have this kind of patient stable capital that is necessary for you in every moment, but especially in moments like 2022 when everything goes down. I only have one little redemption and he was one investor that after investing in the fund I just discovered that perhaps this product was inadequate for me and it’s as you said, it’s not his fault. It’s my fault.

So I see the onboarding process of clients and these in some cases years that you spend with them is something that is going to compound for you in the future. If you do it right, you are going to minimise your future headaches if you don’t do it well enough that is going to create some potential future headaches. That being said, I only have nine clients, so this is very easy for me. If I had 900 clients like some large funds have, this might be a different story. Take assumed when with my answer that this might work in my case because of my particular structure and number of clients.

[00:52:04] Rob Vinall: Thank you.

[00:52:06] Rom Wilson: Yeah, I mean, I think current and prospective client education is always important and then so this a great question. One of the first questions I ask people when they’re considering becoming prospective clients or meeting with them is I just say like, how do you want to be followed up with? It’s not because I lack the confidence to control that schedule myself. Some people want to be followed up with two or three times a year. Some people want to hear from us every quarter. And you don’t want any friends and get investors by becoming a nuisance or annoyance to them. So I think that very naturally leads to when they do become clients. Asking them again like how do you want to manage this? How do you want to be followed up with?

I think in a very general way, so we write quarterly letters. I’m a little bit jealous because ours are fairly detailed as well as the biannual but we write quarterly letters and I think it’s a good exercise to congeal our thinking and present it to current and prospective clients. We also have sort of an open door or an open zoom or open phone policy for any of our clients if they want to call us. We’ll talk about any positions in the book they’d like to talk about, and whatever depth they’d like to talk about it. And then the other thing is having gone through, 2020 and 2022 where you have these market dislocates, and more importantly, about the market dislocates we wrote this funny letter called the Feed which is just the way technology works. So like it’ll just constantly be feeding like a set of headlines, and kind of convinces everyone in the world is falling apart, but so when we see that happening, we do get more proactive in terms of reaching out and just saying, hey, you may not need it right like and you didn’t reach out to us, but like do you want to talk about what’s happening in the markets? And we’ll tell you how we’re thinking about it and give you some calm about what’s happening in the book.

[00:53:58] Rob Vinall: Awesome, probably time for one last question. Sorry about that, but there’s I think someone got a microphone at the back there.


[00:54:04] Speaker 8: Hi, my question would be in terms of software, what types of software do you use to support your investment process, to structure your portfolio or to also do research? And I don’t mean Excel or Teams, but maybe more sophisticated. I don’t know. Do you use Notion or Capital IQ axle plugin or whatever, right?

[00:54:29] Rob Vinall: Yeah, yeah, given that there’s a not super amount of time left and I think that could go into a lot of maybe just like a few, some of the best software you use, maybe one or two sentences on why you use it, and then if someone wants to dive deeper they can continue their conversation afterwards.

[00:54:42] Rom Wilson: I think there’s software that we use throughout the different functions in the business. But I think your question is more directed towards like research and I think like the previous speaker, I’ve always had a fairly fundamental get into the K’s and Q’s and we do that for the ecosystem around the companies we invest in. So we’ve always been oriented in that way. Software-wise, we use sort of the typical things that you would expect like FactSet and CapIQ but I think there’s a lot of we’re talking about psychology. There’s a lot of research about deeper learning occurring when we read from the page, right? And there are some sophisticated things you can do within, even though software in terms of setting up like quantitative screens that are driven by standard deviations are more complex formulas, but I think that that’s kind of the primary tool and we use some of the tools provided by our prime brokers and our different OMS’s and EMS’s.

[00:55:45] Pratyush Rastogi: Almost nothing. I’m very cheap. Honestly, kike we have a few things but if I need something I have a good network of other friends who are investors and if I need something from Bloomberg or CAPIQ or something that I can, I can usually get it from them. So yeah, I spend very little on software.

[00:56:04] Txomin Zaratiegui Osés: Yeah, you have a very similar case to you, as an emerging manager, I wish that I had discovered before that the software that has created the most value before launching my fund and after launching my fund is the software that is built into Interactive Brokers. So Interactive Brokers has some built-in tools to explain your performance, your ratios, your geographic distribution, sector distribution, et cetera, that are better than super expensive solutions from 15 or 20 years ago. So that’s something that I wish. And if you guys are thinking about launching my fan, let’s have a coffee later and I will tell you how much value this has created for me because this simplified things and make made my work, made my life easier.

[00:56:54] Rob Vinall: Thank you, I guess it’s appropriate you had the last word as you. It was your idea to do the panel today in this format. So thank you again for that. I know there are a few hands still up. I think all three of the speakers are still around for at least a few more hours, so feel free to approach them and ask them any questions you have and difficult to believe, but it’s already 12:00. The time has passed and all that remains for me now is just to close the conference and it’s been an enormous pleasure to host everyone. Once again, I think in my letter I described the way I think of my life. Probably think most people think of their lives as a movie. And in a movie, you have lots of different characters and potential interactions between them and that of course leads to plot lines and outcomes. And when I was very sick in the summer, one of the kinds of plot lines that interested me the most was to see how that was going to continue as this meeting. So I’m very delighted to be able to be here today to host it. I hope it continues for many, many more years and I hope to see many of you again in the future. So thank you very much.


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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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