WEBVTT - Adam Karr on Contrarian Investing 0:00:02.200 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:07.240 --> 0:00:10.200 This week on the podcast, I have an extra special guest. 0:00:10.520 --> 0:00:13.280 His name is Adam Carr, and he is head of 0:00:13.400 --> 0:00:18.960 Orbis US and portfolio manager at the company's global equity strategy. 0:00:19.120 --> 0:00:23.480 The firm manages over thirty seven billion dollars in assets. 0:00:24.079 --> 0:00:29.760 Orbis has just an absolutely fascinating history. Their founder was 0:00:29.840 --> 0:00:34.200 a portfolio manager at Fidelity for a while. His name 0:00:34.240 --> 0:00:37.839 is Alan Gray, and he went out and launched Alan 0:00:37.880 --> 0:00:43.720 Gray Limited in three eventually becoming South Africa's biggest private 0:00:43.760 --> 0:00:48.519 investment manager. They expanded in in nineteen nine to be 0:00:48.640 --> 0:00:53.720 more international, and that's when Orbis was created. The firm 0:00:53.840 --> 0:00:57.800 is really quite fascinating for so many reasons. Their track 0:00:57.880 --> 0:01:02.600 record has been outstanding. Their fee structure is fairly unique 0:01:02.600 --> 0:01:07.200 in the industry, very much aligning client's interests with the 0:01:07.240 --> 0:01:11.640 firm and the employees of the firm's interest I know 0:01:11.760 --> 0:01:15.240 everybody sort of pays lip service to that. These guys 0:01:15.440 --> 0:01:18.959 really do that. You pay for alpha and nothing else, 0:01:19.480 --> 0:01:23.959 and if the firm underperforms its benchmark, you get refunds 0:01:24.000 --> 0:01:27.560 on your fees and then some It's really very very 0:01:27.680 --> 0:01:32.320 unique and very interesting. In addition, their their structure. What 0:01:32.360 --> 0:01:35.959 Alan Gray did with his original shares is quite fascinating. 0:01:36.080 --> 0:01:39.840 All told, this is really quite an intriguing conversation. I 0:01:39.880 --> 0:01:43.640 think you're gonna find it quite interesting and unique in 0:01:43.640 --> 0:01:47.080 the world of investing. So, with no further ado, my 0:01:47.280 --> 0:01:53.480 conversation with Adam Carr of Orbits Investments. This is Masters 0:01:53.480 --> 0:01:58.040 in Business with very Ridholts on Bloomberg Radio. My special 0:01:58.040 --> 0:02:00.880 guest this week is Adam Carr. He is the head 0:02:00.960 --> 0:02:05.440 of Orbis US and portfolio manager for Orbis Investments, a 0:02:05.560 --> 0:02:09.200 firm which runs about thirty two billion dollars in assets. 0:02:09.680 --> 0:02:15.400 The firm's flagship global equity strategy has outperformed its benchmark 0:02:15.680 --> 0:02:21.480 m s c I World Index. Since it'sption, Orbits brings 0:02:21.520 --> 0:02:26.959 a unique fee structure to clients who only pay when 0:02:27.000 --> 0:02:34.000 the firm out performs. Adam Carr, Welcome to Bloomberg. Very 0:02:34.080 --> 0:02:36.799 thank you, Thank you for having me. I'm looking forward 0:02:36.840 --> 0:02:40.880 to it same here. So so let's let's start with 0:02:40.960 --> 0:02:44.239 your background before we work our way to Orbis. How 0:02:44.240 --> 0:02:48.160 did you first get interested investing? I read something that 0:02:48.320 --> 0:02:51.839 used to help your grandfather clean up banks at night, 0:02:51.960 --> 0:02:55.040 and you started reading docs that were lying around that 0:02:55.120 --> 0:02:57.480 led to an interest in finance. Give us a little 0:02:57.480 --> 0:03:03.040 background on that. I wish I was that precocious, UM. 0:03:03.120 --> 0:03:07.400 So taking it back, I first became captivated with the 0:03:07.400 --> 0:03:10.119 investing in middle school. I guess it was the late 0:03:10.160 --> 0:03:13.560 seventies early eighties. I grew up in Illinois, the South 0:03:13.560 --> 0:03:17.359 suburbs of Chicago, and I spent a lot of time 0:03:17.400 --> 0:03:20.840 with my grandfather. He was a janitor and a caretaker 0:03:20.960 --> 0:03:23.600 for our local savings and loan and I used to 0:03:23.600 --> 0:03:25.840 go with him every night to help clean the bank 0:03:26.200 --> 0:03:29.600 UM and I would mot florid and dump out waste 0:03:29.639 --> 0:03:34.200 paper baskets. And there was this really interesting newspaper in 0:03:34.240 --> 0:03:37.480 the garbage UM that looked different than anything that we 0:03:37.520 --> 0:03:39.960 had at home, or school or anywhere else. And I 0:03:40.080 --> 0:03:44.520 had these odd looking dot matrix photos on the cover. UM, 0:03:44.640 --> 0:03:48.080 and of course I was the Wall Street Journal, and 0:03:48.400 --> 0:03:52.440 I just was fascinated by looking at the paper trying 0:03:52.480 --> 0:03:54.800 to follow the stories. I can't say that I really 0:03:54.840 --> 0:03:58.880 understood it. I certainly wasn't reading bank documents, UM. But 0:03:59.000 --> 0:04:02.320 it was it was that that really started me and 0:04:02.400 --> 0:04:05.400 the journey of getting really interested in the market. On 0:04:05.400 --> 0:04:08.880 on Friday night, Um, we didn't have to go to 0:04:08.920 --> 0:04:11.840 the bank because we could go on Saturday. And we 0:04:11.960 --> 0:04:16.200 used to watch Louis Rukaiser's Wall Street Week every Friday night. 0:04:16.240 --> 0:04:19.039 In the beginning, you know, I would just I did 0:04:19.040 --> 0:04:20.520 it because it was a way to spend time with 0:04:20.560 --> 0:04:25.880 my grandfather. But over time I really came to enjoy it, um. 0:04:26.040 --> 0:04:27.960 And I think that was really just the genesis for 0:04:28.000 --> 0:04:32.360 me getting quite interested in markets and companies. The fascinating 0:04:32.440 --> 0:04:36.440 thing about that period is the pace of Wall Street 0:04:36.640 --> 0:04:40.479 Week and the pace of Rukaiser was so different than 0:04:40.520 --> 0:04:45.200 what we experienced today. Do you look back at that 0:04:45.279 --> 0:04:49.240 period as sort of a kindler, gentler era or was 0:04:49.279 --> 0:04:55.320 that just part of the inevitable evolution of finance? I mean, 0:04:55.640 --> 0:04:58.280 to be Ernest Perrea, I was nine or ten years old, 0:04:58.279 --> 0:05:01.280 so I can't say that I I could credit in 0:05:01.400 --> 0:05:04.920 contacts in full construct um, But it was just for 0:05:04.960 --> 0:05:09.320 whatever reason, it was just fascinating to me. Um. And 0:05:09.480 --> 0:05:13.320 UH really planted the seeds earnly. So so let's fast 0:05:13.360 --> 0:05:17.160 forward a little bit to your current philosophy. Not that 0:05:17.200 --> 0:05:20.279 when you were nine years old you talk about having 0:05:20.760 --> 0:05:27.120 four core pillars of your beliefs, thinking like a business owner, contrarian, thinking, 0:05:27.839 --> 0:05:32.599 long term perspective, and being unconstrained. Tell us about those 0:05:32.640 --> 0:05:38.960 four and and how that belief system developed. Yeah, so, um, 0:05:38.960 --> 0:05:41.320 it's probably helpful. And I'll dive in on the pillars 0:05:41.440 --> 0:05:43.839 just to give a little bit of context on Orbits. 0:05:43.839 --> 0:05:48.640 So Orbius is in its thirtieth year. We founded by 0:05:49.120 --> 0:05:51.720 a gentleman by the name of Alan Gray, South African. 0:05:52.680 --> 0:05:55.880 Um so what is Orbits were global equity specialists. Today 0:05:55.880 --> 0:05:58.680 we manage about thirty seven billion in a u M 0:05:58.720 --> 0:06:02.080 across the globe through a handful of long only, absolute 0:06:02.120 --> 0:06:05.880 return and multi asset strategies. Um Or of his Global 0:06:05.920 --> 0:06:10.680 Equity is our flagship strategy and it represents our total 0:06:11.440 --> 0:06:14.520 a UM. We're mostly institutional, with the exception of some 0:06:14.640 --> 0:06:18.760 retail and Australia in the UK. Our investment approach is 0:06:18.760 --> 0:06:21.920 pretty simple. At the end of the day, UM we 0:06:22.040 --> 0:06:26.680 stribed to by assets at a meaningful discount to intrinsic value. UM. 0:06:26.760 --> 0:06:30.760 I think the key term there is intrinsic value. We're 0:06:30.800 --> 0:06:35.320 not deep value managers who simply buy didactically based on 0:06:35.400 --> 0:06:38.320 low price to book UM. We try to think much 0:06:38.400 --> 0:06:42.320 more holistically about the true value of each business as 0:06:42.360 --> 0:06:45.000 an owner UM, and we try to go after it 0:06:45.080 --> 0:06:49.400 when there's some kind of dislocation. UM. We've got a 0:06:49.440 --> 0:06:52.279 deep team of analysts about thirty five all around the 0:06:52.320 --> 0:06:55.760 world in local markets. UM, and we're really of the 0:06:55.800 --> 0:06:58.000 mind that if you if you want to generate an outfit, 0:06:58.040 --> 0:07:01.080 you've got to go against the crowd and thinking act differently. 0:07:01.839 --> 0:07:05.600 Our strategies are equity strategies are all unconstrained, so they're 0:07:05.640 --> 0:07:08.800 gonna look very different to the benchmark, and we tend 0:07:08.800 --> 0:07:12.120 to run pretty concentrated. Our global strategy has got about 0:07:12.200 --> 0:07:17.800 sixty positions with our active share running over UM. Now, 0:07:17.840 --> 0:07:21.320 there's a couple of aspects about orbits that are pretty unique, 0:07:21.720 --> 0:07:25.160 one of which is how we think about fees. All 0:07:25.200 --> 0:07:28.960 of our structures are performance based. UM. We can dive 0:07:29.000 --> 0:07:31.400 into that more deeply, but in a in a nutshell, 0:07:31.480 --> 0:07:35.640 we're contrary and intrinsic value equity managers now in terms 0:07:35.640 --> 0:07:39.640 of the pillars and how they interact. I think it's 0:07:40.480 --> 0:07:42.880 it's worthwhile to say, you know, sort of our d 0:07:43.000 --> 0:07:44.760 n A of who we are is deeply rooted in 0:07:44.800 --> 0:07:48.400 our founder UM and his view. This is going all 0:07:48.480 --> 0:07:51.240 the way back to South Africa when he first launched 0:07:51.240 --> 0:07:54.120 our sister firm is that if you want to generate 0:07:54.280 --> 0:07:57.520 an alpha, you have to go against the crowd. UM. 0:07:57.560 --> 0:07:59.840 And I can still hear Allen to this day say, 0:08:00.600 --> 0:08:02.920 you know, if you want to be good, work hard, 0:08:03.400 --> 0:08:05.040 but if you want to be exceptional, you have to 0:08:05.040 --> 0:08:07.240 come at the problem completely differently. You got to you 0:08:07.280 --> 0:08:10.680 got to turn it on its head. UM. And so 0:08:10.800 --> 0:08:13.520 this really kind of informs the pillars, and I think 0:08:13.520 --> 0:08:16.160 of it kind of the way that Jim Collins talks 0:08:16.200 --> 0:08:19.640 about Flywheel, like there's no one silver bullet, it's the 0:08:19.680 --> 0:08:23.880 way that they interact together. UM. And so the first 0:08:24.720 --> 0:08:29.440 is this concept of independent thinking. UM. You have to 0:08:29.480 --> 0:08:35.880 attract and retain highly independent minded people, people that love 0:08:36.000 --> 0:08:39.480 and relish having a view that's different to others. That's 0:08:39.520 --> 0:08:42.520 the heart and soul I think of of how we 0:08:42.600 --> 0:08:47.840 try to construct our model UM. And then two, you 0:08:47.920 --> 0:08:50.680 have to structure the firm and the values and the 0:08:50.760 --> 0:08:57.160 culture that rewards independent minded people like to do things 0:08:57.240 --> 0:08:59.320 that are different. You have to create a structure that 0:08:59.360 --> 0:09:01.160 allows them to do that. One of the things that 0:09:01.200 --> 0:09:05.720 we do, all of our analysts manage their own paper portfolios, 0:09:06.559 --> 0:09:08.960 and so that it's quite different than a lot of shops. 0:09:08.960 --> 0:09:11.160 And I not picking on any shop, but in many 0:09:11.200 --> 0:09:13.880 places the analysts will, you know, in air quotes, pitch 0:09:14.480 --> 0:09:20.480 names to pms um for us. The analysts are putting 0:09:20.520 --> 0:09:25.400 forward what they would buy themselves and be accountable for objectively. UM. 0:09:25.440 --> 0:09:28.720 And it's interesting because when I talk about this in 0:09:28.840 --> 0:09:32.400 recruiting to prospective analysts, you can see some of some 0:09:32.400 --> 0:09:35.440 some analysts are really drawn to that. You can see 0:09:35.480 --> 0:09:39.120 them lean in, they're excited about it, and some lean 0:09:39.200 --> 0:09:41.800 back and like oh um, and you can tell that 0:09:41.880 --> 0:09:44.760 it it kind of intimidates them. And the point there 0:09:44.880 --> 0:09:47.760 is that it's it's it's a self reinforcing system that 0:09:47.800 --> 0:09:51.640 attracts people to us and helps us retain the individuals 0:09:51.760 --> 0:09:57.720 that are most aligned with that. And then is let's 0:09:57.760 --> 0:10:00.320 let me jump in right over here U before we 0:10:00.360 --> 0:10:04.480 get to the other pillars. I recall reading an article 0:10:04.760 --> 0:10:09.000 about you and the firm some time ago, um maybe 0:10:09.000 --> 0:10:13.920 it was and Barons, where one of the analysts was 0:10:14.000 --> 0:10:20.840 pitching Nike, which was rolling out this new fangled direct 0:10:20.920 --> 0:10:27.920 to consumer Nike dot Com idea and pitched to everybody 0:10:27.920 --> 0:10:30.200 in the firm, all called in from around the world, 0:10:30.880 --> 0:10:38.160 and was fairly savaged in in various critiques and counter 0:10:38.280 --> 0:10:42.560 arguments and pushback, but ultimately the firm ends up buying 0:10:42.640 --> 0:10:45.800 half a billion dollars worth worth of Nike, which has 0:10:45.840 --> 0:10:49.400 been a giant home run ever since. Um. Is that 0:10:49.600 --> 0:10:55.280 typical for the process? Is that how that usually runs? Yes, 0:10:55.520 --> 0:10:57.440 So that's a I mean, that's a great example there 0:10:57.559 --> 0:11:00.960 in the sense that you know any firms and again 0:11:01.040 --> 0:11:04.400 not a critique, but many firms will manage their portfolios 0:11:04.520 --> 0:11:08.280 on a committee basis, UM. And our beliefs is that 0:11:08.360 --> 0:11:13.760 the best decision, particularly contrarian decisions, are not made by committees. 0:11:13.920 --> 0:11:16.160 They're made by individuals have done the work and have 0:11:16.240 --> 0:11:20.280 a conviction and they're willing to be accountable for those decisions. UM. Now, 0:11:20.320 --> 0:11:23.640 we obviously don't put people in positions to move capital 0:11:23.679 --> 0:11:26.320 for clients right away. It's based on a demonstrative track record. 0:11:27.160 --> 0:11:31.760 But our capital allocators have demonstrated those track records. UM. 0:11:31.800 --> 0:11:33.880 And it's not a committee decision. And so in the 0:11:33.960 --> 0:11:38.600 Nike situation, it was a very contentious investment committee. UM. 0:11:38.720 --> 0:11:41.720 And in fact, you know myself and the analyst, UM, 0:11:41.760 --> 0:11:45.480 I would say we're on one side relative to the 0:11:45.559 --> 0:11:49.040 rest of the investment team. And the core issue there. 0:11:49.080 --> 0:11:51.320 I mean, nobody would would dispute that Nike is a 0:11:51.360 --> 0:11:55.079 great company and has great content and it's very creative 0:11:55.120 --> 0:11:58.000 and great athletes. But they were making a big pivot 0:11:58.120 --> 0:12:01.400 to go online and go direct, and the key question, 0:12:01.480 --> 0:12:04.640 the burning question, was will that be better and more 0:12:04.720 --> 0:12:08.360 profitable for Nike going forward. In our thesis was that 0:12:09.400 --> 0:12:13.160 in cutting out wholesale, you eliminate that margin and they'll 0:12:13.200 --> 0:12:14.800 be able to retain it. And there's a lot of 0:12:14.800 --> 0:12:16.920 other reasons why we think it's going to be better. 0:12:16.960 --> 0:12:18.720 I thought it was going to be better, but it 0:12:18.760 --> 0:12:22.200 was a very contentious issue. Um. We had the investment 0:12:22.240 --> 0:12:25.079 committee great discussion and debate. I mean, there were points 0:12:25.160 --> 0:12:27.760 raised that we step back and spend time on. But 0:12:27.760 --> 0:12:29.640 at the end of the day, as a portfolio manager, 0:12:29.679 --> 0:12:33.360 that I made a decision to take a position, UM, 0:12:33.440 --> 0:12:37.400 And that's the core premise of how we invest, of 0:12:37.520 --> 0:12:42.439 allowing individuals to express themselves where they have conviction. So 0:12:42.520 --> 0:12:49.040 that raises a second, somewhat related issue as to the 0:12:49.080 --> 0:12:54.160 difference between traditional value. You you very disdainily mentioned price 0:12:54.240 --> 0:12:57.160 to book, which has done quite poorly the past I 0:12:57.160 --> 0:13:00.360 don't know twenty years. Um, certainly the past that cade. 0:13:00.760 --> 0:13:04.920 But you keep bringing up intrinsic value, and I'm wondering 0:13:05.400 --> 0:13:10.360 how much of that intrinsic value allows that definition allows 0:13:10.400 --> 0:13:15.840 you to embrace more of a posture that includes some 0:13:16.240 --> 0:13:23.360 out of favor growth stocks for sure. So, UM, I 0:13:23.400 --> 0:13:26.839 think we we've got a thirty year track record. If 0:13:26.880 --> 0:13:31.240 you look across those thirty years, it's across many different 0:13:31.280 --> 0:13:37.400 cycles and market environments growth value UM. And we by 0:13:37.440 --> 0:13:40.720 far we tend to do best in you know, classic 0:13:40.920 --> 0:13:45.240 value markets. UM. I think where we differ from our peers, however, 0:13:46.000 --> 0:13:52.160 is that we we do okay in growth markets. UM. 0:13:52.200 --> 0:13:57.079 And why is that? We're not didactic? Um? First of all, 0:13:57.080 --> 0:14:00.160 what is value? We're not didactic around what value is 0:14:00.200 --> 0:14:02.800 in the sense that it's a it's a hard parameter 0:14:02.920 --> 0:14:08.120 around price to book or a specific pe metric above 0:14:08.160 --> 0:14:11.320 which we won't buy. What we really think about holistically 0:14:11.640 --> 0:14:16.240 is the business, the quality of the business, the durability 0:14:16.240 --> 0:14:18.560 of the cash flows, the ability of those cash flows 0:14:18.600 --> 0:14:21.960 to grow over time, the mode UM. And then we 0:14:21.960 --> 0:14:25.800 look at the price and we go after situations when 0:14:26.280 --> 0:14:32.520 we see a meaningful gap excuse me between those two UM, 0:14:32.600 --> 0:14:34.720 that's what we are as a manager, and I think 0:14:34.920 --> 0:14:37.800 you know, everybody likes to put you in a box, um, 0:14:38.040 --> 0:14:40.680 Morning Star, others. And the way we like to say 0:14:40.680 --> 0:14:42.760 it is our dot moves around, you know, don't put 0:14:42.800 --> 0:14:45.400 us in any one box. The dot moves around. And 0:14:45.400 --> 0:14:47.920 I think it's because the areas of the market that 0:14:47.960 --> 0:14:52.040 are offering the most value move around over time, UM. 0:14:52.080 --> 0:14:55.520 And that's something that we've always lived to UM and 0:14:55.560 --> 0:14:59.000 hopefully has been beneficial for our clients over time. So 0:14:59.000 --> 0:15:01.520 so you get to run the US segment of what 0:15:01.520 --> 0:15:06.120 what is a global portfolio. Obviously, the US market has 0:15:06.160 --> 0:15:09.360 been pretty dramatically out performing the rest of the world, 0:15:09.920 --> 0:15:14.080 not just in but pretty much since the end of 0:15:14.080 --> 0:15:18.200 the financial crisis and in oh nine. How long do 0:15:18.240 --> 0:15:23.360 you think this relative outperformance of US versus overseas is 0:15:23.440 --> 0:15:26.080 going to last? Are we ever going to see any 0:15:26.120 --> 0:15:30.280 form of mean reversion or have things aligned in such 0:15:30.320 --> 0:15:33.480 a way that hey, this could go on for who 0:15:33.520 --> 0:15:40.840 knows how long? Yeah? Um, sixty four thousand. Another question, 0:15:40.840 --> 0:15:42.400 I mean, to your point, Beer, I think you know, 0:15:42.400 --> 0:15:44.800 the returns in the US, which is where I live 0:15:44.800 --> 0:15:49.120 and breathe, have been sensational relative and historic context into 0:15:49.280 --> 0:15:55.200 SMP since two thousand nine is compounded at the nasdas 0:15:55.280 --> 0:16:00.040 compounded at two to three x the long term and 0:16:01.160 --> 0:16:05.800 seven to average UM. In some ways, it's surprising, in 0:16:05.880 --> 0:16:09.880 some ways not UM, and I'm not studied it empirically, 0:16:10.560 --> 0:16:12.840 so ticket with a grain of stalt, but you know, 0:16:12.840 --> 0:16:15.000 in speculating some of the drivers. I mean, I think 0:16:15.480 --> 0:16:19.080 the most dominant force in the market globally and in 0:16:19.080 --> 0:16:23.480 the US over the past decades been monetary intervention. UM 0:16:23.880 --> 0:16:27.920 has truly been unprecedented and by and large, and I'm 0:16:27.960 --> 0:16:31.080 sure others would would disagree, but I would say leadership 0:16:31.120 --> 0:16:34.920 for Nankee Yell and now pow UM has been pretty constructive. 0:16:34.960 --> 0:16:37.920 So I think that's been the context within which this 0:16:38.040 --> 0:16:42.040 has been enabled UM. But there's really been an insatiable 0:16:42.080 --> 0:16:47.880 appetite for growth, non cyclical growth, secular growth UM. And 0:16:47.920 --> 0:16:51.240 if you look at the market structure today, what do 0:16:51.280 --> 0:16:53.720 you see. I mean, the top five companies now six 0:16:53.760 --> 0:16:59.680 if you include Testla in there, in SMP, or of 0:16:59.760 --> 0:17:02.840 the of the SMP, which by historical standards is now 0:17:02.920 --> 0:17:07.760 quite concentrated, there's now over fifty stocks that traded more 0:17:07.840 --> 0:17:10.720 than ten times revenues UM. And that's just in the 0:17:10.840 --> 0:17:13.239 SMP and there's all kinds of stocks outside of it, 0:17:13.320 --> 0:17:16.920 like Snowflake and Door to Ash and Zoom that traded 0:17:17.320 --> 0:17:22.880 pretty heavy multiples UM. And so it's been underpinned by 0:17:23.040 --> 0:17:31.280 exceptional revenue and earnings growth and exceptional UM multiple expansion UM. 0:17:31.320 --> 0:17:35.280 And it's been that mix that's created this this cocktail 0:17:35.359 --> 0:17:39.080 combined with lower taxes and lower regulation and following wage 0:17:39.119 --> 0:17:44.919 burden UM, that's created a pretty powerful cocktail UM. So 0:17:45.000 --> 0:17:48.040 the most important question is where too from there? UM? 0:17:48.040 --> 0:17:53.920 Where to from here? And UM. You know, by historical constructs, 0:17:54.119 --> 0:17:59.600 spreads are quite wide, UM, quite wide. And you know, 0:17:59.720 --> 0:18:03.760 we don't make forecast and there's not a prediction as 0:18:03.840 --> 0:18:08.720 to when it will turn or why it'll turn UM, 0:18:08.880 --> 0:18:12.439 but we're of the beliefs that that will and should 0:18:12.520 --> 0:18:17.800 normalize in time UM. And I think sympatistically that's around 0:18:17.800 --> 0:18:22.600 the fact that it's unsustainable for the market to compound 0:18:23.320 --> 0:18:28.840 at that rate UM. And when you look back, looked 0:18:28.840 --> 0:18:33.440 at orbits is history go all the way back to you. 0:18:33.560 --> 0:18:37.560 I think Japan was something like of the World Index, 0:18:38.320 --> 0:18:43.120 and we had zero exposure to Japan on the view 0:18:43.160 --> 0:18:46.679 that that was extreme and grossly over valued. You go 0:18:46.800 --> 0:18:51.040 to two thousand Um. You know, there was an area 0:18:51.040 --> 0:18:54.600 of the market technology and we were on the other 0:18:54.640 --> 0:19:00.359 side of that and Tobaccos whatnot. Um. And and you 0:19:00.400 --> 0:19:03.119 look at today and those spreads are just as wide, 0:19:03.160 --> 0:19:06.480 if not wider. And we do, as we said today 0:19:06.480 --> 0:19:09.840 we have a pretty meanful underway to the US. I 0:19:09.840 --> 0:19:12.920 think the US is now sixty five sixty six of 0:19:12.960 --> 0:19:17.439 the World index and we are about half that in 0:19:17.480 --> 0:19:20.680 our global strategy. UM. So we're on the other side 0:19:20.680 --> 0:19:26.919 of that. UM. And it's interesting because, UM, you know, 0:19:26.920 --> 0:19:28.399 when you look at it, when you look at the 0:19:28.480 --> 0:19:33.720 data and you think about it, it seems like, you know, 0:19:34.160 --> 0:19:37.360 it's clear what one should think about doing. But when 0:19:37.359 --> 0:19:40.600 you're in the moment and it's been painful in getting there, 0:19:41.200 --> 0:19:44.080 it's hard to do. And I think that really speaks 0:19:44.119 --> 0:19:46.840 to the behavioral side of investing, which is one of 0:19:46.880 --> 0:19:50.600 the aspects of investing that it's always attracted me the most, 0:19:50.680 --> 0:19:53.280 is that it's most difficult when you're in those moments. 0:19:53.560 --> 0:19:57.240 And I think now it is one of those times. Huh, 0:19:57.359 --> 0:20:02.399 quite quite intriguing. Last s and about these topics. So 0:20:03.160 --> 0:20:06.400 you run the US segment of what is a global 0:20:07.160 --> 0:20:10.879 investment company? What is your day to day job, like, 0:20:11.080 --> 0:20:14.960 what what is your actual title? What are you responsible for? 0:20:15.440 --> 0:20:17.880 Are you running the team? Are you running the portfolio? 0:20:18.160 --> 0:20:24.120 Tell us exactly, UM, what what your job entails? Sure? 0:20:24.960 --> 0:20:30.040 So UM, I've been investing for about five years of 0:20:30.280 --> 0:20:34.520 public and private markets, last eighteen years at ORBITS. I 0:20:34.600 --> 0:20:37.119 joined Orvice in two thousand and two, and so today 0:20:37.119 --> 0:20:41.639 I'm responsible for the US efforts of the firm UM in. 0:20:41.640 --> 0:20:45.120 Our US team is is based in San Francisco. I'm 0:20:45.160 --> 0:20:48.840 one of the five capital allocators UM or PMS for 0:20:48.920 --> 0:20:52.480 the flagship global strategy. So I'm the PM for the 0:20:53.000 --> 0:20:55.960 U S strategy. That's my day to day, which is 0:20:56.000 --> 0:20:57.960 a lot of reading and a lot of interacting with 0:20:58.200 --> 0:21:01.960 my investment team UM in terms of sourcing and thinking 0:21:02.040 --> 0:21:07.760 about ideas. I also sit on our global Management Committee, 0:21:07.760 --> 0:21:11.760 which i've done for it's about fifteen years UM. But 0:21:11.880 --> 0:21:14.000 I think at the core, you know, I started as 0:21:14.119 --> 0:21:16.440 an analyst as a generalist in Bermuda, which is where 0:21:16.440 --> 0:21:20.800 the firm's headquartered UM and today I do the same thing. 0:21:20.800 --> 0:21:23.760 I picked up a lot of other responsibilities along the way, 0:21:23.800 --> 0:21:27.240 but first and foremost, you know, we're bottoms of fundamental 0:21:27.280 --> 0:21:31.240 stock pickers. As analysts understanding businesses. And that's what I've 0:21:31.280 --> 0:21:35.560 been the majority of my time doing. Huh, quite fascinating. 0:21:36.119 --> 0:21:40.440 You only take a fee when your funds outperform your benchmark, 0:21:40.920 --> 0:21:46.600 and not only that, you return fees when you underperform. 0:21:46.600 --> 0:21:50.200 Explain the genesis of this and how it works in 0:21:50.480 --> 0:21:55.600 the real world. So genesis, UM, And to do that, 0:21:55.720 --> 0:21:57.399 I'm just going to tie you back quickly buried to 0:21:57.440 --> 0:21:59.440 the kind of the four pillars to round that out. 0:21:59.480 --> 0:22:05.560 So pillar one people independent minded, to structure give them 0:22:05.560 --> 0:22:08.280 a space to be independent minded and express themselves. And 0:22:08.359 --> 0:22:14.119 the third pillar is around alignment UM. Is to seek 0:22:14.119 --> 0:22:21.320 aligned clients in a way that our incentives are truly aligned. UM. 0:22:21.359 --> 0:22:24.080 And then the forest pillar is to structure the firm's 0:22:24.119 --> 0:22:28.040 ownership to promote putting us in a position to take 0:22:28.080 --> 0:22:30.960 a long term view and differentiated actions. And just on 0:22:31.040 --> 0:22:34.560 that last point, you know, the firm is privately held, 0:22:35.359 --> 0:22:41.439 our founder vested interest into a charitable trust, so that 0:22:41.520 --> 0:22:46.159 charitable trust uniquely will own orbits in perpetuity UM. And 0:22:46.320 --> 0:22:50.240 significant to that is it allows us to take actions 0:22:50.680 --> 0:22:53.199 that are longer term and they're differentiated. And that that 0:22:53.280 --> 0:22:56.840 relates to the fees and I'll tie it so specifically 0:22:56.840 --> 0:22:59.320 on the fees UM. The genesis goes all the way 0:22:59.359 --> 0:23:02.639 back to the beginning in the core value around alignment. UM, 0:23:02.720 --> 0:23:05.840 we've only had performance fees in the history of the firm. 0:23:05.880 --> 0:23:09.080 Our original fee, if you go back to was a 0:23:09.160 --> 0:23:11.520 base fee of a hundred and fifty basis points, with 0:23:11.720 --> 0:23:17.520 a hundred basis points fulcrumkee up and down fully symmetrical. UM. 0:23:17.640 --> 0:23:20.679 There are structures evolved UM as the markets evolved and 0:23:20.720 --> 0:23:23.679 I think improved. So let me let me touch on 0:23:23.720 --> 0:23:27.320 the principles of any and I'll talk specifically. So in 0:23:27.359 --> 0:23:30.879 the perfect world, the client wouldn't pay any fees until 0:23:30.920 --> 0:23:34.280 they redeemed, at which time they would just pay based 0:23:34.320 --> 0:23:38.200 on the value that you added. UM. Obviously that's impractical 0:23:38.520 --> 0:23:42.600 because managers need to pay bills. But the principle of 0:23:42.640 --> 0:23:47.720 alignment around that is the key to our approach UM, 0:23:47.800 --> 0:23:49.680 and so we try to do that in two ways. 0:23:49.680 --> 0:23:52.600 The first is just management staff co invest in the 0:23:52.640 --> 0:23:55.480 same vehicles with the same fees and were the largest investor. 0:23:56.119 --> 0:23:58.720 And the second is that all of our fees of 0:23:58.800 --> 0:24:03.480 performance based fully metrical and we refund the fees when 0:24:04.000 --> 0:24:07.800 we underperform, so they only pay a fee if we're 0:24:08.480 --> 0:24:11.480 add anxiety and to the best example is what we 0:24:11.520 --> 0:24:14.880 call our zero based THEE option, which is for institutional 0:24:14.920 --> 0:24:18.320 clients of size and so they pay no base fee 0:24:18.800 --> 0:24:21.920 and they only pay a performance fee if we deliver 0:24:22.040 --> 0:24:25.520 alpha UM, and on that alpha the sharing ratios two 0:24:25.560 --> 0:24:28.320 thirds to the clients and one third to us as 0:24:28.359 --> 0:24:35.280 the manager UM. If we subsequently underperform, then those fees 0:24:35.320 --> 0:24:38.840 are refunded UM and they go into a trust account 0:24:38.920 --> 0:24:43.400 which fits there for the client in future. UM. It's 0:24:43.400 --> 0:24:48.159 important to think about the incentives there, because we you know, 0:24:48.200 --> 0:24:50.159 our incentives or not to grow a u M. We 0:24:50.200 --> 0:24:55.639 don't survive unless we generate alpha and add value UM. 0:24:55.680 --> 0:24:58.359 Which isn't to say that we can guarantee that we 0:24:58.480 --> 0:25:01.879 will do such. We can say that we'll fully align 0:25:01.960 --> 0:25:06.840 and we feel the pain when we don't deliver UM. 0:25:06.920 --> 0:25:11.080 What's interesting about this is we first introduced this respundable 0:25:11.119 --> 0:25:16.320 fee structure in two thousand and four UM, and I 0:25:16.359 --> 0:25:18.879 think you care to say that clients were pretty skeptical 0:25:19.600 --> 0:25:21.800 UM of the structure. I think there was a lot 0:25:21.840 --> 0:25:24.560 of questions around, you know, well, why would you do this? 0:25:24.680 --> 0:25:27.480 There must be some kind of got you in here. UM, 0:25:27.600 --> 0:25:30.240 this just has to be better for you and UM. 0:25:30.359 --> 0:25:32.560 But I think now we've had well over a decade 0:25:32.840 --> 0:25:37.480 of of history with the structure thing viewers speak to clients. UM, 0:25:37.520 --> 0:25:42.119 it's been it's been a wonderful alignment vehicle. UM. What 0:25:42.200 --> 0:25:45.080 we've seen in practices that when we go through periods 0:25:45.080 --> 0:25:51.200 of underperformance, which we inevitably do, UM, clients are reluctant 0:25:51.560 --> 0:25:55.320 to redeem because they've got fees sitting in that UM 0:25:55.520 --> 0:26:00.000 reserve account. And number one, it dampens that relative underperformance 0:26:00.119 --> 0:26:03.359 because you have those fees being credited back into You 0:26:03.480 --> 0:26:07.199 see an asset there and you're reluctant to crystallize it 0:26:07.240 --> 0:26:10.160 because you know it's there. Now for us as a manager, 0:26:10.720 --> 0:26:14.080 that ideal, because it means that we don't have lock 0:26:14.200 --> 0:26:17.399