Why do you like Alpha Group PLC stock, Dede Eyesan?

It was our pleasure to welcome Dede Eyesan of Jenga Investment Partners as a first-time guest on Good Investing Talks!

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We have discussed the following topics:

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[00:00:00] Dede Eyesan: We’re looking more at companies from an individual perspective or the managers, what’s their long-term goal, what’s their culture like, is there a strong focus on long-termism while they just trying to make goals in the short-term.

The choice of writing is simple in that you’re able to also understand things as yourself simply and how I think about I guess, how I invest I try to break it down to the simple format and that’s also had an effect on how I guess research companies and understand companies and communicate my investment report.

Just trying to keep things very simple. Investment to looking at the financial statements. I’m a strong believer that numbers can speak to you but there’s a limit to how much

Introducing Dede Eyesan

[00:00:40] Tilman Versch: Dear viewers of Good Investing Talks, it’s great to have you back on the podcast and it’s great to welcome Dede Eyesan of Jenga Partners for the first time on a podcast and this is your first appearance. I ask you for a quick introduction. Dede, who are you?

[00:00:55] Dede Eyesan: Hi Tilman, first of all, thanks for having me here. I’ve learned so much from listening to many great investors on the Good Investor Podcast. So it’s a real honour for me to be here today. My name is Dede Eyesan and I’m the founder of Jenga Investment Partners, which is an FC-authorised investment firm based in London.

I started Jenga in 2019, initially as an investment club, and over time we grew beyond the club and became a licenced fund manager based in the UK.

Starting out in the fund industry

[00:01:28] Tilman Versch: Dede, can you maybe elaborate a bit more on your way into the finance industry? So did you, after finishing your 18th birthday decide I want to be in full-time investor or what was… How did you get into the industry and in touch with investing?

[00:01:42] Dede Eyesan: So I mean, my journey investing actually goes back to when I was 10, I was living in Nigeria and my dad was really keen on investing as an alternative source of income. I stumbled across the newspaper with him where there was like a list of all Nigerian stocks.

And he told me to pick three random companies and I literally picked the three companies that I could recognise and one of them was Nestle Nigeria, which made Milo, which is my favourite hot chocolate brand. Anyway, I invested in three of them, and then five years after that two of them had grown more than threefold in price, while the one had fallen by half.

And of course, the one that fell by half was a bank and Nigerian bank, and I was trying to really understand why the share price had changed so much over this period, over the five years period, and that was really how I learned the fundamentals of investing.

So from understanding what the balance sheet means and what it reflects to, you know, learning about, you know the multiples and how to value companies. Fast forward that in university, I built a passion for investing and I just asked myself, you know, what could I do that could allow me, you know, exercise that passion and that will start in the investment club with friends.

So I raised a bit of money, £20,000 from 20 different people and literally, that was how Jenga was born. And finishing university, you know, I read a few books on how to start a fund if starting a fund is possible after university stumbled across a few stories and really, yeah, that was my introduction to the finance industry.

[00:03:16] Tilman Versch: And it’s possible to start a fund after university.

[00:03:20] Dede Eyesan: Yes, it’s possible. There’s been a few successful investors who’ve done that across different strategies. So it is possible, but you need a team of people to help out on, you know, operations compliance, legal, which I was really lucky to find them before I actually wanted to start. So we’re a team of three people today.

How to stay focussed on making money

[00:03:41] Tilman Versch: You have a great passion for investing, and you’re also a global investor and you also published interesting studies. There’s a link below if people want to get to your website where they find the studies.

But like one question came up for me and it might be a bit challenging. How do you make sure not to get lost in this passion for investing and finding the next interesting thing and really boiling it down to being boring and making money?

[00:04:09] Dede Eyesan: Yeah. So, I mean, one of the challenges, so we run a global strategy and we look long only and we can look at any company listed about 29,000 listed at the market capable of 50 million that we can potentially look in. But realistically we’re probably not going to

spend that much time in more than 100 of them over three or four years and a huge part of the investment process is knowing how you can filter down from 29,000 to 100 companies that you look at maybe 15, 20 you actually invest in at any given point in time. And I mean that’s being trial and error and that’s the process I keep refining every day.

But what we do is that we have screens and filters and we rely on those as a way to filter out companies that don’t really meet what we’re looking for. And I mean, I can talk more about what we’re really looking for but yes, we used to screens filters and you know processes to filter down companies. So we don’t get lost in the number of listed companies out there.

What do you look for in a stock?

[00:05:13] Tilman Versch: Maybe talk a bit about the screens and filters a bit.

[00:05:18] Dede Eyesan: So with the I mean with the screens what we’re looking for as investors. So we’re looking for four things. We’re looking for companies with: First, good business economics. So these are companies that are profitable, have an expanding or high return on capital, and from the unit economics, we think they are quite favourable compared to their peers.

Second, we’re looking for companies with I mean competitive advantages and what Warren Buffett calls moat. So these are things with either high barriers to entry, network effects, high switching costs and you know those sorts of things.

Third, we look for companies that have you know, owner-oriented management teams, so not necessarily funded like companies, but the companies where management are incentivised alongside the shareholders and there’s this real sense of ownership by management.

And finally, companies that are undervalued and nothing you know physics about it just companies are undervalued whether you’re looking at it from a relative valuation lens or from an intrinsic value and combining all those four key things that we then use to screen companies.

So for example, we try to focus on companies that are either profitable or where we think the unit economics are profitable. So if the economy doesn’t need that, we just simply sprain it out and we look for other things within its industry.

So we’re looking for four things. We’re looking for companies with: First, good business economics. So these are companies that are profitable, have an expanding or high return on capital, and from the unit economics, we think they are quite favourable compared to their peers.

Second, we’re looking for companies with I mean competitive advantages and what Warren Buffett calls moat. So these are things with either high barriers to entry, network effects, high switching costs and you know those sorts of things.

Third, we look for companies that have you know, owner-oriented management teams, so not necessarily funded like companies, but the companies where management are incentivised alongside the shareholders and there’s this real sense of ownership by management.

And finally, companies that are undervalued and nothing you know physics about it just companies are undervalued whether you’re looking at it from a relative valuation lens or from an intrinsic value and combining all those four key things that we then use to screen companies.

So for example, we try to focus on companies that are either profitable or where we think the unit economics are profitable. So if the economy doesn’t need that, we just simply sprain it out and we look for other things within its industry.

What does Jenga Investment Partners stand for?

[00:06:36] Tilman Versch: You already laid out the investment strategy a little bit but does the name Jenga mean something?

[00:06:44] Dede Eyesan: Yeah. I mean, Jenga. So when I started investing, I was reading like, a few books on businesses and one of the lessons when you’re starting to come is you want something people can I guess pronounce easily and can relate to. So Jenga itself is a Swahili name. Most people know the game Jenga, but it’s actually a word in Swahili, and it means either build or growth depending on the dialect you’re using and we have a bias towards, I guess, growth companies. So the growth element is where Jenga reflects.

And then when I think about what I’m doing for my partners I’m trying to build their wealth over time, so Jenga the second half reflects that idea of building, you know, your partner’s wealth over time. And that’s how we got the name Jenga. And also it’s a name that’s globally known because of the game. And we are global investors. So yeah, three areas of Jenga. And that’s how we reflect what we’re trying to do at Jenga Investment Partners.

[00:07:47] Tilman Versch: Jenga is also a game. You can play all over again like interesting.

[00:07:52] Dede Eyesan: Yeah.

What investments are you passionate about?

[00:07:56] Tilman Versch: What kind of investments make you passionate? Maybe you can go back in time and think about one or two situations where you’ve been really passionate about investment and nonstop think about it and even tell everybody around you. This is so good I want to…

[00:08:15] Dede Eyesan: Yeah, I mean, I have to go back to the very first investment I made and that was while I was still living in Nigeria. I was 10 when I initially made the investment. Back in 2009, it was a company called Nestle Nigeria and Nestle had, I mean, they have global operations, but in certain geographies, they list the subsidiary usually due to the government demanding that they do. So you think about India, think about Ghana and Nigeria.

They’ve listed their subsidiary and the nature of their products also depends on the geography they’re in.

So in Nigeria, they has three key products. One is Milo, which is a hot chocolate brand. Another one is the Knorr Maggi Cubes and then the third one is a cereal called Golden Moon. The funny thing about Nestle in Nigeria is that if you ask the average Nigerian, they would generally think it’s a local product not knowing it’s actually a company based in Europe making these things. And that’s just a reflection of the strategy they had in Nigeria.

Growing up, I mean they communicated directly with the customers, but from a more investing, I guess financing standpoint, I really understood what I was doing from a balance sheet to understanding when I was 15, this was five years after I made the initial investment.

And I mean, Nestle to me is a great reflection of what we’re trying to look for. And these are companies with strong moats. So when you think about the brand, Milo in Nigeria, 9 in 10 kids will never replace, you know, their morning hot chocolate with anything else.

So it’s either we’re going to drink Milo in the morning or we’re not going to drink anything. It’s going to drink water. So it’s very hard to replace Milo. And also, I guess the only thing about it from a barrier to entry. It’s, yes, it’s easy making, you know, hot chocolate brown. You just get powder, you get cocoa, you get malt and you mix it up and you make the powder, but really the barrier to success is what is really difficult competing against Nestle Nigeria.

And lots of local entrepreneurs have tried to compete with them. But literally all of them have failed and the only real competitor there is Cadbury and even Cadbury the performance of Cadbury versus Nestle over the last 15 years has been very far apart.

So again it’s a it’s a real reflection of what we’re trying to look for and then Niger is a young population, 220 million people, average age is 18. So literally anything about the market of young people, half of the population, the ability of 18. So that’s a huge market for Nestle to grow. So I mean between 2009 and 2014.

When I initially bought the stock, it was growing by 18% per year. Its profit margin around 23 to 24% EBIT margin and then was quite cheap was at 8 times earnings at that point in time. It doesn’t get much better and has grown fivefold in five years. And I mean that’s, I wish I could find more Nestles out there, but I mean that’s like that’s the beauty of investing and the idea of compounding with really strong quality, fast-growing and also cheap companies. And I mean that’s what we’re looking for today at Jenga.

[00:11:19] Tilman Versch: And do you maybe have another example that’s not Nestle that you’re really passionate about.

[00:11:25] Dede Eyesan: I mean another example that’s not Nestle is one of the first investments we made in Jenga. So it’s L’Oréal, it’s not Nestle, but the fun fact is that Nestle and L’Oréal kind of own each other. So they’re kind of related in that example.

But L’Oréal is more focused on the cosmetics industry and cosmetics was a bit new for me, so again, it’s this one of the ideas and one of the things I love about investing is, I guess the idea of expanding the circle of competence and with L’Oréal going into cosmetics, was a new area for me. I had to learn about the industry.

Estée Lauder and the relationship with distributors and retail stores and it was just really fun learning about it and having learned a lot more about L’Oréal, I think it’s probably one of the top five highest quality companies.

It’s one of the top five comments from a quality standpoint out there. I mean, they only had six CEOs in the last 120 years since they’ve been existing. Sorry, last hundred-plus years since they’ve been existing. And I mean it doesn’t get much better than L’Oréal when it comes to culture and management.

Then alignment with shareholders, I mean they’ve never had an unprofitable year since they since the ‘60s. They’ve compounded 9 to 11% EBIT margin EBIT over the past decades. They still have an industry-leading profitability. People of L’Oréal love the company so much, and I mean it’s it doesn’t really get much better and it’s another example of an investment being made at Jenga when we started that said, now we don’t own L’Oréal anymore because we thought the price got a bit too high. I think that’s about 39 times earnings.

So it’s having that I guess disciplined to sell when you think things get a bit pricier and that’s another area of investing that we’ve had to learn a bit more on recently.

What makes you change your mind?

[00:13:15] Tilman Versch: What were the insights that made you stop thinking about an investment you were really passionate about? Like if you had something that you were really passionate about but did deeper work and realized, oh there is no need to be passionate about this idea.

[00:13:31] Dede Eyesan: Sometimes. I mean, I get passionate about investments until I think there’s a lot of upside. I mean, sometimes I’m passionate about companies. So I like football as a, I enjoy watching football and then I found out that lots of football teams in Europe are listed. In Germany, one is called Dortmund. They’re listed on the stock market.

So when I heard Dortmund, I mean, then they had a really amazing place. When I had the list I was like, I would love to check this out, but at first glance at economics am like, yeah, this is not something I really want to spend much time in. And that’s because at some stage in those four things, I mean, I mentioned in the investment process.

So first, business economics. Second, competitive advantage. Third, owner-oriented management. And fourth, valuation. At some stage in those four things, they kind of failed the test, so Dortmund failed the test of economics because they spent so much buying players and having to, you know, keep fans happy, which is low economics for us.

So we just lost interest there. And I mean I try not to get passionate about investments until they meet the fourth stage where it’s undervalued after we don’t know the research.

Where do the ideas for investments come from?

[00:14:42] Tilman Versch: So Dede, where do you get your ideas from best into potential stocks.

[00:14:48] Dede Eyesan: So 90% of our investments in our portfolio come from our internal stock screens. So what we do is that we bucket all 29,000 companies listed above with a market cap of $50 million into 60 buckets. So these buckets represent sub-industries. So for example, consumer discretionary apparel, textile, and luxury goods are one of these 60 subsectors.

And then that has about 530 companies and we spend about a minute or two quickly just reading about the business description, having the first glance with the financials and just trying to understand what they do and the ones where we think there’s like potential for strong unit economics and growth and I guess good return on capital, we’ll shortlist them and then take that list of 550 to 50.

We do the same process, spend a bit more time about 30 minutes to an hour, and then we take that list to about 10 minutes, 10 to 15 names. And then from there, we spend a lot more time doing. The deeper dive into each of them and then that’s how. We might have one or two ideas, and then that’s how it comes into the portfolio.

And just to conclude, we definitely can’t spend all the years looking at all sixty of them. So we have to prioritize the ones that we think are deeper within a circle of competence and also ones where we think there might be more potential

due to growth profitability or just to the ease of understanding them.

[00:16:21] Tilman Versch: What aspect do you spend the most time on in your research process?

[00:16:26] Dede Eyesan: So the time we spend most on all the areas we spend most on would depend on the investment opportunity. So for example, again looking at textile apparel and luxury goods. We looked at that early last year and we decided to invest in three companies.

But what we really spent at trying to answer, we were trying to understand which of these like companies would have better exposure into growth in the Chinese consumer because again, that’s the largest consumer market right now and that’s where we see the most potential going forward. So a lot of our time was really spent trying to understand that question.

And of course, you have different types of companies. You have French luxury brands like Hermes and LVMH, and we have US athleisure companies like Lululemon. You have new, I guess, shoe brands like Take Us Out their own Hookah 11. And you also have Chinese domestic brands like Anta Sports.

But yes, we’re trying to really spend our time looking at that and that’s where the bulk of our time went towards. And then I guess after they were looking more at companies from an individual perspective, who are the managers, what’s their long-term goal, what’s their culture like? Is there a strong focus on long-termism where they’re just trying to make goals in the short term? And I mean that’s the process and it will differ depending on the sub-industry and the opportunity set.

Investment mistakes

[00:17:49] Tilman Versch: Which free investment mistakes have helped to improve your research process the most?

[00:17:55] Dede Eyesan: That’s a really good question, So when we started, we initially focused on South Africa and my goal was to have an African strategy. So that was the first mistake I made focusing on just South Africa and the reason why I said that was a mistake was I we had, I guess I had limited myself to a certain group of companies exposed to the South African economy and if you’re not from the US, India or China, investing in just one country can be quite difficult because the number of opportunities you’re exposed to either due to industry format or just due to I guess, where the economy is at, it’s really difficult.

So that was I guess my first lesson in investing and I guess just being broad and being open-minded to new companies, new ideas and also having that eagerness and willingness to learn about different markets and industries as you grow, that was my first big investing mistake.

I guess also when you look, I guess at the company perspective, I mean we’ve had a fair share of I guess mistakes here and there. So for example, we invested in Facebook at the wrong time. Now I know Facebook is about Meta platforms and has been a great stock, but there’s a period, yes, back in time where things weren’t going so well.

And I mean there I had to learn it, I guess more about the. Impact smaller divisions and have on conglomerates. And Facebook’s case it was the exposure to, I guess the Oculus and AR VR devices that was really impacting their bottom line. And I guess also technology when you think about regulation that was coming from the government and also the impact Apple privacy data was having on Facebook. I mean these are all external factors and they definitely do impact how I guess the individual opportunity set is so again, that was a huge lesson for me as an investor, especially investing in companies that get more exposed to tech-enabled industries.

Development after 5 years

[00:19:54] Tilman Versch: So let us compare your research process with like five years ago, on which part of your research process are you now spending way more time and effort?

[00:20:04] Dede Eyesan: I’m definitely spending a lot more time understanding competitive advantage beyond just the quantitative side of competitive advantage. So again, I mean, when you make, when you’re looking at investments, you’re looking at the financial statements.

I’m a strong believer that numbers can speak to you, but there’s a limit to how much is focusing too much on what the return on capital is today, so you have lots of companies 5-10 years ago that had a double-digit return on capital. If you look at their five-year performance, they were doing really well.

And there was a strong indication of a mode or of a competitive advantage. But when you really think about the external shifts happening in the world, so you think about things like AI, you think about things like the global political situation and globalisation. All these factors sometimes have an impact on individual companies.

And I’m spending a lot more time really understanding what is quality, what is a competitive advantage, what our moods are, and how can we think about them? So at Jenga, I mean one of the things we do recently is that when we start the investment process rather than starting in just unit economics, we also start on the competitive advantage, and now we kind of bucket quality into nine different sub-areas.

So the first area is the barrier to entry and then the final area is a test of time. So we also like companies that have tested time, so they’ve been through bad managers, they’ve been through world wars or they’ve been through, you know, high geopolitical tensions in their local environment.

So we’ll spend a lot more time looking at those factors really. And that definitely impacts the longer-term IR you see in these companies.

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What problems is Alpha Group International PLC stock solving?

[00:22:25] Tilman Versch: You also want to discuss a certain stock you find interesting at the moment it’s Alpha Group International listed on the London Stock Exchange. What kind of problems is Alpha Group solving?

[00:22:34] Dede Eyesan: So Alpha Group I mean first before just answering, I came across Alpha Group because we were trying to understand business services from a holistic perspective. So these are companies that don’t necessarily have physical assets, but what they have are people who can solve problems for businesses.

So it’s a huge range of businesses, so you have things like IT consulting you have HR services and then you have this niche where you’re helping business solve their FX problem. So if you’re a global business, you have to have exposure to different currencies.

Some of them you have the hedge and some you didn’t have the hedge in the past these services could either be provided internally where you employ a head of finance and has a background effect and the person does it but there’s a limit to how much one person can do this thing, and sometimes employing a whole team solving this issue can be quite expensive for a business cause you have to pay the salary for each and whenever one of them. What then happened I guess in the late 90s was that the banks took this function on board into, you know, bank operations, they decided to provide their clients with FX solutions.

The problem with banks is that they try to cross-sell so many different things. So the alignment in terms of having the best solution and also the one that’s going to make the most money for banks wasn’t really aligned leading up to the financial crisis.

As effects solutions were becoming more complex, they were advising clients to take on these products, and then after the financial crisis, there were huge regulatory changes in that sub-segment.

So you had quite a few of these, I guess focus niche FX solution providers come in, so Alpha FX. For example, Alpha Group was founded in 2009 and I mean that was really how they came across. So they saw this gap in the market where we could just focus on I guess FX and business services for their clients. And I mean that’s what they’ve done.

[00:24:37] Tilman Versch: How did you discover the stock?

[00:24:40] Dede Eyesan: We screened. I love financials but not banks. So financials, ex-banks, and insurers. So I just screened you know the different types of financial services companies out there. There were a bunch of them, consumer lending platforms. And that was how we came across Alpha FX and their competitors.

[00:24:59] Tilman Versch: And what made you invest in it?

[00:25:02] Dede Eyesan: So Alpha Group, I mean I could go into more detail, but it basically met all four things we’re looking for. So it met the strong unit economics. It met the competitive advantage over the arrivals.

It met its own oriented management team. And then finally we thought it was undervalued, so we made the investment back in 2020. So that’s why we invested in them and we still hold them to today. I’m happy to talk more about I guess the investment case.

[00:25:28] Tilman Versch: Please do.

[00:25:30] Dede Eyesan: Yeah. So Alpha FX like I said, was founded in 2009. And the founder Morgan Tillbrook is still, you know the CEO and he still runs today. There were from a unit economics just walking through our investment price from a unit economics Alpha FX is quite asset-light.

So it doesn’t need you know hard large CapEx or large offices to run their function. What they basically do is that they recruit a number of people. They train them in their own culture. They try to incentivize them to find the right solution for clients so they work their clients range from companies like A source and retailers to funds and logistic companies.

Basically, companies need effective solutions. So they focus on those areas and it’s quite profitable. So their average profit margins were around 35 to 40% and I guess really what they, I guess moving on to, I guess the competitive advantage, what Alpha FX do differently is how they incentivize their people, so most, not just the banks, but also their competitors can incentivize their staff on being able to make as much money from clients they would recommend, like complex products and things affect solutions or options that will make you know high, not really high volume but like high margins for the companies and Alpha FX saw this problem with their peers and what they said was that we’re going to build a different culture.

We’re going to find outsiders coming to the field and we’re going to try and focus on really the solution we’re providing for clients.

So again, they’ve grown their clients organically and they are diverse. They have about £170 million in annual revenue and 40% of that is operating profits. And then also, I guess four years ago they started a new division called Alternative Banking Solutions.

So what they realised was that they were having a lot of funds and investment companies become clients. They ask the client to know what other problems are having that are unrelated to FX. And one of those problems was alternative banking. So being able to set up bank accounts in multiple countries, that’s something they started doing and that’s done. It’s already a profitable business for them.

And I think it’s about a third of their revenues and profits right now. And that’s how they’re growing. It’s a 100% organic story. They’re growing revenues by around 25% per year and there’s a long-term target for strong growth and strong profitability. And I really admire the management team as being outsiders in the FX traditional FX industry.

Research process

[00:28:10] Tilman Versch: Maybe workers bid for your research process. What kind of rocks did you turn around before buying the first stock?

[00:28:20] Dede Eyesan: First stock bin first stock for the fund or in Alpha FX case? So I mean Alpha FX, so again we were looking at non-like we’re looking at financial services that are not banks or insurers because I find banks balance sheet a bit too complex and insurers there’s it’s also quite complex.

So we’re looking at these types of companies and there’s a wide range of them. So for example, we spend quite a bit of time on consumer lending platforms, especially the ones in China. We thought the business economics were good, but we struggled to really see how they could continue growing at the rate they were growing for a long time. So we wanted something that wasn’t in the lending segment of financial services.

And I guess narrowed down more into the FX solutions, there were all the companies. So in the UK, there are about three other companies in FX solutions. So there’s equals group, agent tech, and some other players.

And when we looked at them, I mean, we spent quite a bit of time on their peers and they’re all debt-free profitable companies, but equals group and the other players I felt they were spending a bit more time on just focusing on complex solutions and they were trying to I guess predict them their approach to ethics solution was predicting what clients, what exchange rates are going to go up and down and then telling client that whereas Alpha FX was the complete opposite, where they were focusing more on what do the clients need and what are they trying to solve, what’s their goal and then providing what they think made sense without having you know that incentive of complex products.

So again those are huge focuses on the qualitative aspects of understanding the culture, the incentives. That was really what made us pick Alpha FX over the peers. And I mean, just concluding every six months we’re trying, we look at the trading of dates we’re trying to check initial thesis still in place, so again there was a slowdown last year in revenue growth for Alpha FX. So before last year, they were growing by about 25%, but then last year they only grew by 12%. But then what happened was that again the growth was slow because business activity reduced when interest rates go up, you know people are less, they’re less keen on making huge investments in the business.

So the organic growth dropped. But what happened with Alpha FX was that they had opened an alternative banking solution. They were able to make money on interest income, so they made like 70 million on interest income last year and that was again because they opened the alternative banking solution. So that also grew their profit by more than double.

And I mean now they’ve used some of that money to buy back shares and they’re also looking at you know things like potential acquisitions in new areas for reinvestment. So again, that’s the beauty of their holistic solution across alternative banking and effects.

Thesis creep: When the thesis changes…

[00:31:19] Tilman Versch: Going a bit away from Alpha Group. What do you do? When thesis creep happens or not, your original thesis doesn’t fit the facts anymore and the company behaves differently than you thought. What do you do then?

[00:31:38] Dede Eyesan: I mean the short answer is to sell. If the thesis changes. But I mean I guess the question really is when do you sell and why it should increase creep, make you sell, it’s a difficult one.

So again we try to focus on what’s the potential IR we can make from the situation. So if a business used to be, this is a hypothetical scenario, if a business used to be in effect solutions, now they stop doing effects solutions and now they’re in consumer goods that that’s a quite an extreme example, but we’re trying to understand, you know, what exactly is the potential market here and what is the track record here?

It could be a thing that, you know, they had kept it as a small project and now they want to make it a big project, but if it’s something where we just don’t see management having any track record or a totally unrelated industry, we just sell it immediately.

Sometimes what happens is that they expand into a near vertical. In those cases, so for example, in Alpha FX, when we made our investment in Alpha FX, we were aware of the alternative banking solution, but we didn’t think it was going to be such a big portion of their revenues and profits. When that happens, you spend quite a bit of time really trying to understand what exactly is the problem they are in here.

In the UK it takes about eight weeks to open a business bank account. If you’re opening it with Alpha FX, it’s going to take less than two weeks in most cases. So it was a very clear solution that they were providing and some were able to measure it in terms of their cost.

They’re saving their clients their time, they’re saving the clients the level of efficiency they providing for their clients. And the ease of use and the ease of onboarding for their clients. So it was very clear what the value proposition was and management made our lives as shareholders much easier because they set long-term targets in terms of the number of clients we want to have on board, how the revenue model is going to look like, how we’re going to grow out of the UK.

So now they’re in other European countries, also in Canada. And I think Australia as well. So how they’re going to grow beyond just the UK was very clear for us. So that in that scenario it was easy for us to be, I guess, comfortable with the expansion beyond you know effects solution, but again, not every company is going to make me that comfortable to stick around when something else is growing and it’s just being aware of, you know, if management is being realistic with you, you as a shareholder.

Dede Eyesan’s Exit Strategy

[00:34:03] Tilman Versch: What do you think about the exit here in this case of Alpha Group International?

[00:34:09] Dede Eyesan: So more, I guess the exit case is more specific to Alpha Group, we have a hurdle that we’re trying to achieve a 15% IRR and we can get it an IR or 15% from three sources. One you have I guess earnings growth where the business is growing its earnings by 15% given it’s at a sensible valuation.

The second would be multiple expansions. That’s usually during periods I guess market negative sentiment. There’s negative sentiment or company. With Alpha FX, there isn’t really any negative sentiment, so we don’t see much of the return coming from multiples expansion.

The third area where I guess you can make your money, I guess your IRR of 15% would be areas where I guess managers give money back to the shareholders. So think about dividends or share buybacks. With Alpha FX, we’re really thinking about, we’re really focused on the first bit, which is the N ends growth.

Can they grow earnings at 15% without the multiples going too high? So our exit from Alpha Group it’s quite simple. So when we think they’re going to stop growing at that magic 15% per year and they can’t go to other things like paying high dividends or buying back loss of shares and that’s where we, I guess we’ll exit an investment.

The other area that will make us exit an investment is if we see something much better. So one of the joys of investing is that even when you’ve made an investment that you think is going to be very good, you have to spend more time and spend time really look at new ideas. And if you find something, I guess in financial services that we think is going to offer a better IRR or have a higher quality economics we should and we will exit Alpha Group for that company. So those are the two key areas where we would exit Alpha Group as a shareholder.

Why did you start a fund, Dede Eyesan?

[00:35:59] Tilman Versch: We’ve just discussed real-world business and another real-world business is your fund. So what is the UI for starting a fund?

[00:36:10] Dede Eyesan: So when I started the investment club while I was in university, so the investment club, I reached out to 20 friends, I had a passion for investing since I was 10. So when I got to university, I was like, I need to do something with my passion and I reached out to 20 friends and I told them I don’t think we’re going to make much money but I would love, you know, to have some of your money to invest and build a track record in case I want to do something afterwards.

And some of them didn’t respond, but twenty of them responded and they gave me a thousand pounds each and that was really how we started the investment club.

And then over time, the first two years our performance was decent and I asked myself, you know, what exactly can I do beyond just running an investment club? And then the idea of actually running a real-life fund came about and for me, I think what was really unique about that opportunity.

I was in a position where I could merge. I guess what I can do for a career with my passion and what I want to spend my time doing. And that was really just all things coming together. And then also I met our current COO Anil Joshi, along that process of discovering how the fund process works and I mean that really was my answer and that was really why I started you know spending my career, my time doing something I’m extremely passionate about, that’s what keeps me up today and that’s what keeps me going when the market goes down or the market goes silent for a long time. It’s just that passion for investing.

[00:37:44] Tilman Versch: This originates from the investment club, how did it shape your approach or make it differently?

[00:37:53] Dede Eyesan: So I mean we could look at starting the fund from like we could look at managing fun from different angles. But I mean just looking at how we communicate with investors. So again this was when I was in 3rd year of university, literally 15 out of those 20 people had no idea what stock was, I mean, they knew what stocks were, but they had never invested.

So it was very clear that if I’m going to be managing the money, I’m going to have to write in a simple way and communicate with them in a way where what I’m writing makes sense.

And I guess one of the joys of writing simply is that you’re able to also understand things as yourself simply and how I think about, I guess, how I invest I try to break it down to the simple format and that’s also had an effect on how I guess research companies and understand companies and communicate my investment approach.

We’re just trying to keep things very simple. So again that was one big area that the investment club had. That’s one way it impacted the way I guess I run Jenga today and the way I manage money today, another area I guess is realising how much work goes into setting up a fund because an investment club, yes, it’s just an investment club, but you have to do, you know the legal, the audience, the monthly reports you need to make sure the reports are accurate and send it out to people and write an annual report.

I mean, there are lots of areas of writing of fund, so it prepared my mind for, you know, the operational elements of building a fund. And now I mean it’s not easy, but it’s something I’ve been prepared for and now I have a team of people who are helping me out in several areas. I wouldn’t have realised that if I hadn’t tested things out by an investment club. So I mean, yeah, that’s how it’s really helped me.

What makes the fund different

[00:39:36] Tilman Versch: So let me expand this question a bit. How are you different with your fund then compared to other solutions on the market?

[00:39:46] Dede Eyesan: So I guess one of the difficult challenges with the funds is that there are literally thousands of funds out there, active funds. And if you look at like the last 10 years, they’re even passive funds that are exposed to, I guess, thematic ideas. You have global funds and you have, you know, private funds as well. So it’s really challenging to be the only you in your bucket, so be the global equities. And it’s challenging to say that there’s no fund you can do what we already do. There are funds out there but what makes me different is really my story.

And I guess what motivated me to invest in and where I come from and how I think about the world and that’s reflected, I guess, in how I invest. And again, growing up in Nigeria saying, I guess most investors today come from, you know, countries like the US and Europe and you know, they look at the world from, I guess from a top-down view where you look at the US first and then you look at other countries.

For me, I look at the frontier markets and then I look up so that perspective and I guess that way ships how I think about opportunities and the opportunities out there. It makes me appreciate certain things more and also makes me, I guess value certain things less and that’s I mean reflected in our portfolio.

So for example, our largest company today, which has also been one of our successful bets in the past two years comes from Kazakhstan. And when I speak to US fund managers about it, once I mention what the country is from it automatically, you know, shows it out. And I mean it’s been a good holding for us.

That’s listed in the US now. But I mean just having that perspective is something that I guess makes me different from most investors out there. And I guess also one of the things I’ve learned from the really successful investors is that you don’t have to be completely different from everybody else. So Charlie Munger wasn’t different from Warren Buffett, but if you invested in both of them, you’d have done quite well.

So what I tried to do, and the lessons I’ve learned from, you know, these really successful investors is do the really simple things do them well, and do them consistently, and that’s really what I try to do at Jenga and my role as a fund manager just doing the simple things really well.

And you read an annual report and just make sure you actually read it and you make good notes when you think about, you know, the financials of the business. Don’t just look at past your performance, really think and critically analyse how it is today and see it tomorrow. I mean just those simple things. Just making sure I’m consistent and I do well, that’s really what I try to do at Jenga.

[00:42:21] Tilman Versch: So how would you describe your competitive advantage as a fund manager then?

[00:42:27] Dede Eyesan: I mean the competitive advantage is that we have a different perspective and how we think about the world. That’s really the competitive advantage. Being young, I mean, I’m 24 and if you look at the portfolio, we have quite a bit of consumer-exposed companies and these are companies that in some cases they’re exposed to I guess the younger generation of consumers and some of the cases they were originally exposed to younger consumers, but they were able to grow into older generation.

And I mean being unique, being young that was that allowed me to understand the potential there. So for example you think about L’Oréal you think about the customers and consumers, being young, seeing what happens on social media allowed me to really understand the potential for a cosmetics company and why even an economy as big as L’Oréal can still grow double digits and transition into growing in China even much faster. And expanding to different categories. So again, I mean that’s really the competitive advantage, I guess having a youth exposure to life and having a different exposure to life from where I’m given from where I’m from.

Struggles as a young fund manager

[00:43:34] Tilman Versch: From it’s a maybe a bit of a tricky question. I don’t want to disclose you or force you to disclose too much but as a young fund manager with 24. What kind of investors were open to investing with you, their money?

[00:43:49] Dede Eyesan: Zero. When we started the fund, I mean, the struggle for us was that when we finished the investment club to the fund when we got our licence, we couldn’t have retail investors, we could only work with accredited investors and I literally had a zero network in the accredited investor space, so we had no, no prospective investor, but I mean through word of mouth, we were able to meet a few people who I guess had read either research or someone told them about us.

This was a very few number of people and that’s how we started. So I mean now we just try to focus on, I guess, writing our research, putting our word out there through word of mouth and I guess we just try to grow things organically, and hopefully the right people who believe in us see us at some point. So that’s how we started, zero.

[00:44:47] Tilman Versch: OK, then it’s quite a challenge, but if you’re young, you can do this.

[00:44:52] Dede Eyesan: I mean, we keep costs low as a firm. So I mean our office rent is we have an office in London, but we don’t pay anything because we’re part of an accelerator programme. We were willing to provide office space for three years.

And I mean just having that principle of having a very low cost. I guess live in and also low cost. I guess business expense has allowed us to I guess survive so far with such a low-cost client base and that’s just been that’s my nature that’s just been who I am and that’s how we just run Jenga. So we’re able to do these things even with a low client base.

Framework for portfolio construction

[00:45:27] Tilman Versch: Coming back to your fund, what do you think about portfolio construction? What is your framework there?

[00:45:35] Dede Eyesan: So framework, our framework goes back to how what we’re looking for when we invest in. So it’s the four points business economics, competitive advantage, good management, and valuation.

Our framework goes back to how what we’re looking for when we invest in. So it’s the four points business economics, competitive advantage, good management, and valuation.

It’s very hard to find companies that meet all four. One of my learnings is that one should not sacrifice one, don’t sacrifice low valuation because you can’t find anything, or don’t sacrifice good managers because you can’t find anything. So finding companies that meet all four is a big challenge and you really need to understand companies at a very deep level.

And because of that, there’s a limit to how many companies I can really spend that much time on. So we have a fairly concentrated portfolio of 15 to 25 names right now we have 16 names. We try to keep it at 15 or 16 most times, so just from that number. The number of companies we, I mean the portfolio weight into each company would vary between 3 to 7.5% when we buy them.

We don’t do start-up positions where we put 0.5% of our fund into the company and we try to watch it. We just try to buy companies that we have a strong conviction for. So a minimum of 3% and a maximum of 7.5% when we buy it.

Sometimes if we’re doing a good job, the company would grow because their earnings growth is higher than we thought or they are opportunities become bigger than we thought, so they become a large position in the fund. We limit that to 15%. So if a company becomes 15%, we try to trim it by a bit.

And that’s just because I think it’s responsible to diversify because again, it’s impossible without being an owner to know all the risks associated with businesses and the world has changed a lot from 30 years ago, where there’s just so much hidden risk that we’re not aware of.

So you think about the impact interns had on the businesses and AI is having on the industry. There are so many changes that are happening out there, so we try to diversify responsibly and we diversify not just that companies, but also the industries and the countries. So for example, we have 16 companies, but that comes from 10 different countries.

They’re incorporated in 10 different countries. So we try to diversify from that viewpoint as well, and that’s really a portfolio construction. There’s no physics behind it. It’s just you try to keep things from common sense and tailored to what we actually do. So it’s a, it’s a function of what we actually do.

Meta thoughts

[00:48:13] Tilman Versch: You already mentioned Facebook or Meta as it’s called today. Do you still own it or when have you sold it?

[00:48:22] Dede Eyesan: Yeah. So that was a mistake for us. We sold towards the bottom at the end of 2022. So that was a big mistake for us where it’s gone about 280% since then. It’s painful watching Meta platforms, but again it’s one of the most difficult. It’s one of, I guess the great parts of investing.

Not every decision you make will be right, but it’s about really looking back at, you know, the decisions that you made in the past and understanding what went well, what went wrong. So with Facebook, I think the mistake I made was that I had allowed the noise to get to I guess the fundamentals of Facebook.

And I mean Facebook is one of those comments that there’s always something happening in the news. It’s either TikTok is coming or Kim analytical or something. There’s always something going on and I was spending just too much time trying to track Mea platforms. And I mean, that was the lesson there, not letting the sentiment really impact how you think about companies fundamentally.

And now that’s how we just try to take that lesson into the companies we’re investing in today and not letting, I guess, the sentiment and what the cut of public opinion says about the company affect our decision-making.

[00:49:40] Tilman Versch: So nowadays you would just buy, not sell.

[00:49:45] Dede Eyesan: Not sell? Yeah, but I mean, in some cases, you should sell them. So again with Facebook, I mean, when I look back, you look back at the core where they make money, which is advertising revenue. The question is, is Instagram and Facebook still being used by people, the answer is yes.

Is this still an efficient way for small businesses to advertise? The answer is still yes. Is there still potential for Facebook to grow? The answer was yes, it was slowing down. I think it was about just under one point, something billion back in 2022, but then it was still growing as a sense of time. Yes, there was competition from TikTok. When you think about reels and I guess video element of social media, there was also competition from Amazon because Amazon was growing their advertising revenue in the e-commerce division quite strongly, but Facebook was still a thing. Instagram was still within.

And when you get to nine times earnings, you have a profit margin of about 30, 35% each year. And one point something billion people are using your platform and you have a founder like Mark Zuckerberg, who was still in charge, who’s still super focused on execution.

I think sometimes you have to just, you know, think see through the cycle. And I mean that was the mistake we’ve made, we made with Facebook.

Closing thoughts

[00:51:03] Tilman Versch: I have asked my questions and for the end of our interview the guest usually has the chance to add something, so is there anything to add, Dede?

[00:51:14] Dede Eyesan: As Charlie Munger would say, nothing to add in this case, yeah.

[00:51:21] Tilman Versch: Then thank you very much for answering the questions in detail and thank you very much for your time and also a nice bye-bye to the viewers. Bye bye.

[00:51:29] Dede Eyesan: Bye. Thanks, Tilman. Bye.

Disclaimer

[00:51:31] Tilman Versch: I really hope you enjoyed this conversation. If you did, please leave a like and a comment and subscribe to my channel. Traditionally, I want to close this conversation with the disclaimer, so here you can find the disclaimer. It says, and please do your own work. This is no recommendation what we are doing here is just a qualified talk that helps you, but it’s no recommendation. Please always do your own work. Thank you and hope to see you in the next episode. Bye bye.