Txomin Zaratiegui Osés, Pratyush Rastogi & Rom Wilson: What are the challenges of emerging managers?
- Txomin Zaratiegui Osés started Arlas Capital with only €1.1 million in AUM, seeded by a family he had known for 8 years (2023).
- Pratyush Rastogi advised clients for a year and a half before he launched the fund in July 2021. It holds about 15 positions (2023).
- Rom Wilson put about 80% of his net worth into ACM Capital when he started at 35 (2023).
- Txomin’s fund charges 25% over a 6% hurdle, like the Buffett Partnership, plus an exit fee of 3% that falls 8 basis points a month (2023).
- In his first year or two, Rom spent no more than 10% of his time on marketing (2023).
What do the three emerging managers invest in?
TL;DR: Txomin launched Arlas Capital four and a half years earlier, Pratyush runs about 15 positions from Singapore, Rom invests in global developed equities from Boston (2023).
TOTxomin Zaratiegui Osés [00:00:57] My pleasure, Rob.
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.
TOTxomin Zaratiegui Osés [00:02:13] Okay. So my name is Txomin Zaratiegui. I am from Spain. I launched Arlas 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.
TOTxomin Zaratiegui Osés [00:02:36] 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.
PRPratyush Rastogi [00:03:07] Hi, everyone, my name is Pratyush Rastogi. I’m based out of Singapore. I run Farrer 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.
How did the managers solve the chicken and egg problem?
TL;DR: Txomin knew his seed family for 8 years. Pratyush advised clients first and launched the fund in July 2021. A family office gave Rom a few million (2023).
Seed capital came from people who knew them for years
TOTxomin Zaratiegui Osés [00:06:47] 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…
TOTxomin Zaratiegui Osés [00:07:00] 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.
TOTxomin Zaratiegui Osés [00:08:11] 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.
PRPratyush Rastogi [00:08:35] 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.
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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.
What legal structure suits an emerging manager?
TL;DR: With 1.1 million euros, Txomin had about three choices in Europe and picked the Netherlands. Pratyush started with SMAs, Rom with an onshore fund (2023).
A Dutch fund, separately managed accounts and an onshore fund
TOTxomin Zaratiegui Osés [00:13:30] Okay, I’ll try to be brief, but I am European.
TOTxomin Zaratiegui Osés [00:13:40] 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 UCITS 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 UCITS, 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.
PRPratyush Rastogi [00:16:07] 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 fan of starting with SMA’s when you’re just getting started and there’s…
PRPratyush Rastogi [00:16:24] 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 Madoff. 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.
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.
How do emerging managers balance marketing and research?
TL;DR: Txomin can only sell by reverse solicitation. Rom spent no more than 10% of his time on marketing in the first year or two (2023).
Letters and blogs turn research into marketing
[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.
TOTxomin Zaratiegui Osés [00:20:54] 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 fund, 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.
TOTxomin Zaratiegui Osés [00:22:24] 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.
TOTxomin Zaratiegui Osés [00:22:43] Perfect potential question for the audience.
PRPratyush Rastogi [00:22:47] 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.
PRPratyush Rastogi [00:24:07] 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.
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 accredited investors like you’re documenting this well. Your third-party admin is documenting that very well so that becomes very important.
How do the managers set management and performance fees?
TL;DR: Txomin copied Buffett’s 25% over a 6% hurdle. Pratyush and Rom started with management fees of about 1% (2023).
Performance-based fees, about 1% management fees and choice
[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.
TOTxomin Zaratiegui Osés [00:27:14] 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?
TOTxomin Zaratiegui Osés [00:27:43] 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 seed 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 launch now a B 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 basis 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.
PRPratyush Rastogi [00:30:29] 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 ETF, 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.
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.
Which books do the managers recommend?
TL;DR: Graham and Dodd, Shoe Dog by Phil Knight and The Start-up of You. Rom rereads Graham and Dodd every 10 years (2023).
Graham and Dodd, Shoe Dog and The Start-up of You
[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 Buffett book, given how much Buffett we’ve done today or it could be a Buffett book.
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.
PRPratyush Rastogi [00:38:49] 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 fund 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.
TOTxomin Zaratiegui Osés [00:40:01] 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 Matthias Riechert, 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?
How much track record and own money does a new fund need?
TL;DR: Pratyush tracked about five years, Txomin two. About 80 to 90% of their net worth sits in their own funds (2023).
Track records of two to five years before launch
[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?
PRPratyush Rastogi [00:41:57] 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?
PRPratyush Rastogi [00:42:05] Okay. Second?
[00:42:06] Yunus: What makes you confident?
PRPratyush Rastogi [00:42:09] 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.
TOTxomin Zaratiegui Osés [00:42:34] 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.
TOTxomin Zaratiegui Osés [00:42:59] 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.
A calling, hard work and honesty about mistakes
[00:44:23] Yunus: What makes you confident that you can deliver value?
PRPratyush Rastogi [00:45:56] I am 100% confident. No.
PRPratyush Rastogi [00:46:04] 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.
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Plus is our application-based community of 200+ investors. Around half run or support a fund, or allocate capital.
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- In person: gatherings in the US and Europe
- Omaha: our 150+ member conference in AGM week
TOTxomin Zaratiegui Osés [00:46:52] 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.
PRPratyush Rastogi [00:48:02] What was the third question?
About 80 to 90% of their net worth is in their funds
[00:48:03] Yunus: Sorry, how much of your net worth is in your fund?
PRPratyush Rastogi [00:48:05] So not including the home that we live in, the liquid net worth 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%.
TOTxomin Zaratiegui Osés [00:49:04] 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.
How do the managers handle clients and software?
TL;DR: Txomin has nine clients and had one small redemption in 2022. Tools range from FactSet and CapIQ to borrowed access and Interactive Brokers (2023).
Vet clients carefully and educate them constantly
[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.
PRPratyush Rastogi [00:49:41] 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.
TOTxomin Zaratiegui Osés [00:50:47] 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.
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.
FactSet and CapIQ, borrowed access or Interactive Brokers tools
[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?
PRPratyush Rastogi [00:55:45] Almost nothing. I’m very cheap. Honestly, like 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.
TOTxomin Zaratiegui Osés [00:56:04] 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 fund, 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.
