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Graham & Doddsville Graham & Doddsville An investment newsletter from the students of Columbia Business School Inside this issue: Issue XXIX Winter 2017 Kingstown Capital G&D Breakfast P. 3 Management Kingstown P. 5 Rupal Bhansali P. 15 Michael Blitzer and Guy Shanon are the Managing Partners of Kingstown Simeon Wallis P. 23 Capital, a value-oriented investment Student Ideas P. 38 partnership that focuses on special situation securities across the capital Jared Friedberg P. 44 structure. The firm was founded in 2006 with strategic backing from Studness P. 51 Michael Guy Gotham Capital and currently manages $1.8B. Michael and Guy both hold Blitzer ’04 Shanon ’99 (Continued on page 5) Editors: Eric Laidlow, CFA Rupal Bhansali Simeon Wallis MBA 2017 of Ariel of ValorBridge Benjamin Ostrow Investments Partners MBA 2017 John Pollock, CFA Rupal J. Bhansali is ValorBridge MBA 2017 executive vice Partners, a private Abheek Bhattacharya president of Ariel holding company Investments, a founded in 2004, MBA 2018 money owns, operates or Matthew Mann, CFA Rupal Bhansali management firm is an active investor Simeon Wallis MBA 2018 headquartered in in several private (Continued on page 15) companies; it is also a passive investor Adam Schloss, CFA (Continued on page 23) MBA 2018 Jared Studness Capital Management Friedberg of Mercator Visit us at: www.grahamanddodd.com Rolf Heitmeyer www.csima.info Jared Friedberg is the Founder & Portfolio Manager of the Mercator Fund and the Managing Partner Jared of Sycale Advisors. Charles Roy Friedberg ’99 Jared was Studness PhD ’63 Studness ’06 previously Co- Founder and Charles began his career teaching (Continued on page 44) (Continued on page 51) Page 2 Welcome to Graham & Doddsville We are pleased to bring you the vesting to international oppor- family of investors combine 29th edition of Graham & tunities. The CIO of Interna- their industry specializations to Doddsville. This student-led in- tional & Global Equities applies invest opportunistically in these vestment publication of Colum- the lessons of Warren Buffett two domains. bia Business School (CBS) is co- as well as George Soros, whose sponsored by the Heilbrunn concept of reflexivity is critical Lastly, we continue to bring Center for Graham & Dodd for understanding financial cri- you pitches from current stu- Investing and the Columbia Stu- ses. dents at CBS. CSIMA’s Invest- dent Investment Management ment Ideas Club provides CBS Association (CSIMA). Simeon Wallis of Valor- students the opportunity to Bridge Partners discusses the practice crafting and delivering Meredith Trivedi, the Heil- In this issue, we were fortunate unique opportunity to redeploy investment pitches. In this is- brunn Center Director. to speak with seven investors cash flows from the company’s sue, we feature ideas from the Meredith skillfully leads the from five firms who provide a primary portfolio company, 2017 Heilbrunn Center for Center, cultivating strong range of perspectives and invest- ApolloMD, into public and Graham & Dodd Investing relationships with some of ment approaches. All of these private investments. This flexi- Stock Challenge and the 2016 the world’s most experi- investors benefit from applying bility allows the organization to Darden @ Virginia Investing enced value investors, and fundamental research to special- beneficially allocate capital to Challenge. Zach Rieger ’17, creating numerous learning ized investment areas that other the most attractive opportuni- Alexander Levy ’17, Abheek opportunities for students funds cannot explore. ties and to share valuable in- Bhattacharya ’18, Harsh Jhaveri interested in value invest- sights across asset classes. ’18, and Ryan Kelly ’18 share ing. The classes sponsored Michael Blitzer ’04 and Guy their ideas for Foot Locker by the Heilbrunn Center Shanon ’99 of Kingstown Capi- Jared Friedberg ’99 of Mer- (FL), Axalta Coating System are among the most heavily tal Management return to dis- cator shares how a family office (AXTA), and Cardtronics demanded and highly rated cuss the benefit of longer time- can use its permanent capital to (CATM). classes at Columbia Busi- horizons in special situation benefit from special situations ness School. investing. The team discusses and long-term compounders. As always, we thank our inter- the evolution of Kingtown’s Additionally, the company can viewees for contributing their strategy since our last interview creatively invest across the time and insights not only to in 2010. Additionally, they share capital structure, to find value us, but to the investment com- insights regarding complicated “obscured by complexity.” munity as a whole, and we and overlooked situations, in- thank you for reading. cluding international privatiza- Charles Studness and Roy tions. Studness ’06 of Studness - G&Dsville Editors Capital Management demon- Rupal Bhansali of Ariel Invest- strate the benefits of investing ments shares her perspective on in negatively correlated indus- applying fundamental value in- tries: utilities and banks. The Professor Bruce Greenwald, the Faculty Co-Director of the Heilbrunn Center. The Center sponsors the Value Investing Program, a rigor- ous academic curriculum for particularly committed stu- dents that is taught by some of the industry’s best practi- tioners. Prem Watsa and Ajit Jain pose for a Regina Pitaro ’82 with Professor Bruce picture at the 26th Annual Graham & Greenwald enjoying the G&D Breakfast, Dodd Breakfast held at The Pierre Hotel Volume I, Issue 2 Page 3 26th Annual Graham & Dodd Breakfast— October 28, 2016 at The Pierre Hotel Columbia Business School Dean Glenn Hubbard Professor Bruce Greenwald, Prem Watsa, and VJ addresses the crowd Dowling share their views at the G&D Breakfast Professors Tano Santos and Kent Daniel in discussion at Ajit Jain and Mario Gabelli ’67 pose for a picture the G&D Breakfast The crowd listens to Professor Bruce Greenwald, Prem Watsa, and VJ Dowling discuss this year’s theme: Finding Value Through Specialization Page 4 Save the date for the eighth annual “From Graham to Buffett and Beyond” Dinner Friday, May 5, 2017 6 p.m. to 9 p.m. The Omaha Hilton 1001 Cass Street • Omaha, Nebraska Tickets will go on sale in March at www.grahamanddodd.com Page 5 Kingstown Capital Management (Continued from page 1) MBAs from Columbia Most of these securities are in offs and distressed debt. Business School where the $1B to $10B enterprise they participated in the value range for both equities MB: Also, there's a big, timely Value Investing Program and debt, though credit debate right now about active and have taught Applied securities can be smaller. Being versus passive investing. Value Investing as adjunct bigger also gives us research Passive has come into a lot of faculty. Michael currently resources and access we just popularity. When we started serves on the Executive didn’t have when smaller, and twelve years ago, we Advisory Board of the the structure of the industry is maintained the premise that Heibrunn Center. making it harder for very small the markets are very efficient. funds every year. Our strategy is to be Graham & Doddsville exclusively focused on very Guy (G&D): How did you both G&D: Why have you focused small pockets of inefficiency Shanon ’99 meet and how did the fund get on that particular size? within what is, generally, a very started? efficient market. We have to GS: I think one of the things have the flexibility to go after Michael Blitzer (MB): Guy we learned is that it is not so companies that are smaller and I have known each other easy to make money with than $10B or $20B for a very long time. We both super small caps. You see a lot went to CBS. I was '04, Guy of questionable management GS: And don’t have twenty was '99. We didn't know each teams and very low quality sell-side analysts covering other while we were at businesses which have not them. Columbia, but at that point become bigger for what are AVI [Applied Value Investing] usually good reasons. Then of G&D: As the number of was a very small network. course you have all of the special-situation funds grew, extreme technical aspects, like how has this impacted Guy Shanon (GS): So if liquidity dries up that makes Kingstown? Have you been Michael everyone knew each other it even harder. Yes, there are able to maintain an advantage? Blitzer ’04 from different years. sometimes great opportunities, and we look at small caps all MB: The longer we do this, MB: Guy's class had six the time, but they aren’t giving duration of capital and time people. They were the only six it away by any means, and horizon has actually become people at Columbia who were focusing exclusively can be a more and more of a interested in value investing – tough way to make money competitive edge. We've it was 1999. There was no over long periods of time. always defined the strategy as AVI. The program really grew kind of having a medium-term from there. We don’t think of ourselves as time horizon, generally one to a big fund, and we think we can three years. These securities GS: Our initial investors and make the best risk-adjusted tend to have larger mispricings. employees came from that returns in the size range we A typical example is a situation network of students and currently target. The current that has a known or likely professors. portfolio runs the gamut from catalyst but unknown timing— $300mm in market cap to you know it will happen G&D: We last spoke with you $50B, so the range is wide and sometime in the next three in 2010. How has the fund we look at everything. But the years, but it could be changed since then and what sweet spot tends to be this tomorrow or it could be years have you both learned? middle range which are small from now.
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