Emerging Manager Interview Series: Tålamod Asset Management

Over the past few years, I've been fortunate enough to compare notes on situations with a number of brilliant managers managing sub $250 million. I met Andersen Fisher of Tålamod Asset Management when I was working on a distressed equity that turned out to be a monster win as well as a number of names in the coals / materials space. Andersen has always provided a great sounding board on names and is very thoughtful in thinking about value and distressed investing with a more holistic view which can be seen from the interview below. He was gracious enough to take some time out for us and I'm sure readers will be fascinated with the conversation. For more information on Tålamod, you can visit their website at www.talamod.com

Can you give a quick overview / history of your background? What made you step out on your own from Watershed?

I was exposed to the principles of value investing from an early age, as my father ran a value-focused hedge fund before he got into public policy, back when hedge funds were still a novelty, not an asset class.  Both he and my mother’s father, whom I was very close to growing up, always stressed the opportunity of being able to see value by taking a contrarian view and to respect markets while maintaining a healthy skepticism of market prices.  When as a child you repeatedly get the “price and value are very different things” lecture over baseball cards, you end up better prepared to deal with the internet or housing bubble.    It didn't seem so at the time, but now I realize what an advantage it was to have bedtime reading include John Train and Charles Kindleberger.  In retrospect, I was raised in a way that made it natural for me to gravitate towards distressed and value investing. 

I started my own career as a professional investor in private equity, working in London for Hicks Muse’s European fund and then in San Francisco for Golden Gate Capital shortly after David Dominik and Jesse Rogers left Bain Capital and Bain & Co. to form that firm.  At both firms, I was trained to think about what determined and created the enterprise value of a business.   This was a great foundation for distressed investing as it focused not on the relative value of various equities or figuring out the right relative spread level for a certain bond, but instead on determining the absolute value of a business. 

Historically, a good portion of the excess return in distressed debt investing has come from being able to look beyond the constraints that limit other investors to certain asset classes and to see value in busted loans and bonds that have claim on a business’ value.  When people ask if we are only credit investors, I often joke that we own a lot of equity “dressed in drag” in a credit CUSIP. 

After business school, I went to work for Meridee Moore at Watershed, looking to find the best risk-adjusted claim on a company’s enterprise value based on the prices where various parts of its capital structure were trading in the secondary market.   One of the things I love about the distressed investing niche of the market is that, unlike equities and the world of High Frequency Trading, our world is still highly intermediated by human beings.   Relationships with peers, rivals, lawyers, traders, financial advisors and other market participants matter.   Given her long career in the market beginning with her time at Farallon, Meridee has an incredible network of relationships and working with her at Watershed was a great way to learn not just how our market works but, as importantly, who makes it work. 

My family has deep roots in Texas, and in 2008 my wife and I were expecting our first child.   I've been blessed to live in many interesting places throughout the world, but Dallas has always been home and I always knew I wanted to raise my children in Texas.  At the time, it was clear that an incredible distressed opportunity was on the horizon, and while I knew it would be hard to raise capital in a financial panic, I was excited about the chance to compound capital and start building a firm. 

I remain incredibly grateful that Ray Hunt and Chris Kleinert at Hunt Investment Group shared my view that it was the right time to start building Tålamod and provided our initial capital.   Our business model was old fashioned compared to many of the mega startups of hedge funds pre-crisis, in that we started with a relatively small amount of capital and sought to grow organically via compounding and take in new assets at a measured pace.   They've been great partners for the past five years.

In some of your materials you often speak about the sweet spot as combining the key elements of distressed investing and event-driven investing. Can you expand on this point as we've seen significant crossover of styles in the past few years?

One of the cardinal sins of finance is to mismatch the duration of your liabilities with the duration of your assets.   As I mentioned above, by training and upbringing, I've always gravitated towards value investing.  While numerous studies have shown the advantages of investing with Graham-and-Dodd- like-discipline over the long run, cheap stocks can stay cheap for a very long time.  Unfortunately most hedge funds have monthly or quarterly liquidity terms. 

As such, event-driven investing pulls forward the catalyst that unlocks or realizes value, and by reducing the effective duration of one’s assets, it is a much better fit for the demands the liability structure of a hedge fund place on any investment strategy.   Of course, one of the challenges some event or catalyst laden strategies have is that they lack a margin of safety.   Take a standard merger-arbitrage trade – to over-simplify, your payouts are typically 1pt of upside if the deal closes, 5pts or more if it falls through.  Sure, that is a good trade if you are 90% sure the deal will close, and diversification can further reduce risk in a merger arbitrage portfolio, but we try to avoid situations with that much downside per unit of upside.

Instead, we look for situations where we think we can get our principal back in a downside scenario and which have numerous catalysts to potentially unlock value to the upside.  Distressed situations tend to offer this type of set up, as the troubles that drive a company into bankruptcy are well known and discounted, and forced selling from certain market participants who can’t or won’t hold defaulted securities further reduces prices.  

The cadence and nature of the restructuring process offers numerous catalysts that can unlock value.  Outside of distressed situations, spin-offs, re-financings, litigations and other types of catalysts can offer the same type of value: underpinned by a low downside with an event to trigger upside.  But I think the reason you’ve seen crossover is that the style and strategy fit very well with the mandate of running a low correlation, absolute return vehicle that offers reasonable liquidity to its LPs.

You talk often about the competitive advantages of being a smaller distressed debt fund. In the past we've heard the opposite: Can't participate in rights offerings / get blocked out of allocations / etc. What response would you have to those complaints?

There is no doubt that much larger funds can monetize their balance sheet in certain ways that are not currently available to us, and one example would be getting paid a fee to “backstop” a coercive rights offering that nearly all other creditors will participate in.  But, given our smaller balance sheet, we also have numerous competitive advantages available to us that larger firms don’t have.

One obvious example comes from the fact that I can invest $5 million in Lehman and get almost identical returns to a $500 million investment.  Ideas that can accommodate a billion dollars of investment don’t discriminate between big and small funds.   However, ideas that can only accommodate $20 million of capital by definition exclude many of our larger competitors.   In a wonderful paradox, our universe of opportunity is larger because our balance sheet is smaller.

Interestingly, while we like off-the-run opportunities and smaller names as a result, we have also had tremendous success in mega bankruptcies where we originally were invested or evaluated the on-the-run opportunity but end up finding an obscure niche in the capital structure that offered much better risk/return trade-offs.   One example was in the Abitibi Bowater restructuring.   We became involved in the situation when the old Abitibi bonds were trading around 8 cents.   Lots of good investors at larger funds owned these and they were a great trade as they doubled in price by the time the company exited bankruptcy. 

But there was one bond in the cap structure that had guarantees from 23 additional subsidiaries.   It took hundreds of hours to try and comb through the various dockets, past filings, tax records, etc., to piece together an approximation of the value in those guarantees, but we thought it was significant and rotated into these “double-dip” –really 23x dip – bonds when they traded about 10% or 1pt higher than the on-the-runs.  The issue was small: half was held by a bank that got hung with a position via a busted syndication and it was trading around 10c.  The idea only really had $10 million of capacity, and required tons of work to evaluate, but those bonds got roughly 5x the distribution of shares in the new company than the “on-the-runs.”    It was a nearly identical risk, but obviously had a much better return.

We’ve seen this phenomenon frequently enough that I often tell investors that one benefit of our size is that while we may be in the same names as many of our peer funds, we often own very different risk than they do.  Small size also makes some risk easier to hedge, which can be a benefit in normal markets.   But big or small, you still have to get the fundamentals of the investment right. 

Given the small investment team at Tålamod how do ideas get in the book? What is the filtering mechanism?

Bonds and loans do distressed investors the great favor of pricing relative to par, which makes the wide end of the filter easier to use.  If a stock is trading at $30, it may or may not be interesting but the price tells you nothing.  If a bank loan is at .30, clearly the company is distressed.   The loan may be worth .10 or .50, but you know at least to take a look.   For equities, it is a bit harder, and while we can run standard valuation screens like anyone else, they are not as useful in identifying situations that have defined catalysts.

When we do our first cut of work, we try to identify the following: What is our downside valuation? What are potential upside cases? What are the catalysts to drive the upside cases? What are the key unknowns or uncertainties that determine how we are deriving our valuations? This last point is crucial.  Often, after a first cut, the takeaway is: “I think our downside recovery is 50-60 points, if x goes your way, we should recover 60-70 points, and if x,y&z all go your way it could recover as much as 80-90 points.”  There are always unknowns, so those levels are always ranges, but in general, you can usually do much more work to tighten the range.  

If a bond with those types of outcomes is trading at 60, it is worth doing that additional work to tighten your estimates and try to reduce the unknowns.   If it is at 85, we put our pencils down and watch.   I’d say nine times out of ten, if not more, we end up putting our pencils down.  So while size of the team matters in terms of sourcing, I think size of “institutional memory” matters much more.   You can move much more quickly to re-underwrite when a situation you’ve passed on cracks six months later and gets much closer to a risk profile with diminished downside.  

Institutional memory also matters in idea sourcing when it comes to following new issues.  We rarely participate in new issues, which in times like these can be frustrating, but you have to know the business you’re in and be able to make a separate peace with watching Twitter double on the break or PIK-toggle holdco notes trade up a point from the sidelines as a spectator.  

Still, we follow new issues because markets are cyclical and some of these new issues today will be tomorrow’s distressed supply.  It is much easier to evaluate a distressed situation when you can recall what everyone liked about a business three years ago, have a decent sense of what went wrong and, as importantly, what went right since then.  We’re lucky that Kyle, Jay and I have all been working together at Tålamod for five years, as we gain increasing leverage on the firm’s continuously compounding institutional memory.   

How much "macro" goes into play in your decision making process?

You have to be aware of how macroeconomic trends are going to impact the businesses you are investing in.  Given the distressed focus here, the macro trends in many sectors we invest often are challenging: take Appalachian coal for example.   We try to price in continued macroeconomic pressure and get the benefit of cyclical turn “for free” but that is not always possible and sometimes you have to underwrite to some type of turn cyclically based on historical information.  

The event-driven nature of our portfolio reduces its effective duration which dampens overall market risk, and thus macro risk, but obviously it is important to make sure your catalysts are not very correlated with overall market conditions or macro trends for this to be true.  We hedge some portfolio risk on a top-down basis, but prefer to reduce risk via position level hedges or shorts.  In general, the strategy is less sensitive than many others to general macro risk due to lower duration and non-correlated catalysts, but the lesson of 2008 is that no strategy is immune to market breakdowns.  

That is what made the fall of 2011 so difficult to risk manage: there was a real chance of a collapse of the European banking system.  Incredibly, the best month for the S&P 500 since our inception was October of 2011, as the key lesson many took from 2008 was “risk-on” or “buy” when policymakers show they “get it” by putting forward plans, no matter how half baked or unworkable they are, like the EFSF.  Others, ourselves included, took away a different lesson, remembering the “Super-SIV” or MLEC proposed by Treasury in 2007 and concluded that inoperable “solutions” and policy marker hand-waving are not enough to solve real liquidity crises. 

In the years since, a lot of documentation has come out that shows real conditions had only become worse in the European banking system that October, including documentation of the Deputy Governor of the Bank of England, in which they warned the three largest banks in Britain that there was a serious chance they would “all be out business by Christmas.”  It wasn’t until LTRO was announced by the ECB on December 8th that the problem was really addressed, but if you waited until then to lift macro hedges you got killed by the 15% move up in October. 

That experience makes it a real challenge to think about how to use macro hedges going forward.  We knew at the time nothing was fixed in early October, and with hindsight from subsequent public disclosures, one would have been even more concerned if they were privy to the private conversations of Bank CEOs with their key European regulators.   But you got killed if you were short equity or credit indices as a macro hedge in October of 2011.  I’m not sure I have a good answer to this dilemma. 

Over time your cash position at the fund has moved around precipitously. Currently your cash is the lowest it’s been in some time. Are you seeing significant opportunities in the market place today?

We are seeing interesting opportunities, and believe firmly in the motto of the great Canadian investor Peter Cundill: “There’s always something to do.”  As we noted above, while all distressed investors would love another 2009-size opportunity set, they are few and far between.   Still, there are always good opportunities and in this type of market, we are fortunate that we have more opportunities available to us than some of our much larger competitors.  

Our cash balances are not always a function of our opportunity set.   Yes, many distressed investments are by design long-biased as they are very difficult to hedge.  Unlike the classic “long Ford, short GM,” equity pair trade example, if you own a Madoff claim, you can’t reduce the overall risk of buying a claim in a ponzi by shorting a Stanford claim.   First, the trade doesn't work like that and second, you can’t get a borrow to deliver the short even if it did.  

So, often you have to underwrite risk vs. reward at a price and are either long or in cash.   In a portfolio built from the bottom up with that type of underwriting discipline, you will end up with cash balances from time to time.   Further, the event-driven nature of distressed investing usually means there is always a bit of a frictional cash balance as catalysts occur and the trade manifests itself and converts to cash.  While it would be wonderful to be able to buy continuous compounding equities and hold them for decades like Warren Buffet, that doesn't tend to happen very much in distressed or event-driven investing.  

You can’t escape risk. You have to choose the risks you’re willing to run.  The upside to the short duration of a distressed, event-driven portfolio is low correlation and dampened beta.   The downside is you run reinvestment risk and, over the cycle, any type of disciplined underwriting means there will be times when cash build ups occur.  There is a reason Seth Klarman has been willing to give back capital from time to time, and his incredible success in the past complicates this issue as Baupost is of such a large scale.  At times it is nice to be a bit more nimble than the firms we aspire to model ourselves after and have a wider opportunity set with smaller investments available to us. 

Pulling from your 3Q letter, I found myself enthralled by the discussion of the credit cycle. This quote in particular: "After several years, the pain of the last default wave is forgotten, years of outsized returns have attracted capital flows to the space and very speculative loans are made freely. Eventually, a limit factor is reached where underwriting standards remain weak but decline no further. Either a shock to the system or just the law of gravity results in some defaults occurring when weak borrowers can’t refinance even under the lax standards of the day. These defaults chasten some lenders, which makes it slightly harder to roll maturing debt, which causes more defaults which can quickly spread to panic and complete the cycle at new peak spreads." Can you summarize for readers where you think we are in terms of the credit cycle?

I think we are near or at the point where underwriting standards are weak but don’t have much more room to weaken.  Rates are somewhat limited in terms of how much lower they can go, and while spreads could compress further and are not near historically low levels, it is coupon, not spread that compensates for default.  As such, with “risk free” benchmark rates so low, spreads really can’t get to the tights we’ve seen in past cycles as all-in coupon would not cover any practical level of expected defaults.

Indenture and credit agreement terms could still weaken further, but they are already surprisingly weak and additional deterioration of creditor protection will require further “innovation” from the geniuses that man desks of leveraged finance.   To paraphrase Sir Isaac Newton: “If I am able to extend further, it is because I stand on the shoulders of PIK-toggle.”

So, I think we are at a point where underwriting is weak, but is unlikely to materially weaken.  Given GDP growth for the past few years, defaults should have been higher based off of what was observed in past cycles.  Further, as corporate executives have been pressured by shareholders to deliver EPS growth despite minimal revenue growth, leverage levels have significantly increased recently.   In the past, spreads follow leverage levels, but typically with a bit of a lag.  You saw this lag most recently in 2007.  

Finally, while it seems counter-intuitive, after a crisis sometimes you need growth or stabilization to “allow” defaults.  Matt King at Citi recently highlighted this phenomenon by noting that in Japan, it took several years for the banks to retain enough earnings before they could allow defaults to tick up, less their solvency issues become clear.   This is more of an issue in Europe than in the US, but in the middle market where bank lending still matters, it is relevant.

You noted in the same letter that you believe the next default cycle will be ripe for "the good company with a bad balance sheet,” a holy grail for distressed debt investors. One could argue that the growth of the high yield and leverage loan market and loosening credit standards (i.e. PIK toggle dividends) portends the exact opposite scenario – for example, a company that should never have raised debt with a bad balance sheet. Can you discuss why you are bullish on the next distressed cycle?

What I was highlighting was that there is a chance that the next distressed opportunity is a result of an upside surprise to growth and corresponding higher rates, more like a 1994 or 1998 than a repeat of the 2008 crisis.  The point was that interest coverage or fixed charge coverage, not leverage ratios, tend to be the limit function for how much a determined corporation can borrow.  At a 6% cost of debt, I can leverage myself 8.3x and still have acceptable interest coverage ratios if I am an average company, while at 8%, I can only leverage 6.3x.

If the economy starts growing again at 4-5%, my revenues will be growing and my cash flow will increase, but EBITDA needs to increase by over 30% such that I can de-lever fast enough to roll my debt at that higher rate.   If EBITDA has only grown by 10%, I am a healthy, growing company that still has too much debt.  Either I need to raise equity or I default and deleverage my balance sheet by equitizing a tranche of bonds.  This will create interesting opportunities for distressed investors, including the legendary white whale of “good company with a bad balance sheet.”

Obviously, another growth scare could also create interesting distressed opportunities.  If we have an earnings recession despite QE-infinity, it will get messy exactly because of the low quality credit being extended that you note above.  I think most people understand the impact of another recession, given how traumatic and recent the experience of 2008/09 was.   In my letter I was trying to note that there were also risks from growth, as ’94 is not as fresh of a memory.

One final reason to think there will be incredible values to be had in the next distressed cycle: capital devoted to performing credit has increased significantly in the past five years.   Capital devoted to distressed, while a decent size, is only about 2.7% the size of the high yield and investment grade market.  Finally, the historical buffer between distressed investors and performing credit has typically been the dealer desks that provide liquidity.  The financial reforms of the past few years have greatly reduced this buffer.  Going into the crisis of 2008, dealer inventory was equal to about 50% of the inventory held by IG and HY mutual funds and ETFs.  Today, it’s closer to 10%.

In the next distressed cycle, supply will dwarf natural demand, and retail investors may likely play the role of the key determinate marginal seller given the impact of credit ETFs and other fund flow dependent actors.  All this will occur with a greatly reduced ability for the banks to intermediate.  There are bound to be great opportunities.

Can you talk about one of your more compelling investment opportunities today that fits into Tålamod's strategy?

Sure.  We think one of the more compelling themes in the market today is the massive disconnect between the valuations pure-play growth companies are able to demand compared to the similar assets held by companies with legacy businesses that are not market darlings.  Look at Tesla vs. any automotive company or Shutterstock vs. Getty Images.  The growth and success of the challenger businesses are impressive, but it often seems like the market places negative or no value on the distribution systems, intellectual property, systems, customer relationships and cash flow of the legacy businesses.

As distressed investors, we have spent a lot of time the past decade looking at the Yellow Pages industry.  Until recently, the key to success in investing in the busted debt of those once great quasi-monopolies was to correctly underwrite the decline curves of the legacy print businesses.  At times, markets priced in revenue declines of 50% a year, and if you could get confident that 20% declines were more likely, buying first lien bank debt with high coupons and amortization pay downs at massive discounts to par was a good way to make a return.  This didn’t require the businesses to perform well, it just required “really bad” declines in revenue to occur instead of “absolutely horrendous” declines.

Directories understood the challenges they faced long ago and tried to build their digital offering, but legacy capital structures depended on higher margin print businesses, thus transforming the business for the next decade took a back seat to meeting the next quarter’s covenant or interest payment.  However, after restructuring, some businesses deleveraged enough to properly invest in their digital business, while they still received very healthy, if declining, cash flows from their legacy print business.

Five years ago, digital was a tiny part of the business for most directories, but today it is a real business, and some have very attractive metrics.   We think the incumbent Canadian directory company, Yellow Media, is a great example.  Nearly one in three Canadians visit the company’s digital properties monthly, and nearly one in three smart phones have downloaded their app.   They provide real service to their customers, and their proprietary traffic and huge customer database give them a meaningful completive advantage over many other digital competitors.  The digital business is growing at 10% and soon will account for half of the company’s revenues.

Those types of user penetration metrics and growth profiles would garner a huge valuation if the digital business were a pure-play stand alone.   Just look at how Yelp, Web.com and other businesses going after the same niche are valued.   Now, I don’t know if any company is worth 20x revenue, like Yelp is currently priced, but I know 2.2x EBITDA is cheap for a Canadian business that has very similar characteristics, save for one key difference in that Yellow Media’s digital business is already quite profitable.  And that is to say nothing about the real cash flows still being generated by the legacy print business.  While the stock has had a great run this year, the surprising fact is that enterprise value is little changed, as the increase in the equity account is offset nearly entirely by the fact that the company has paid down debt early with free cash flow.  

The directory sector offers great opportunities for distressed investors right now for several reasons.  First, you have to be able to price a series of decreasing cash flows from a legacy print business in secular decline.   This should be a core competency of distressed investors.   Second, you have to be able to understand the risks and opportunities of the transition the industry is making to digital.  Frankly, this type of thing is not a core competency for distressed investors, but the great news is that several of these businesses in Europe have made the transition to majority digital businesses so there is a road map on process and valuation.  We are at a disadvantage to the fortune tellers in Silicon Valley when it comes to foreseeing how a division that accounts for 1% of revenue is the key to the business’ future fifteen years hence, but when that same division is 40% of revenue and growing, even distressed guys can begin to understand what 2016 might look like.  Third, you have to be able to look across capital structures and geography.  These directory businesses are very similar, and while there are nuances to why perhaps Canada and France are more defendable markets than the US or Sweden, they are all going through the same transitions, just at different stages.   They also all have different balance sheets.   We own a term loan in one directory which we think is a very attractive credit risk.  We own another term loan in a different company that we think is equity risk, despite it being senior secured.   And we own converts and equity in yet another, which is very likely the best risk/return tradeoff of all three. 

But you have to be able to think first what each business is worth, and then feel comfortable buying the right claim on that enterprise value in whatever form it takes: loans, bonds, common, etc.  Again, this is a core competency of distressed investors, who don’t suffer from being restricted to a single asset class.   We think there are plenty of catalysts still to come in the space: mergers, refinancing, management changes, and, most importantly, the pending transition to majority digital businesses.  It’s a great niche in the distressed market right now.

Tålamod recently celebrated its fifth anniversary.  After 5 years running your own shop, what advice would you have for investors currently at funds looking to go out on their own? Can you talk about some of the lessons you've learned in those five years?

Many people will tell you that you obviously have to love investing and have a passion for what you are doing, and I can only echo and reinforce that message to anyone looking to set out on their own.  What is not mentioned as often is one reason this passion is necessary is that the business is incredibly hard, and success does not come easy.   We compete against so many talented investors in what are often zero sum situations that a search for an edge always needs to be coupled with a healthy dose of humility. Inevitably times will arise where that humility proves warranted by your mistakes.

Passion and confidence are required not only to motivate you to find and execute the brilliant trade, but to risk manage and mitigate losses from the less-than-brilliant one.  We all admire the investors who get it right, but the ones I most admire are the guys who can also handle getting something wrong well, too.  There are going to be ups and downs, in your portfolio and in growing your firm. But you have to be able to handle the frustrations just as well, maybe even better, than the triumphs in order to remain balanced, focused, and keep things moving forward. So I would add resiliency to passion as key ingredients to traits that are necessary, but not sufficient, for success in starting a firm.

Another lesson I would add is that our industry is undergoing a significant secular change in and of itself.  In the twenty years from 1985-2005, hedge funds as an asset class underwent tremendous growth, in large part fueled by stealing share from simple “60/40” allocations as institutions rushed to replicate David Swensen’s success and Yale’s healthy allocation to alternatives.  This trend was waning prior to the financial crisis, but 2008/09 accelerated that shift.   As a result, AUM growth from new allocations will be much lower in the next 20 years.   Further, the marginal dollars being allocated are mostly going to established brand names and large scale funds.

The days of walking off the prop desk and being handed a $1 billion dollar fund on your way out the door are long gone; so it is even more important to be careful in choosing your initial capital partners, your team members and your early LPs as new funds need to plan on it taking years, if not decades, to ramp up to the scale of the large institution that someone may be thinking about leaving.  In a way, this is a bit of a “back to the future” model, as many of the legends in the industry also started at small scale in the ‘80s, not because they expected to be running $10 billion businesses in a few years, but because they were excited about the ability to compound $10 million of capital as an investor.

The great news for someone looking to start a fund is that as more capital goes to the mega-funds, more opportunity becomes available to the smaller guys if you can build a sustainable business.  Technology is providing some operating leverage to small firms that was unavailable ten years ago. 

I also know that many of the most sophisticated institutional allocators understand that as more of their competitors cluster to the big funds, the better they will do if they devote new capital to smaller funds.   There are people out there looking for intelligent investors willing to take the risk and open a new shop. 

But while people use the term “emerging manager” as a marking term, I don’t like that adjective.  We strive to be a “great,” “thoughtful,” “talented,” and/or a “first class” manager.  Emerging suggests a progression occurs on the path from small to big.  In reality, some things should never change no matter your size.  The fiduciary responsibility we have to our smallest investor is identical to the one we owe large institutional allocations.   Other things are always evolving or emerging.  I have become a better investor based on experience, but I’m sure Paul Singer and Seth Klarman are better investors today than they were a year ago, too.

So build a great team, find the right partners, bring passion and confidence, but don’t forget resiliency and patience if you are looking to build a firm that can last.  Our firm’s name, Tålamod, is taken from the Swedish word that translates to patience, or perseverance or level-headedness depending on context.   I chose this name partially in the hopes that my wife, who is a Swede, would be patient with me and the demands a new firm would have on our time  - a supportive spouse is another prerequisite for anyone looking to start a firm and I am very lucky to have one.   But the main reason I named our fund Tålamod is because each of these traits – patience, perseverance, equanimity - are so essential to success in the type of investing we do, and in building a firm.        

*Disclosure: Tålamod is a client of Reorg Research