evaluation_december 2015_final copy

Dec. 2015 eVALUATION

The rise in popularity of ‘activist investing’ has led many commentators to herald this as the ‘golden age’ of activist shareholders. The concept of shareholder activism often inspires the image of fiery eyed hedge fund managers writing artsy letters demanding corporate change. However, long before ‘activist investing’ became a buzzword, successful ‘active shareholders’ have been working with incumbent management to enhance shareholder value for many decades – often under the radar. Therefore, we at eVALUATION apply a much broader definition to the term. Today we are in an era where ‘activist tweets’ drive share prices. Globally, 344 companies were subject to shareholder activism in 2014, compared to 291 in 20131 (the actual number is much higher as a number of ‘campaigns’ are not publicly disclosed by ‘active shareholders’). Shareholder activism is prevalent not only across all asset classes but also across investor classes. To raise their voice and effect change, many institutional investors as well as individual/minority investors, are increasingly taking a more ‘active shareholder’ role through proxy contests and focused public forums, respectively. It is our pleasure to introduce this fifth issue of eVALUATION, where we elected to focus on this broader definition of shareholder activism. In our view, the dynamic relationship between shareholders and management is a source of value creation and is therefore worthy of deeper investigation. We hope to give readers detailed insight into the mind-set of some of the most experienced and successful long-term active shareholders. These success stories often do not receive the publicity of widely covered activist campaigns; however, they carry poignant fundamental investing lessons. We hope that you enjoying reading our interviews with leading ‘active shareholders’ as well as some of our best student investment write-ups. Finally, we would like to thank all our interviewees for their invaluable time and contribution.

Happy Reading!

Gary Claar: Managing Member, Claar Advisors LLC…Pg. 2

Rajeev Das: Head of Trading, Bulldog Investors…Pg. 8

James Rosenwald: Co-Founder and Portfolio Manager, Dalton Investments…Pg. 13 Aswath Damodaran: Valuation Expert…Pg. 18

Mark Kronfeld: Partner, Plymouth Lane Capital Management…Pg. 20 Troy Green: Associate, Brookfield Investment Management …Pg. 24

Student Investment Ideas: long UBNT, long KOSDAQ: 086900, long DISH…Pg. 30 SIMR Recent Events…Pg. 39

eV Editors – Sid, Ethan, Neha, Marian

eVALUATION Investing Insights brought to you by the students of NYU Stern

LETTER FROM THE EDITORS INSIDE THE ISSUE

Issue 5

1 The Activist Insight Activist Investing Review 2015, in association with Schulte, Roth & Zabel

Issue 5


Gary Claar – Managing Member, Claar Advisors LLC

Gary Claar is the founder and Managing Member of Claar Advisors LLC, organized in 2013 as an

investment advisor to family offices. From 2001 to 2012, he was a founding partner and co-

portfolio manager at JANA Partners LLC, an investment firm known for activism and special

situation investing. Prior to JANA, Gary founded and ran Marathon Advisors LLC, an investment

management firm. He began his career as a corporate attorney with Schulte Roth & Zabel LLP.

He is a graduate of the Wharton School of the University of Pennsylvania and the NYU School of

Law. Gary serves on the Executive Committee of UJA-Federation of New York where he is Chair

of Planned Giving & Endowments. He is a Director of The KCF Foundation. Gary will join NYU

Stern in Spring 2016 as an Adjunct Professor of Finance.

Mr. Claar, thanks for taking the time to speak

with us. You started your career as a

corporate attorney. How important was that

early experience in the legal world, and how

did this path ultimately lead to investment

management?

Thanks for this opportunity to introduce myself

as I prepare to teach Value Investing: Special

Situations and Activism at NYU Stern next

semester.

Ultimately, I am very glad I got a background in

corporate law for several reasons. It was great

training in problem solving and in being precise

and wholly accountable for everything you say.

Surprisingly, this differentiated me in business as

someone people could rely on and heap

responsibility on. It also gave me a broader

perspective as an investor, which was particularly

valuable in the multi-disciplinary arena known as

event-driven investing. Having a good feel for

boardroom dynamics or the bankruptcy process

or the mechanics of securities offerings are some

examples.

My path to investment management from law was

not so smooth. I was an outsider who had to bang

on the door for a while to get in. I was constantly

learning on the fly. During this time, I discovered

I had an entrepreneurial streak. I somewhat

relished the opportunity to re-invent myself

professionally and broaden my network in spite

of all the risks and uncertainties.

In the mid-1990’s, you became in-house

counsel with the hedge fund Perry Partners

and eventually a principal at another hedge

fund before launching your own. What were

some of the fundamental lessons you learned

in the early years of your investing career?

As I bounced around and tried to become a money

manager, I learnt a lot. I saw Wall Street’s best and

brightest move away from risk arbitrage, which

had become too competitive. They began to

embrace special situation equity strategies, which

married both event analysis and fundamental

analysis. Around this time, Joel Greenblatt wrote

his first book, “You Can Be a Stock Market Genius”,

which told where to look for the most inefficient

markets. Joel has claimed the book only helped a

few rising hedge fund managers, and I was

fortunate to be among them.

This stage in my career involved learning as much

as possible while trying to earn enough to justify

throwing away a perfectly good legal career.

There were a lot of ups and downs. Other valuable

Gary Claar


lessons I learned were more entrepreneurial,

such as how to communicate ideas, how to set

realistic business goals and how to perform

honest self-assessments.

In 1998, you founded your first firm,

Marathon Advisors LLC. Tell us how you

navigated the dot-com boom and bust. Did this

experience impact the way you valued tech

and Internet stocks in later years?

Yes, I was fortunate that the markets were so

crazy in the first year of my launch – it kept my

new business solvent at its critical early stage.

The dot-com boom required those who were

raised on value investing principles to think

outside the box. A value investing discipline is not

supposed to confine you to only low multiple, low

growth stocks – its merits are in keeping you

away from large losses. I was able to apply a

value-investing framework to all kinds of

businesses with undervalued optionality to the

Internet. It helped me navigate the boom without

getting caught in the bust.

A memorable investment of the boom time was

Nielsen Media. It was a small cap spinoff of

Cognizant Corp. Shareholders dumped it because

of its size. But it was basically a natural monopoly

in audience measurement with a highly

incentivized management team. Plus it had a

“new economy” angle to potentially measure the

Internet. It quickly tripled and got bought out.

There was a silver lining to the bust and the bear

market of 2000-2002 as well. Value stocks,

especially small caps, had been absolutely left for

dead in the mania. Not only were new economy

stocks overvalued but also many blue chip stocks

had risen to over 25x earnings. So in the wake of

the mania, it was rather easy to outperform the

market indices with off-the-run value stocks and

special situations. The hedge fund industry

blossomed at this time, especially long/short and

event-driven strategies.

In 2001, you became a founder and co-

manager of JANA Partners with Barry

Rosenstein. At the time, you were willing to

fold your fund Marathon Advisors into JANA to

amass roughly $50M AUM. Could you talk to us

about the decision to link with JANA?

Marathon was a one-man shop. Though

performance was fine, it was reaching its natural

limits. In 2001, I was looking for the right partner

or strategic alliance. Barry was also looking for a

complementary partner for the public market

activist-oriented vehicle he was planning.

We met and found we had a lot in common. We

recognized the activist opportunity in small caps

but agreed it was best to make that part of a

broader long/short, event-oriented strategy. We

could see we had complementary skills and the

division of function between us would be quite

natural. Basically I’d work in front of screens

while Barry would be out meeting investors and

companies. There was synergy despite the fact

that he lived in San Francisco and I was in New

York.

From our fairly modest beginnings, we built a

strong firm and reputation. The activism set us

apart from the many other funds popping up at

that time. The earliest JANA crusade was

Herbalife, many years before the current

pyramid scheme imbroglio. Its founder and

largest shareholder had died leaving behind

chaos. It traded near net cash and had a high ROIC

business. JANA and Steel Partners demanded that

the board right the ship or sell the company. They

soon sold to private equity at a big premium.

You were with JANA Partners for over a

decade. In 2011, the firm forced the split of


then 123-year-old McGraw-Hill into separate

Global Markets and Textbook Publishing

companies. Could you discuss your strategy

before taking the position, and how you

identified McGraw-Hill as a quagmire of

locked-up value?

Certainly. McGraw-Hill is a terrific example of

the great care an activist must take in selecting

targets. For years and years there was talk about

the clear merits of separating Standard & Poor's

and the higher-growth Financial group from the

Education group. But conditions were never quite

right for an activist. We needed to see sufficient

stock underperformance and evidence of an

elevated cost structure relative to peers. We

needed to hear sufficient displeasure with

management among the shareholder base. By

2011, the role of shareholder activists was more

widely accepted and even century-old companies

with founding family members in charge (like

McGraw-Hill) were fair game.

The bottom line is that an activist should know

that if push comes to shove, he or she will have the

votes. Very few activist campaigns go all the way

to a proxy vote. This is because once management

fears losing such a vote, they are willing to listen

and settle. The split of McGraw-Hill was not the

only thing we were after. They needed to reform

the cost structure. They needed to optimize the

capital structure. And ultimately, they needed

new blood and fresh direction in the C-suite.

JANA Partners “applies a fundamental value

discipline to identify undervalued companies

that have one or more specific catalysts to

unlock value”. Over the years, the firm has

become a notorious “actively engaged”

shareholder in several companies. In terms of

idea generation and investment skillset,

where do you feel you added the most value

while you were a co-Portfolio Manager at JANA

Partners?

I feel I was most valuable to JANA in the early

years. I wore a lot of hats when the business

needed me to, and ultimately hired the right role

players. This eventually left me as more of a pure

portfolio manager, focusing on position sizing,

and adherence to strategy and risk control. As a

unique team for activism formed around Barry, I

became more of a sounding board for the activist

ideas but still acted as a primary idea generator

for all our other “value + catalyst” disciplines, like

mergers, spinoffs and bankruptcies.

My greatest strengths as an investor are pattern

recognition and issue spotting. I think I’m pretty

strong at synthesizing and simplifying reams of

information into essential decision points. I think

I also score pretty well on the competitiveness

scale and I know how to think creatively in

pursuit of answers to hard questions. A criticism

I’ve heard is that I can be “a mile wide and an inch

deep.” Perhaps that’s true – I’m unlikely to

change that now.

In 2012, you left your throne at JANA to once

again found your own firm, Claar Advisors.

What prompted the change and how does the

new firm differ in terms of strategy and style?

After 12 years at JANA, it was time for a change.

The growing component of managing people in an

institutional investment firm, which I did when I

needed to, was something I never felt well suited

for. After the financial crisis, JANA needed to

rebuild itself around new talent. As a result, my

transition was carefully planned over three years.

I’m proud of my role in the rebuilding and JANA’s

great successes since my departure.


Claar Advisors is in part a family office and in part

an entrepreneurial stage investment manager.

We have a public markets long/short portfolio

and also see a fair amount of private deal flow.

We are not pursuing public shareholder activism

but have been a lead investor in several private

situations.

My investment style has certainly changed. I

think longer term and primarily look for great

entry points to great businesses I can hold as long

as possible. I am averse to most crowded event-

driven names, not because I can’t compete, but

because it seems senseless to do so. With all the

short-term focus in the marketplace, longer tailed

opportunities are naturally less well bid and less

efficiently priced. However, markets are very

much in the grip of the extraordinary monetary

policies of central banks. That’s what makes

investing so hard at present and why we are

under-invested.

We took a peek at Claar Advisors’ most

recently filed 13F, and noticed that you have

high conviction long positions in Crown Castle

International (CCI) and Macquarie

Infrastructure Corp. (MIC). Very briefly, what

attracted you to these names?

Core to value investing is predicting multi-year

cash flows and, in today’s binary market

environment, predictability is exceedingly rare.

In the case of Crown Castle and Macquarie

Infrastructure, you do have high visibility into

the cash flows and the shareholder returns. Both

are pure domestic businesses not making wild

earnings adjustments for FX. Both are unusually

stable but also benefit from durable secular

growth trends. Wireless towers and long-tailed

infrastructure projects are each exceptional

business models that should always have a place

in my portfolio. CCI and MIC have each earned the

right to be valued on a “total return basis” - their

dividend rate plus their cash flow growth rate

should approximate your annual return

(assuming constant multiples).

Ironically, both CCI and MIC are high multiple

businesses, but I submit deservedly so. This goes

back to my point that value-investing principles

need not lead you only to smokestack industries

and metal-benders.

Lastly, in the case of both CCI and MIC, I can point

to transformative corporate events, yet they have

not become too popular with hedge funds. A year

ago, CCI listened to shareholders, tripled their

payout, finalized their REIT status, shed their

international exposure, and became very

transparent about their growth guidance and

capital allocation policies. All this enhanced their

multi-year earnings predictability, which again is

a holy grail for value investors though not that

interesting to short-term profiteers. In mid-2014,

Macquarie Infrastructure solved an impasse by

buying out a partner in its largest business, IMTT

bulk liquid storage facilities. After this

transaction they raised their payout and growth

guidance and extended the life of their income tax

shield. MIC is now a company much more in

control of its destiny. To me that is a

I am averse to most crowded event-driven names, not because I can’t compete, but

because it seems senseless to do so. With all the short-term focus in the marketplace,

longer tailed opportunities are naturally less well bid and less efficiently priced.


transformative event and a likely precursor to

many years of strong returns.

Regarding portfolio construction, it appears

that your top 5 ideas account for close to 50%

of your entire portfolio. What combination of

factors leads you to move with confidence into

a new investment; are there recurring

themes?

The first lesson here is some legal background on

Form 13F. A manager doesn’t include cash, short

positions, or foreign or unlisted securities on such

quarterly filings. Plus they are 45 days stale when

released. My top 5 positions are actually about

30% of my portfolio right now though I’d love to

see that grow, as I do believe in the goals of

building conviction and increasing concentration.

The factors we use to filter the many ideas we

hear and to prioritize our workflow are three

simple questions. First, is this a good business?

This question goes to the quality of management

and their control of things within their control

like capital allocation, employee morale, and

customer relations. Is the business in a virtuous

cycle or a vicious cycle? Many investors don’t

seem to appreciate this.

Next we ask, is this a good industry? Is there

something special about the business model, like

a moat or network effects that will insulate them

from competition and disruption. Do they set

price or take price? Is there some secular growth

trend they benefit from? We don’t agree with

Warren Buffett that you can just “buy America”

and everything will be ok. We want to stand on

Buffett’s shoulders and reach higher, if you will,

by being even more selective about business

quality.

Lastly, we ask, is this a good entry point? This is

where valuation and catalysts come into play. We

are looking for multiple ways to win and a margin

of safety. Even the best businesses can yield poor

returns if you buy them wrong.

In the spring of 2016 you’ll begin teaching an

exciting new course at NYU Stern – Value

Investing: Special Situations and Activism. I

don’t want to spoil any of the fun, but what do

you hope are the key lessons that students

take away from the course?

I’m excited to have this opportunity. Some of my

most memorable classes at NYU (Law ’91) were

seminars taught by real practitioners using live

case studies. I hope I can provide such an

experience to Stern students. I’d like the course

to demystify the money management industry for

students, so they’ll see how far you can go with

basic curiosity, judgment and common sense. I

would also like to give them enough perspective

to make self-aware assessments of which parts of

the industry might be their best fit.

Opponents of activism argue that it’s a

destructive process, where activist investors

pursue quick profits (generally capital

return) at the expense of companies making

necessary investments for the future

(generally growth capex). What are the merits

of this argument?

We don’t agree with Warren Buffett that you can just “buy America” and everything

will be ok. We want to stand on Buffett’s shoulders and reach higher, if you will, by

being even more selective about business quality.


There are certainly instances of good and bad

activism, but each case is unique and should be

evaluated on its own merits. To me, it’s

undeniable that the trend of shareholders having

a greater voice is a positive change that is long

overdue. The paradigm of entrenched CEOs with

boards of cronies and only passive, index-hugging

shareholders is certainly not ideal. You can argue

all day whether to increase capital return or capex

in a particular company – but that’s healthier than

not having the argument at all.

An activist shouldn’t have a short-term outlook. If

he does, he may be grandstanding or pandering to

investor pressures, rather than focusing on the

issues. It’s the same with politicians.

Some of the 1980s exploitation of high-yield debt

availability goes down as bad activism. More

recent successful multi-year turnarounds such as

Canadian Pacific, Six Flags and Walgreens go

down as beneficial activism.

Today many of the most influential investors

on Wall Street (Bill Ackman, David Einhorn,

Dan Loeb, etc.) are activists; this style of

investing has exploded in popularity. As a

member of the “old guard”, do you feel as

though the activist space is getting more

crowded? Is it now more difficult to create

your own investment catalysts utilizing

shareholder rights and public opinion?

Importantly, all of those influential managers are

value investors first, and activists when

necessary. This was an important consideration

when we started JANA. It’s senseless to confine

one’s self solely to conflict situations.

As far as crowding, I definitely feel it in the short

selling arena and also in anything with a visible

near-term catalyst. This is a function of the

proliferation of active managers and the

availability of capital itself. But this is no new

phenomenon – investing success has always been

about leading not following the herd.

I do not think activism gets crowded in the same

way. First of all, unlike other disciplines, there is

strength in size and strength in numbers with

activism. It wasn’t until recently that large cap

companies became fair game for activists.

Secondly, the wave of shareholder representation

is here to stay and it will only gather steam. We

have seen companies drop their knee-jerk

defenses to activists and listen to their ideas. We

have also seen a revolution in how large pensions

and fund groups welcome change. Look at how

many proxy initiatives are now filed annually by

CalPERS or CalSTRS, for instance.

Finally, what advice do you have for students

looking to break into investment

management? What about those interested in

special-situations and activism?

Take my class, read everything you can, question

everything you hear. Study the great ones and try

to understand why they do what they do. Be

honest with yourself – not everyone is an activist

or portfolio manager or entrepreneur. Try to find

the facets of this business that fit your skills,

personality and interests. They say the right job

is the one that doesn’t feel like work.

Mr. Claar, thanks for your time!

There are certainly instances of good and bad activism, but each case is unique and

should be evaluated on its own merits. To me, though, it’s undeniable that the trend

of shareholders having a greater voice is a positive change that is long overdue.


Mr. Rajeev Das - Head of

Trading, Bulldog Investors

Mr. Rajeev Das is Principal and Head Trader at Bulldog Investors, an activist investment fund. He is also a Director of the Mexico Equity and Income Fund, a NYSE listed closed-end fund investing in securities issued by Mexican companies. He gained experience in several roles in Finance before joining Bulldog Investors. Mr. Rajeev completed his bachelor's degree in Economics from St. Xavier's College in India and his Masters of Art (M.A) in Economics from New York University. He is also a CFA charter holder. How did you decide upon the name, Bulldog investors? As we understand, many Special Purpose Acquisition Companies (SPACs) now incorporate a “bulldog” provision – preventing any investor from holding more than 10% of the shell company to exercise conversion rights. Seems like Bulldog investors was a pioneer in such transactions. Is this where the name is derived? We had Bulldog investors first, before they

inserted this provision. Bulldogs are pretty

tenacious and stubborn, and in the activist

segment, one has to be that way. So, after a lot of

thought, we chose this name. I think it describes

us pretty well – what we do and how we are, as

far as the mindset goes. Regarding the SPAC

provision – yes, this is because of us. In the first

batch of SPACs, before the financial crisis, if a

certain number of shareholders voted against the

transaction and asked to redeem the money, the

transaction would not go through. So, that’s why

they put the provision in there. You cannot vote

more than a certain number of shares against a

transaction. It is typically 10%, but it can vary.

Regarding current SPACs, you can actually vote

for a deal and get your money and the transaction

will go through.

Can you please briefly explain the focus of

your funds? What is the investment strategy?

How is it different than other activist funds?

We are value activists. We are looking to buy

assets at a discount to their value, which can be

either their NAV (Net Asset Value) for a closed-

end fund, or it can be a discount to their private

market value. But what we really have to be sure

about is that the “value” is there. So, we look for

companies that we can really hang our hat on, as

far as the value is concerned. We try to avoid

turnaround situations. I think that’s where we

differ from a lot of activists. I think we are also the

only “real” activists in the closed-end fund space;

there are few others that do share proposals and

things like that. We are the only ones that go full

out for things like proxy contests in the CEF

(Closed-end Fund) space. We also look at

generating alpha over an asset class. So, for

example, if you look at SPACs, and look at the

underlying assets, that’s mainly US treasuries,

which are yielding nothing. If we can generate a

Rajeev Das

Bulldogs are pretty tenacious and stubborn, and in the activist segment, one has to

be that way. So, after a lot of thought, we chose this name.


return of 600-700 basis points over that asset

class, without practically taking any risk, that’s

phenomenal.

How has your journey been from graduating

from NYU to the current role of “Head of

Trading” at Bulldog Investors?

When I first got into this business, I was on the

retail side. This was even before NYU. So, I

worked at Lehmann Brothers. I worked at Smith

Barney, primarily with high net-worth

individuals on the retail broker side. From there,

I moved to what’s called the mid-office. Worked

with a couple of brokers, primarily doing a little

bit of everything. I moved to Bulldog in mid-1997

and that’s also when I started grad school. I

initially started on the operational side and then I

moved to trading and research and things like

that. So, I know pretty much the entire business.

You have covered quite a few funds in your

career – the Mexico Equity and Income Fund,

and then the Special Opportunities Fund. How

has this experience been in terms of changing

focus, investment analysis and learning?

I am still on the board of directors of the Mexico

Equity and Income Fund. We bought this fund in

the late 1990s and early 2000s, when it was

trading at about 70 cents on the dollar. We

accumulated a small percentage of the fund and

launched a proxy fight. Oppenheimer ran it at that

time and they were doing absolutely nothing as

far as the discount was concerned. The portfolio

was managed by a company in Mexico which still

continues to run the fund. Our problem was with

the discount. Once we got control of the fund, we

got on the board. We did a tender offer and

allowed all shareholders who wanted to get out to

do so - the fund shrunk from over $100 million to

roughly $20 million. We were able to grow the

fund organically and also did rights offerings, and

the performance has been great. Pichardo Asset

Management in Mexico runs it, and they have

been outperforming the Mexico market for

around 20 years now. Pichardo has been doing a

great job. It is a very well run fund and a great

exposure to Mexico if that’s what you are looking

for. And with us on the board, we have been able

to keep a check on the discount. We are very

proactive and very open to hearing from other

shareholders, and doing what they want. The

shareholders own the fund, and that’s what I

think most companies tend to forget.

The Special Opportunities Fund was actually a

municipal bond fund that was run by UBS Global

Asset Management. Again, it was trading at a huge

discount. The board was not staggered, and so

you could gain control over the board with one

proxy fight. We accumulated probably about 5-

10% of the fund at a double-digit discount and we

got control of the board. Once we got control of

the board, we allowed everybody who wanted to

get out to get out, and then we changed the

mandate of the fund. Now we use the fund as a

vehicle to buy other discounted assets.

Have you seen any major change in this

industry since you joined in 1997?

There are more activists now, especially in the

last couple of years. I don’t think of “activism” as

an asset class. We see it as a strategy, which you

can use in a closed-end fund, in an operating

company, or anywhere the opportunity arises. In

the closed-end funds space, discounts aren’t as

wide as they were back in the 90s and that’s

primarily because of activists. I think now the

fund companies know that if they let this discount

linger, people are going to buy in. As a result, you

are no longer seeing those wide discounts, but at

the same time, even with narrow discounts, you


are taking less time to close that gap, so the IRRs

are still pretty good. I think slowly people are

realizing that with modern corporations there are

principal agent problems, and there are managers

that don’t own stock in the companies they run, so

there will always be room for activists. Managers

and corporations tend to do what’s in their best

interest, and this is not always aligned with

shareholder’s interests, so there will always be

room for activists unless the structure of the firm

changes.

Your most recently filed 13F shows that you

increased your exposure to Real Estate to

24%. What attracts you to this sector? What is

your current view on the sector?

As far as making macro calls, we are agnostic and

don’t do that. In real estate, we own two closed-

end funds. One is a fund run by Legg Mason. The

ticker is RIT and we own over 20% of that. We

bought in about a year ago. We have since

nominated three people to the board. We asked

that they take actions to reduce the discount, but

they really didn’t do anything. At the shareholder

meeting, a quorum wasn’t reached. In such a

situation, the directors that are currently on the

board hold on for another year. However, this

didn’t stop us from continuing to buy, and I think

Legg Mason saw that. They understood that this

year we have three directors, and next year six,

and ultimately, we will have control of the board.

So, they came back to us and said that they will

open end the fund in first quarter of 2016. You can

buy now at a 5.5% discount and there is a 1% fee

to get out - you are talking about net 4.5%

discount closure in about 5 months and you can

completely hedge it. We end up with about a

10%+ IRR with minimal risk.

That sounds interesting. So, I read on your

website that you try to avoid “value traps”. Can

you please elaborate on that?

Absolutely. When we are looking for discounted

assets, we are not just looking for things that are

cheap - you have to identify a catalyst to close that

discount. There are plenty of closed-end funds

trading at a 20-25% discount that we won’t even

touch because we know that there’s no way to

close the valuation gap. Sometimes the

management is really stubborn and they have

destroyed all the assets so that they can protect

themselves or there is just not enough support

from the shareholders. So, we really want to avoid

that situation. I mean, I would rather buy

something at a narrow discount and close that

gap quickly and continually repeat that process.

You also bought a sizeable stake in the Nuveen

Long/Short Commodity Fund last quarter. Any

particular reasons to select this fund?

Well, the Nuveen Commodity fund is interesting.

It’s actually not a fund, but a commodities pool

that trades like a stock. I think Nuveen first

brought this out in 2011 and it traded at a

premium briefly and then started trading at

around a 20-25% discount. I think it was some

kind of embarrassment for Nuveen, only at $250-

300 million and trading at 80 cents on a dollar, so

When we are looking for discounted assets, we are not just looking for things that

are cheap - you have to identify a catalyst to close that discount. There are plenty of

closed-end funds trading at a 20-25% discount that we won’t even touch because we

know that there’s no way to close the valuation gap.


they decided to convert it into an ETF. We started

buying this early, at an average discount of

around 5%. This was a long-short fund, so there

was very little market risk. If you look at its YTD

October performance, I think the NAV is down

around 1.5-2%. If you look at other commodity

ETFs like GCS, I think that’s down around 20%.

The only issue has been that they were supposed

to convert it into an ETF in the fourth quarter of

2015, but it’s been pushed to next year, which

affects IRR. However, it’s still a great IRR if you do

that math - you can buy it today for a 5% discount

with no market risk and hold it for 4 months with

NAV performance much better than other ETFs.

Your current biggest holding is Stewart

Information Services Corp. (STC), where you

hold more than 10%. How did you select this

investment?

I think we invested in a solid company. STC is in

title insurance, which is a great business to be in.

They were trading at a discount relative to peers

mainly because they had to improve

operationally. Also, they had a lot of capital, which

we asked them to give back to the shareholders

either through share buybacks or as dividends,

which they have been doing. Our average cost

basis on Stewart is around $32.50, and the stock

is currently at $43. They recently increased the

dividend to around $1.2, which is the highest that

they have paid out, I think, since 2007. They also

just announced another buyback. What’s really

keeping the stock down is the dual-class

structure. You have a small number of shares

controlling a large number of votes. Last year, we

launched a proxy fight and now have a

representative on the board. This year we have

decided to submit a proposal to shareholders

asking them to get rid of the dual-class structure,

which they will not oppose. Generally, when we

submit a share proposal, the firm will send out

several mailings to the shareholders asking them

not to vote in our favor, saying that we (activists)

are bad, that we are arbitrageurs. STC has agreed

not to do that and to let the shareholders decide.

If this happens, it could be a $50+ stock. But again,

it’s a company with solid assets and that’s what

we liked.

In terms of idea generation, for Stewart, there was

another value investor who was a large holder

who contacted us, that’s one way. Then there are

people who are stuck in a “value trap” and want

us to help get them out - that’s another way to

generate ideas.

You seem to focus on investing in mainly

SPACs and also in small caps opportunistically

- can you tell us why you like them, compared

to mid or large caps?

Well, SPACs have been around for a while. They

were called “blank-check” companies and had a

pretty bad reputation. When you invested in

SPACs earlier in the 1990s, there were no

safeguards around your investments like those

we have today. Now, if a SPAC announces a deal

that you don’t like, you can get out. For example,

the SPAC will issue $200 million of shares at $10

a share, giving investors one share and one

warrant. The money from the IPO will go into the

trust, which will be used to fund the deal. When

the deal is announced, you have two options – you

can continue to stay in the new company or you

can get your $10 back. Meanwhile, you also have

that warrant which you can sell. If it’s a bad deal,

the warrants will be worthless, and you can get

your $10 back. If it’s a good deal, the shares will

trade above the trust value and the warrant will

pop. And you can make 10-15% on your deal. So,

really you have no downside in this investment.

SPACs put their money into US treasuries and you

can easily get mid-to-high single digit IRRs. It’s


really a great investment when compared to the

risk you are taking.

We invest in small-caps because this is where we

can be effective. We can buy a meaningful stake,

bring people on board, and bring about change.

With the amount of capital we manage, there’s

really no point in buying large cap companies.

Please share an example of an investment that

went very well - the key takeaways and what

steps you took to ensure success?

One area where we’ve had a lot of success, it’s a

little off-the-beaten path, is auction rate

securities. Closed-end funds are allowed to use

leverage unlike open-ended funds. They will raise

debt and issue auction-rate securities. Auction

rate securities are vehicles where the interest

rate is set weekly. If you bought these debt

securities and you want to re-sell them, you can

put these out for auction. Pre-2008, these

auctions were failing because there weren’t

enough buyers. So investment banks would step

in and provide liquidity (take the other side of the

trade). In 2008, the market totally froze when the

investment banks stopped propping up the

market. These AAA securities were, by statute,

covered by closed end funds that had to maintain

asset coverage of 200-300% for these debts, so

the investments were supposed to be very safe. If

there was any problem, the fund was required to

sell its shares and pay back these investors first.

The market froze when suddenly nobody was

buying them, and these securities started trading

at 70-75 cents on the dollar. That’s where we

started buying. In September of 2014 we were

able to buy auction rate securities issued by a

muni bond run by Alliance. It is called Alliance

New York Municipal Income fund (ticker AYN).

We bought about 52% of outstanding auction rate

securities, and, by statute, preferred holders of

closed-end funds hold two seats on the board. We

simultaneously bought common shares, which

were then trading at about 85 cents on the dollar.

We had a holding period of ten months and were

able to get full NAV on the auction rates and on

the common. On these auction rate AAA-rated

securities, we had an IRR of over 20%.

Why did you choose to work in activist investing? What lessons did you learn before deciding to immerse in this investment style? We didn’t actually want to be activists, but after

buying closed-end funds so many times at 70

cents on the dollar, waiting five years, and having

the shares still trade at 70 cents on the dollar, I

thought it was time to do something. So, we

decided to do a proxy fight. The first proxy fight

that we did was back in 1998. Everyone thought

it would fail as nobody had ever done it. We were

the first ones to do it, and we were successful, and

so we continued doing it.

Do you have any advice for MBA students who are interested in a career in activist investing? Activism is just a tool. You should not be an

activist just for the sake of it. It should be

something in your arsenal that you can use

prudently. Activist investing is tough - you need

to have thick skin. People are going to call out

your name and you won’t be liked, and you would

have to stand up to that. You need to believe in

yourself as others are going to tell you that you’re

wrong. You also need to be able to think

independently and stick through these situations,

if you want to be successful.

Thanks so much for your time Mr. Rajeev Das. It was a pleasure speaking with you.


James B. Rosenwald III – Co-Founder & Portfolio Manager, Dalton Investments

Mr. Rosenwald is Co-Founder and Portfolio Manager for

Dalton Investments’ Asian Equities strategies. He is a

recognized authority in Pacific Rim investing with more

than 30 years of investment experience. He formerly co-

managed and founded Rosenwald, Roditi & Company,

Ltd., now known as Rovida Asset Management, Ltd.,

which he established in 1992 with Nicholas Roditi. Mr.

Rosenwald advised numerous Soros Group funds

between 1992 and 1998. He commenced his investment

career with the Grace Family at their securities firm,

Sterling Grace & Co. Mr. Rosenwald holds an MBA from

New York University and an AB from Vassar College. He

is a CFA charter holder and a director of numerous

investment funds. He is a member of the CFA Society of

Los Angeles and the CFA Institute, and is an Adjunct

Professor of Finance at New York University's Stern

School of Business.

In what geographies/sectors are you

currently finding the most compelling

opportunities on the long side? What about

the short side?

In terms of geographies, we can first talk about

Japan. The implementation of the corporate

governance code by the Japanese Government in

June 2015 now forces management to focus on

return on equity and alignment of interest

between shareholders and management. Non-

controlling shareholders should benefit over time

from this. This is particularly valuable when

combined with the fact that Japan has one of the

lowest costs of capital in the world. From an

enterprise value multiple perspective you should

be able to find some interesting companies in

Japan.

Number two is China – it is commonly known that

industrial production is declining dramatically

(and unemployment at industrial companies is

increasing) – China’s wages are not as globally

competitive as they used to be. In spite of that,

China’s consumer economy continues to grow in

the very high single digits and therefore focusing

on companies which benefit from China’s

consumption should do very well. The Chinese

stock market (including Hong Kong and Taiwan)

has been hammered and there are some good

opportunities that emerge from this type of

situation. One should be particularly focused on

the entrepreneurs in Hong Kong and the

technology companies in Taiwan that benefit

from consumption in mainland China. This is

another long theme.

The third country we have a long bias on is India.

We continue to believe that the current prime

minister of India is the most pro-business leader

in the country’s history. In spite of the recent

election in the Bihar region (the ruling coalition

suffered a heavy defeat), we continue to believe

that there are material improvements within the

bureaucracy. The problem is that they are starting

from such a low base with high expectations - and

the stock market is starting to come back from its

highs post-election. Three years out or longer,

there are phenomenal opportunities in India both

on the manufacturing side and on the consumer

side.

James Rosenwald


On the short side, we continue to hold our South

East Asian shorts. Due largely to high valuations

in those areas and low commodity prices that are

a terrible headwind for many of these countries.

The potential devaluation of the Renminbi and

the Yen also puts pressure on these countries to

devalue their currencies.

On November 2, 2015, Dalton filed a 13D

disclosing a 6.2% stake in Eros International

Plc – a company that has recently come under

attack by a short seller. What is your long-

term outlook for this name?

We met with the CEO and founder of Eros while

he was raising money in the U.S. and Europe to

buy film libraries in India. He had been doing it for

the last few years and it was still very early in the

purchase of film libraries. He was able to buy the

libraries at a small multiple of their annual

revenues – far smaller and cheaper than in the

U.S., for instance. My research team explained the

valuation and how deeply discounted Eros was

versus what private equity would pay for such a

film library. That got us focused on Eros’

valuation when the stock was at $14 per share.

More recently, the last purchases were made

when we started to see the royalty and

membership of ‘Eros Now’ – their online platform.

The short sellers then started coming out about

issues that were highlighted in the initial

prospectus that the company filed with the SEC

when it went public. There was nothing new

about what they were talking about. They

focused on these issues when the stock price was

an all-time high ($30+). This created fear among

people who were short-term momentum focused.

Eros had a disproportionately large number of

short term focused shareholders and the fears

exploded. Dalton saw this air pocket as an

opportunity to increase its stake in the company

and subsequently we more than tripled our

existing position over the last 2 months and

increased our focus on what we see as a superb

opportunity. And I am pleased to say that there

are other like-minded, longer term shareholders

that are invested in the name. While short-term

investor ownership in the company has fallen,

there continues to be a large short position in the

market.

Could you give our readers an example of an

investment where Dalton worked hand in

hand with incumbent management? What

were some of the challenges you faced?

As related to working with management to

enhance shareholder value, I actually have

highlights from different decades:

1980s - We suggested to management of closed

end mutual funds that they would do better for

shareholders if they became open ended funds

rather than the closed end structure wherein they

traded at big discounts to NAV.

1990s - We suggested to savings and loan

institutions (what later became commercial

banks) that savings banks did not make much

sense as small, stand alone, individually listed

enterprises. There were sizable economies of

scale to be had – in particular because of the high

cost of filing and regulatory requirements. This

led to investments whereby these banks merged

with other banks.

2000s - In Japan, we tried to convince

management in the early to mid-2000s to buy

back shares to increase return on equity. In many

instances, they responded positively and

shareholder value increased across the board for

everyone. The final culmination was the first

privatization of a Japanese company by private

equity and other investors including Dalton. We

took a company called “Sun Telephone” private.


Share buybacks and privatizations were activities

we pursued in the 2000s in Japan.

2010s - We have focused on trying to convince

management of the benefit of having a major

shareholder (in the form of a non-controlling

minority) as a director on the board. We’ve seen

the benefit of this in the U.S. and Europe. This is

similar to the practice of private equity firms that

usually have multiple board members from

different private equity firms with different

experiences, but also represent minority

ownership in a private company. The concept is

to run the company more like a partnership

instead of a public enterprise. Partnerships tend

to focus on all the partners that enter. The public

enterprise sometimes moves away from this type

of behavior. This is our corporate governance

focus.

Dalton’s four investing pillars are: 1) Is it a

good business? 2) How good is management at

allocating capital? 3) Is management aligned

with shareholders & 4) Is there sufficient

(50%+) margin of safety? Do you have an

example of an investment that satisfied all

four criteria but did not turn out as expected?

What went wrong?

The one thing that comes to mind is value traps.

These were most common in Japan where

management teams (usually 2nd/3rd/4th

generation owner/operators) did not regard

public shareholders as important when

considering corporate actions. While the

companies were good businesses, traded with a

large margin of safety, theoretically had a strong

alignment of interest between the family owner

operators and the shareholders, and had a long

history of being able to allocate investor capital

well, the management’s view of long term

shareholder interest was different from what you

or I would normally consider long term. For

example, we could consider long term to be 3, 5 or

even 10 years. However, management here

viewed the long term as spanning different

generations. Therefore, returning cash to

shareholders was a low priority and of no interest

to management. I am potentially invested in a

bunch of these companies even today. You have to

take a tremendously long-term view of the

company and be patient. You don’t know when

the family will decide to focus on their share value

and the market cap, rather than their day-to-day

business.

The other mistakes or problems with the four

criteria are when you get the alignment of interest

wrong and the family’s goals and objectives are

not really in the best interest of shareholders. The

assessment of the character of the family is

usually incorrect. While initially we may believe

that the alignment of interest is strong and you

have a benevolent family managing the

operations, you can fall in the trap of being

incorrect.

So value traps and misalignment of interests are

the two areas where we have fallen the most.

In today’s highly volatile global environment,

how do you bridge the lure of quick short-

term returns v/s your long (5+ years) time

horizon? Are your clients comfortable with

your holding period?

The only thing I control is my philosophy of value

investing and the process that we use to choose

our investments (the four criteria and the

detailed criteria within the four main criteria).

Beyond that, the most important thing we can and

need to control in order to maintain our strong

conviction is managing the client. Matching client

objectives with our portfolios. If you do not have

investors who have a similar philosophy and who

understand your philosophy and your process,


and understand that the ownership of the long

positions is 5+ years, then you will end up with

clients who are short term focused which will

make it nearly impossible to manage your

portfolio. We try our best to manage our clients in

a way that matches client objectives with our own

objectives. If we can’t find investors who are

comfortable taking a private equity approach to

public markets in Asia, then we will have to avoid

those types of clients. We have had situations in

the past where we had a sizable amount of money

from fund of funds – this turned out to be very hot

money that follows short term performance. We

avoid funds of funds money at all costs. In 2015,

we are seeing plenty of hedge funds blowing up or

closing down, due in large part due to the

mismatch between the investment horizon of the

investors and the fund managers/founders.

Is Dalton’s future goal to increase AUM or will

you be focusing specifically on performance?

Have you considered branching out to frontier

markets?

The objective of Dalton is performance and has

nothing to do with AUM. 90% of the money we

manage is based on referrals. All we focus on for

our client base is performance. We really are very

focused on performance.

Dalton has a broad reach – we consistently look

for opportunities in places like Vietnam (we

bought Vietnam bonds at 22 cents on the dollar

during the Asian crisis). We’ve been invested in

Russia since the 1990s. So we are always looking

at frontier markets. But if frontier markets are

more expensive than the developed markets of

Japan or Hong Kong or India – why invest in

frontier markets? A lot of money has chased

frontier or emerging markets. However the

valuation analysis has not used a high enough

discount rate. We are constantly looking at

frontier markets of Asia – Myanmar, Vietnam,

Cambodia, Laos etc. However, if the valuations

don’t justify the high capitalization rate, then

what is the point of investing in them? When

they’re desperate for capital and the valuations

are screamingly cheap, you’ll find us there.

Having worked with the likes of George Soros

and the Grace family, what have been your

main takeaways?

My mentor, Oliver Grace, who I believe was one of

the greatest value investors of all time, although

very low profile, helped me to learn tremendous

amounts on the value of being able to take

advantage of short term swings in the market and

going where others were fearful. Be greedy when

others are fearful and be fearful when others are

greedy. These are two consistent ways of making

money in the market.

George Soros was also a proponent of this type of

behavior. George was unbelievably contrarian in

his general investment style. He invested in Korea

with me when the market was just opening to

foreign investors and was at an all-time low. He

went against the banks with the British pound

these types of trades would make any other

investor balk.

Your partner, Gifford Combs, has spoken

about investors experiencing FOMO (fear of

missing out, specifically in a rising market).

Dalton has a broad reach - we consistently look for opportunities in places like

Vietnam (we bought Vietnam bonds at 22 cents on the dollar during the Asian crisis).

We’ve been invested in Russia since the ‘90s…we are always looking at frontier

markets.


Do you believe this is especially true in Asian

markets where sentiment is a highly

influential factor and where investors tend to

buy in a rising market?

FOMO is a fun topic. FOMO is fueled to a large

extent by momentum investing. The criteria we

use essentially eliminates the concept of FOMO.

Dalton is the opposite of this type of concept.

Gifford points this out as one of the great risks of

the market. In China, we saw the unbelievable

momentum – going up 100% and then the bottom

falling out over a two to three week period in

June/July. Markets – whether it’s China, U.S., or

Europe – markets climb a wall of fear – and then

fall off a cliff when things hit the fan.

Do you expect your net exposure to remain

low in the upcoming months given the global

uncertainty and somewhat excessive

valuations in your target universe?

Our net exposure is low in our long short fund and

we will continue to maintain that exposure. On a

beta-adjusted basis, we are close to flat. In 2015

we have made more money on the short side than

we did on the long side.

How do you think about risk when it comes to

global investing? Is there an added level of

diligence that is required? Are there any

frameworks that can be applied in an

international setting?

As a portfolio manager, you have a number of key

areas to manage risk. One is sizing each of your

position. Second is sizing net exposure. Third is

your currency management and exposure. Fourth

is your overall cash position. I look at risk in all of

those different ways.

Thanks a lot for sharing your insights.

Anything else you would like to add?

Yes. I am humbled by students’ ratings of my most

recent Global Value Investing class at NYU Stern

this Fall. I am absolutely overwhelmed. It is my

highest rating ever and I believe one of the best

group of students to take this class thus far.

That is great to hear. And thank you for your

time, Mr. Rosenwald.

Soros invested in Korea with me when the market was just opening to foreign

investors and was at an all-time low. He went against the banks with the British

pound – these types of trades would make any other investor balk.


Professor Aswath Damodaran

Professor Damodaran is a Professor of Finance at

New York University Stern School of Business. He

has been the recipient of Giblin, Glucksman, and

Heyman Fellowships, a David Margolis Teaching

Excellence Fellowship, and the Richard L.

Rosenthal Award for Innovation in Investment

Management and Corporate Finance. Professor

Damodaran received a B.A. in Accounting from

Madras University and a M.S. in Management from

the Indian Institute of Management. He earned an

M.B.A. (1981) and then Ph.D. (1985), both in

Finance, from the University of California, Los

Angeles.

Activist Investing: Fact and Fiction Are activist investors good or bad for markets?

How about for the economy? Do they create or

destroy value? These are questions that evoke

strong responses, both pro and con, from

everyone. Since both sides of the divide seem to

draw on mythology rather than reality when they

make their cases, here is my list of the top

misconceptions that I see on each side.

Anti-activist myths

Most companies are well run. A common

refrain you hear from those who dislike activist

investors, and especially from incumbent

managers who are or fear being targeted, is that

left to their own devices, managers tend to run

companies well and that bad management is

more the exception than the rule. Using the

difference between return on capital and cost of

capital at a company as a simplistic measure of

whether managers are doing a good job, my

conclusion from looking at 41,800 publicly traded

companies at the start of 2015 is decidedly more

negative. About 60% of all companies generate

returns on their investments that are lower than

their cost of capital and more than half of these

companies have been underperforming for more

than a decade. From my perspective, good

management is more the exception than the rule

and an astoundingly large proportion of

companies have a long record of value

destruction.

The typical company targeted by activist

investors is well run and well managed. The

reality is very different. The typical target for an

activist investor earns less than its cost of capital,

under performs its peer group both in

profitability and stock price performance, and has

managers with little or no stake in its equity. In

many cases, it is a mature company that is

refusing to act its age, by continuing to invest,

finance and pay dividends like a growth company.

Activists are greedy and short-term focused. If

by “greedy”, critics mean that activists want to

earn high returns on their investment, all

investors are greedy, since that is the focus of

investing and I see no basis for the argument that

activists are greedier. As for “short term”, the

typical time horizon for an activist investor is far

longer than that of a portfolio manager or most

individual investors and definitely longer than

most managers at public companies.

Pro-activist myths

Activist investors are smarter than the rest of

us. This presumption of smartness comes usually

from focusing on successful activist investors in

the news, and assuming that their success must

be attributable to their smartness in targeting and


fixing companies. Not only is there a selection bias

in this process, where we don’t get to see, hear

from or read about all those activists who don’t

succeed, but even those who are successful at

activist investing are often one-dimensional

investors, with little that sets them apart from the

rest of us. In fact, activist investors often are guilty

of many of the behavioral biases that have been

noted with all investors, insofar as they often hold

on too long to their losers, fall in love with their

winners and let pride get in the way of good sense.

Activist investors are shareholder advocates.

As an individual investor, I have benefited from

activists targeting firms that I have held shares in,

but I am not naive enough to buy into claims that

activists are motivated by the larger interests of

shareholders. Thus, when I held shares in Apple,

and Carl Icahn raised the heat on Apple to borrow

money and pay out more to shareholders, I gained

but I did not operate under the delusion that

Icahn cared about anyone but himself in the

process.

You can make money by imitating activist

investors. There are many investors who

obsessively track leading activist investors,

buying shares in companies that they have

targeted and hoping to piggyback on their

success. The research here on whether you can

make money from this strategy is mixed, since the

bulk of the returns to activism come on the

disclosure that the activist has targeted the

company and not in the periods after. If you

combine this with the reality that activist

investors are as likely to make mistakes in

investing as the rest of us and that they are driven

by self-interest, again like the rest of us, the

dangers of following activist investing are

magnified.

Shared myths

Activist investors make big operating changes

at targeted companies. Both supporters and

opponents of activism seem to start with this

presumption, with the division between the pro

and con groups primarily on the effects of these

changes. Thus, those who dislike activists argue

that they slash investing and R&D at targeted

companies, putting jobs, growth and the future of

these companies on the chopping block. Those

who are in favor believe that the changes in

investing policy are for the best, and that the

money saved can be shifted to other companies

with better investment prospects. Both groups

seem to agree that activist investing is far more

focused on financing and dividend changes than it

is on investment policy. In fact, if you look at

activist investors as a group, the critique is that

they are not “activist” enough on the investing

dimension.

Activists make easy money. To the question of

“Do activists make high returns?” both parties

seem to agree that the answer is yes. That

conclusion, though, may be based not only upon

looking at the most successful, high profile

investors in the group but also listening to the

hype around them. Bill Ackman, Carl Icahn and

Nelson Peltz have all had their share of bad

investments, and looking collectively at all

activist investors, the returns to activism are

modest. In fact, given the cost of being activist, a

large proportion of activist investors barely break

even. Activist investors are almost as often wrong

as they are right in their claims about companies,

but I do believe that they are a necessary and

integral part of a well-functioning market. I view

them as market laxatives, irritants that challenge

the status quo and disrupt the system. Removing,

banning or restricting them from markets, as

some critics would have us do, would lead to

clogged markets, where managers remain

unaccountable, and shareholders get ignored.


Mark Kronfeld - Partner,

Plymouth Lane Capital

Management

Mark Kronfeld is a Partner at Plymouth Lane

Capital Management, LLC, where he leads the

firm's distressed and special situations investment

strategy. Mark specializes in event-driven,

distressed and special situations investing with an

emphasis on legal, structural, and process value-

drivers and activism.

Mark is an adjunct professor at Boston University

School of Law where he teaches a corporate

restructuring class. He also guest lectures on

advanced distressed investing and corporate

restructuring at Columbia Business School,

Wharton, Duke, and University of Virginia. He has

published numerous articles on topics in

bankruptcy law and distressed investing. He is also

a member of the American Bankruptcy Institute

and a member of the advisory committee for ABI’s

Commission to Study the Reform of Chapter 11,

which published and submitted its report and

recommendations to Congress for U.S. Bankruptcy

Code reform. He is also a member of the board of

directors of Reorg Research, Inc.

What are the key indicators or criteria you use

to help identify businesses and circumstances

in which you can create and extract value as

an activist investor?

My focus is on distressed and special situations

investing with an emphasis on complex legal,

litigation, structural and process value-drivers

and activism. Our primary investment thesis is

not primarily driven by what we think the

underlying business is worth or macroeconomic

factors. Rather, this style is designed to be highly

idiosyncratic and we try to focus on investment

returns that are as uncorrelated as possible to the

broad market. This is not a play on beta. When I

think about valuing a situation and the assets that

will be distributed to creditors, our value drivers

are quite different. I use my background as an ex-

litigator and an ex-bankruptcy lawyer to find

mispricing in particular situations that are driven

by complex legal issues that are not widely

understood. For example, some may look at a

mining company and look at EBITDA, PP&E,

performance projections etc. But there are lots of

other things that could drive value for creditors.

For example, there could be tax assets, litigation

recoveries, or substantial disagreement about

how existing value ought to be distributed, to

whom, and in what order. These are things driven

by legal analysis as much as by valuation analysis,

if not more so. These legal value-drivers could

create incremental value that exceeds the value of

the underlying operating business. The

bankruptcy process itself can also make a

business more valuable. One has to understand the

interplay between investment analysis and legal

analysis. In the world of distressed investing – they

are inextricably interwoven.

One has to understand the overlay between investment analysis and legal analysis.

In the world of distressed investing – they are inextricably interwoven.


How do you source ideas and screen opportunities? In my opinion, the single most important key to

investment success is time management. I am

always asking myself: How do I get the highest

IRR for the use of my time? Distressed situations

generally tend to be less efficiently priced than

other investment areas, usually because the right

skill set is not being applied. These situations are

so complex and there is so much going on, that in

many cases, even in well-covered distressed

situations, many things remain unanalyzed for a

long time.

We source ideas in different ways. We screen the

news and research services including Reorg

Research and Bloomberg for distressed events or

companies facing restructuring or possible

restructuring or other legally driven special

situations. There are certain patterns I look for

and that attract my attention. For example, as a

company becomes more stressed, they may

desperately start to raise more capital, or they

may start to negotiate with existing lenders, or

they may start selling assets – often to the

detriment of one or more parts of the capital

structure. There are often corporate actions

designed to benefit equity to the detriment of

creditors. Sometimes, we see actions that benefit

one group of creditors to the detriment of

another. There are legal consequences to such

actions and analysis of these patterns may lead us

to believe that the market has misinterpreted the

propriety of such actions. There may also be

conditions that are driving the problem – too

much leverage, pending lawsuits, or even

conflicts of interest or poor corporate

governance. Also – whenever a company is doing

desperate things – they tend to push the envelope

of what is appropriate as outlined in the

indentures and credit agreements and applicable

state and federal law, and sometimes even foreign

law. All these instances have the opportunity to

create legal opportunities and pitfalls for

investors.

A lot of our idea generation is organic and comes

from our analysis of a particular event or pricing

structure. For example, I will look at how the

market prices various parts of the capital

structure and the factual and situational context

of a distressed borrower or issuer (e.g., a

company, municipality, or sovereign) and this

tells a big story. Give me an organizational chart,

a capital structure page with pricing and a

timeline of events and something will typically

stick out begging for further analysis and a

preliminary investment thesis.

Another big source of ideas is fellow investors.

Distressed investing is highly collaborative and

distressed investors often join forces in ad hoc

committees. Likeminded investors who own a

similar part of the capital structure will get

together and hire a common counsel, a common

advisor and will negotiate collectively. This

allows the parties to share the costs of these

services. The terms of credit documents also

creates the need for a critical mass of investors

with a specific voting percentage to combine

forces to cause an event to occur not occur. For

example, if you want to direct a trustee to take a

particular action on behalf of your class of

creditors, you may require a 25% vote. Or if you

would like to do a coercive bond exchange offer,

Always try to buy when there is clarity on your downside risk and the price you are

paying suggests that the outcome distribution is skewed to the upside.


you may need the majority of the bondholders to

agree to the terms. A lot of what you do requires

collaboration. There is a lot of complexity and we

bring each other in to supplement our own

analysis and collaborate on an idea. Also -

concentration of ownership makes it easier to

negotiate and creates a more efficient and value

creative process.

Can you give us an example of what your due

diligence process looks like before pulling the

trigger on an investment? In other words,

what are the most important questions you

need to get answers for?

After a preliminary analysis designed to assess

interest level and “actionability”, the next step is

a deeper dive analysis that ensures we have a

solid understanding of the legal documents, the

inter-creditor dynamic, and the rights of our class

of securities. There are 3 critical questions that

must be answered: What is the expected value

and optimal structure of the company or estate?

How does one maximize the distributable value of

the estate? Who is entitled to the value and in

what order and amount? Basically, we ask what

is the pie? How can we make the pie as big as

possible? And how should, under the law, the pie

be distributed? And then, under the facts and

specific situation, how will the pie be distributed.

How something should happen isn’t always how

something will happen. This is a reality that we

are very aware of and plan for.

I am very downside risk focused. We are always

asking: How can I lose money? Where in the

process can things go wrong? Can I as a creditor

be disenfranchised? Is it possible that a court

could rule in a way that is inconsistent with my

legal analysis? How can I mitigate that risk? What

is my worst case outcome? What is the liquidation

value? I want to understand exactly where our

worst case is. Are we buying at a price that

already implies close to certainty that the worst

possible outcome occurs? If so, then there is

significant upside optionality.

Next, I do a decision or probability tree to depict

the wide range of potential paths and outcomes

that are possible. I will work through every

possible outcome and think about the probability

associated with each outcome. We try to select an

opportunity that has a very high expected value

and a very high return. We look for significant

upside and very limited downside. The risk-

reward profile has to be very attractive. The

upside-downside profile has to be attractive. And

if there is a way to create a paired-trade with no

risk at all and attractive upside, that’s something

we will do. Once this is done, the next big task is

to execute and move it forward as an activist.

Can you share with us an example of an investment that didn’t go as planned? Generally, there has rarely been an investment

where something completely unexpected

occurred. Because I always identify the downside

risks, these aren’t a surprise. But having said that,

I may still have thought that the court was more

likely to rule a certain way, although I knew it was

possible it may rule differently. So, I have been

disappointed by a legal decision, I wasn’t

surprised. Thankfully, this doesn’t happen often

and even when it does, the investment can still be

quite successful because we seek investments

that have multiple uncorrelated drivers and not

an investment driven by a single binary outcome

driver.

Can you share with us an example of a successful investment? Washington Mutual, Inc. was the holding

company of its subsidiary Washington Mutual


Bank. In 2008, there was run on Washington

Mutual Bank and it was seized by regulators. The

assets of the subsidiary bank were sold to JP

Morgan, leaving behind the bondholders of both

the bank (“the operating company / WMB”) and

the holding company (“Washington Mutual

Inc/WMI”). The holding company subsequently

filed for chapter 11 – a major catalyst for value

creation. At this point, we started buying the

senior, subordinated and junior subordinated

bonds the holding company for cents on the

dollar. In our estimation, there were quite a few

sources of value that, based on our legal analysis,

were owned by the holding company and not the

operating company. For example, we determined

that, based on analysis of regulatory filings, the

holding company had a $4 billion deposit in the

subsidiary bank that was sufficient to pay the

senior bonds at our cost basis, with material

upside optionality on a number of highly valuable

assets that belonged to the holding company. The

operating company also had a large net operating

loss which gave rise to a $5 billion tax refund to

which we determined that the holding company

was entitled. In addition to the cash deposit and

tax refund, the holding company owned an

insurance subsidiary, shares of Visa, material

litigation claims against the U.S. government as

well as fraudulent transfer claims against WMB

and JP Morgan, and a massive NOL carryforward.

After extensive litigation and negotiation, we

successfully arrived at a global settlement

agreement. By 2012, the senior and subordinated

bonds of the holding company traded above par.

The junior subordinated debt of the operating

company also ended up trading at many multiples

of where we first entered the trade.

Do you have any advice to students?

It is really important for any professional or

student to know what you are good at and also

know what you are not so good at. There is no

rule that says that you have to compete with

everyone else in his or her game or on the same

criteria. Pick an area that you have a particular

view on and a special skill set; pick an area that

you think you can do better in. Try to become as

good as you can be. Self-awareness is important.

While I was at Stern, I was trying to get all these

jobs in banking but none of it was consistent with

my background and it didn’t fit my core skill set.

In the end, I was most successful when I found

something that really fit my skill set and

strengths. It takes time to find out what that is, but

when you do, that’s when you emerge as the best

version of yourself and find true success. Also,

focus on reputation and ethics. Be a good

contributor to your profession and build a stellar

reputation. This will take you a long way.

It was a pleasure to speak to you Mark. Thanks.


Troy Green - Associate, Brookfield Investment Management

Troy Green is an Associate in the global energy

team at Brookfield Investment Management, a

registered investment advisor with over $17 billion

of assets under management as of Sep 30, 2015.

Troy graduated with an MBA from NYU Stern in

2015. In the summer between his first and second

year at Stern, Troy worked at Claar Advisors LLC, a

long/short value + catalyst, event driven hedge

fund. Prior to Stern, he founded Green Oak

Investments, a long/short equity fund. Troy

managed the portfolio of Green Oak for 6 years

earning an average annual return of 24%. He holds

a BS in Electrical Engineering from Virginia Tech.

Can you talk to us about your background?

What got you interested in investing and when

did you decide to make a career out of it?

My father served in the US Air Force for 20 years,

and my mother is a nurse for military veterans, so

neither of my parents have a finance background.

Nonetheless, my father is very financially savvy,

so I would say that he helped me develop my

sense for investing. He taught me the power of

compounded interest. He invested a percentage

of his monthly paycheck for 20 years to send my

brother and I to college. Investing has always

been a personal interest. I recall in my early teens

routinely reviewing the financial quotes section

in the Wall Street Journal. I had no clue how to

decode the seemingly random mix of words and

symbols, yet I remained fascinated and

committed to one day understanding this data.

Reading ‘The Intelligent Investor’ really

elucidated the difference between investing and

gambling in the stock market, and stock quote

data finally began to make sense. This book

offered a more practical methodology to

investing, contrary to others that provide only

general aspirational investing theory. It sparked

a fire inside of me, and confirmed what career I

wanted to establish myself in for the rest of my

life. I studied and applied the valuation

applications of Graham, Dodd, Buffett, Greenblatt,

Damodaran, and many others. I decided to

change my career to investment management

after managing my fledgling investment fund for

6 years (which generated a 24% average annual

return) and when one of my senior engineering

supervisors became an investor. I found myself

more focused on research and investing in great

companies than constructing buildings.

Having made the successful transition from an

engineering career to investment

management, what specific advice do you

have for students/outsiders trying to break

into the buy-side?

Transitioning form a non-traditional path is very

difficult, but not impossible. Most importantly,

know your story and what you bring to the table.

I think that most non-engineers respect the fact

that engineering is very technically challenging,

but do not really understand how your skill sets

translate into finance. As a result, you must lay out

exactly what skills you developed in your prior

job that make you a better analyst than the next

guy who partied his way through undergrad

finance, and worked as a spreadsheet monkey at


bulge bracket bank for 4 years. You have to

explicitly lay it out for people, which may cause

for you to provide a more detailed model and

write-up than others. Have a few of your best 2-3

page idea write-ups ready for presentation at all

times. Additionally, I submitted ideas to multiple

stock idea contests across the country to gain

some level of industry respect, and self-

reassurance that I had the tools to break into the

buy-side.

Looking back, is there anything you would

have done differently when trying to move

into the investing world, immediately after

your MBA?

Yes, start early. Practice telling your background

story until it is succinct and seamless, portraying

why someone should invest in your success. The

most important key to transitioning into any

industry is to start building a network early.

Always remember that no one will know your

story if you do not have the audacity to position

yourself in front of people that you admire, and

tell them your story. When I started as an MBA1,

and after having managed money for a number of

years, I was admittedly over confident. I sought

out the most senior level managing partners and

executives, but I was not ready to have an

impactful and memorable conversation with

them. My industry skills were not as sharp as I

assumed, and my past experience did not verbally

translate as well as I had expected. I would advise

others to first reach out to junior level employees,

and work your way up the ladder. Fully

understand how your story aligns within a

specific organization, and how it will be perceived

among professionals at different levels. Learn to

leverage your most interesting attributes.

You founded and ran your own long-term

focused investment fund for a six year period

prior to business school. Can you tell us more

about the fund and how you managed to

simultaneously have a full-time job and run a

research intensive fund?

When you are passionate about something you

make the time to satisfy your goals. The fund

started when a few friends from college, and

family members, asked me to manage their

money after years of hearing my tirades about

what stocks they should own. The fund’s

investors soon grew to fellow engineers, lawyers,

doctors, and other working professionals. To get

started, I studied the operating structure of the

Buffett partnerships, hedge funds, and other

platforms. Next, I registered a limited partnership

with New York State, and started an investment

brokerage account to execute trades. I drafted

comprehensive operating agreements with a fair

fee structure, investment philosophy, and other

pertinent information and disclosures. I

committed to owning a minimum of 15% of the

fund at all times, and was only paid a performance

fee on any returns greater than 3% on any given

year. Juggling portfolio management with my

engineering job was quite challenging. I was a full-

time construction engineer managing multiple,

I was a full-time construction engineer managing multiple, million dollar

construction contracts at Yankee Stadium, Barclays Center, and the World Trade

Center projects (in New York City) sequentially. I actually think this full-time job

helped my returns because it forced me to be long-term focused, as I spared no time

for daily knee-jerk trading decisions.


million dollar construction contracts at Yankee

Stadium, Barclays Center, and the World Trade

Center projects (in New York City) sequentially. I

actually think this full-time job helped my returns

because it forced me to be long-term focused, as I

spared no time for daily knee-jerk trading

decisions. Fortunately, my engineering job helped

me develop a very keen sense for identifying key

data, and deciphering critical information from

jargon. Additionally, a construction site is

managed as a small business, and construction

managers manage service contractors who are

themselves small businesses. This field actually

supplemented my understanding of business

operations, and financial management better

than just reading books or visiting factories. In the

investment partnership, my research and

investments were very concentrated. At max, we

owned 15-20 holdings, which included long and

short positions, and options. I published 6-10

page semi-annual and annual reports detailing

specific investments that we owned, and why we

owned them. My goal was not only to make

investors’ money, but to educate them.

Ultimately, I wanted each investor to be able to

manage their own portfolio, and provide for their

own families just as my father provided for ours.

I decided to close the fund because I wanted to

rebalance my toolkit. I wanted to strengthen my

knowledge and understanding of investing and

valuation, build a stronger industry network base,

and re-launch the fund on a much larger scale.

What were your biggest takeaways from this

experience? How practical is it for students

without prior professional investing

experience to launch an actual fund?

Never discount or undermine how valuable your

experience, fresh perspective, and determination

is to an organization. Regardless of your

background, something in your past experiences

helped you become a better investment

professional, which is why you got to this point in

your life as a student at a top 10 MBA program

pursuing this career field. Launching a fund today

is becoming increasingly more difficult to

implement given regulations, and investors lack

of confidence in investment professionals. Start

small and develop a track record. I managed

money in my own account for many years, before

I started managing money for others. I learnt

more from experimenting with different

strategies with my own money before I was able

to gain the confidence to manage money for

others. Similar to boxing, you can punch the heavy

bag 10 rounds, jump rope for 2 hours, and chop

500 piles of wood, but until you actually have a

real opponent throw a punch at you, then you’re

really not a boxer. Investing is very similar; put

knowledge into practice on any platform to really

gain conviction behind your buy or sell

recommendations.

What attracted you to value investing? Who

are some of the value investors you follow

currently?

Similar to boxing, you can punch the heavy bag 10 rounds, jump rope for 2 hours,

and chop 500 piles of wood, but until you actually have a real opponent throw a

punch at you, then you’re really not a boxer. Investing is very similar; put knowledge

into practice on any platform to really gain conviction behind your buy or sell

recommendations.


Everyone claims to be a value investor, but most

individuals do not actually endure the patience

required to be a successful value investor. Hedge

funds are particularly guilty of this temptation.

Monthly returns are frequently passed around

the community from fund to fund, and the

pressure to always make clients’ money is a daily

conversation. This environment is

counterintuitive to long-term investing, and

promotes a herd mentality where there is little

differentiation between funds. As a result, I

admire investors who share unique perspectives

on investing such as Einhorn, Ackman, and

Klarman. I may not agree with their portfolio

stock by stock, but I admire their concentrated

approach to investing as opposed to portfolio

diversity simply for the sake of diversity. I also

subscribe to very insightful research idea

bloggers such as Muddy Waters or Bronte Capital.

Can you tell us about your internship

experience at Claar Advisors? Did you work on

a special situation or a name with a near-term

catalyst?

Working at Claar Advisors was a very pivotal

point in my early career and education. Typically,

a summer analyst at a large buy-side firm

generally will cover 1-2 sectors, and maybe a

hand full of stocks during their entire 10 week

period. In contrast, I was able to work as a true

generalist. I was exposed to 13 unique industries,

and over 40 companies ranging from media to oil

tanker shuttles. Identifying near-term catalysts

such as triangular mergers, MLP conversions,

CEO/CFO transitions, and other events is

generally an interchangeable strategy that

applies across any sector of the public markets.

Working directly with 2 managing directors and

Gary, I was fortunate to focus my analytical

horsepower on more than building spreadsheets

and presentation materials. The bulk of my days

were spent on high level discussion, and

granularly analyzing business drivers or

imminent events that would bridge the valuation

gap. Portfolio update meetings were held every

day, which gave me the chance to ask questions

on each holding, pitch new ideas, and absorb

Gary’s advice on certain companies and past

experiences. The fund’s focus was to identify

events that would unlock intrinsic value within a

company, a very similar strategy as Gary’s

founding firm Jana Partners LLC. As an analyst, I

also learned the separation of focus between a

buy-side and a sell-side analyst, and how to

leverage each to learn more about specific

companies in forming my own unique

recommendation. This experience taught me to

concentrate more on forming an intellectually

honest, forward thinking, differentiated opinion,

rather than being a more detailed consensus story

teller.

You were a 2-time guest panelist on CNBC,

while still in business school! Not many

students can claim that on their Resume. Talk

to us about that experience.

This was a very random experience, but a great

opportunity. A NYU alumnus and CNBC producer

reached out to SIMR about a new segment focused

on understanding what stocks retail investors

were buying and selling. I was a Co-President of

SIMR, and had a few stocks in my personal

portfolio ready to pitch, so I volunteered to be on

the show. This was my first time on live TV, so I

was extremely nervous. A 2-3 minute segment

seemed like a lifetime. It was only me in a green

room with a live camera, monitor, ear piece, and

bright light in front of me. The segment must have

been a success because I was invited back for a

second segment a few months later on New Year’s

Eve. While having a phone chat with a director at


a hedge fund the following year, he recognized me

from the first CNBC segment. This doesn’t make

me quite a TV star yet, but is still very exciting. I

think I would prefer to stay behind the scenes for

now.

You focused a lot on investing classes and/or

activities while in business school. Can you

compare and contrast some of the

methodologies and valuation tools that you

employ most often in the real-world v/s what

you are taught in school?

At Stern I took Damodaran’s full suite of valuation

courses, merger arbitrage accounting, distressed

investing, private equity, and other courses to

learn a wide array of perspectives on valuing a

company. I would say in the real world to not

ignore any valuation technique learned in class.

You should use all the tools in your toolbox when

assessing valuation, because even the most

pristine technical analysis can be inadequate if

there is a larger macroeconomic force that is

skewing a stock price. Valuing a company is both

a science and an art, which is why some of the

most successful investment professionals also

come from humanities and liberal arts

backgrounds. There is a popular misconception

that discounted cash flow models, or net asset

valuations are antiquated or non-practical in the

hedge fund world, but nothing is off limits. The

more methods you can use to build your

conviction in a company the better. In a new job

interview, or in your first weeks on the job, it is

important to understand how your portfolio

manager or senior management team thinks

about each valuation method. It is very important

to ensure that your highest conviction method

aligns with theirs, or there will be internal clashes

of opinion that can lead to bad work

environments.

Why did you decide to join Brookfield

Investment Management (BIM)?

BIM is a world class organization run by really

great people. The team I work with are former

engineers, and so we share common struggles of

breaking into investing. Our office is a place

where intelligent individuals with a mix of

traditional and non-traditional backgrounds and

cultures collide in an exceptional manner to help

our clients make money. Additionally, post-MBA,

I wanted to start my career at a large organization

with skin in the game. Having a large AUM base

means that I not only get to work with some very

experienced professionals, but I also have access

to tons of experienced sell-side coverage analysts

who provide corporate access, proprietary

research, insightful opinions, and tools to aid in

my valuations. Larger companies also have access

to expensive commercial software licenses that

help obtain the most minutia of industry data.

BIM has been a great place for me to start my

career, and I am glad I made the decision to join

this team.

Can you talk about your origination process

for uncovering investment ideas (either at

BIM or while in school)? What areas are you

I would say in the real world to not ignore any valuation technique learned in class.

You should use all the tools in your toolbox when assessing valuation, because even

the most pristine technical analysis can be inadequate if there is a larger

macroeconomic force that is skewing a stock price.


focusing on currently? Any specific names you

can share?

I currently work for the global energy team at

BIM. Our group also covers oil and gas exploration

and production companies, fully integrated and

national oil companies, and oil field services

companies. I specifically cover oil field services

for the team. Without sharing specific names, I

think that the energy industry in general is highly

undervalued at the moment. U.S. shale oil and

offshore deep-water production are critical global

suppliers of crude and natural gas. Oil prices have

driven the rig count down over 55%, but U.S.

production has stayed flat year over year. One

reason that oil prices have sustained such a low

price is because we have not yet seen the pain

from declines in production. At NYU Stern, you

learn the difference between growth and

maintenance capex, and currently capex spending

across energy producers is down to maintenance

levels. If you graph out the production of an oil

and gas well over time the line will have a natural

declining slope. This is because the well's asset is

depleting without replenishment. As a result,

production in aggregate will inevitably decline

without increased spending for exploration

growth of new oil and gas wells. If energy

consumption demand remains relatively strong

for the next few years, then at some point growth

capital expenditures must resume or there will be

a large supply gap. After cutting capital spending

down to the bone over the past year, this supply

gap is almost inevitable. The decline curve always

wins. Given these economics, we are seeing great

long-term buying opportunities in companies

with ~80%-90% market share in offshore drilling

and onshore services. Be greedy when others are

fearful. I am fortunate that BIM prides itself in

investing for the long-term, so we are simply

cherry picking companies with the best

production assets, strongest balance sheets,

healthy cash flow yields through the downturn,

and unwavering market share positioning.

Are you able to apply an activist/event-driven

mind-set in your current role?

We are not specific activist investors, but I think

all investors look for specific events to drive their

own internal valuation targets. Given that the

energy sector is in a cyclical low, the only near

term events are mergers and acquisitions. M&A is

nearly impossible to predict, so my main focus is

on reducing our cost basis on long-term

investments wherever possible, and managing

short positions. Short positions are usually driven

by a liquidity shortfall event, which I have been

seeing in high frequency over the past year,

especially in smid cap service companies.

What are your long-term career goals?

My long-term goal is to re-launch Green Oak

Investment Partners (or its equivalent) as the

managing member, and one of several portfolio

managers. Before dissolving my prior investment

fund, I partnered with two former Bridgewater

Associates investment professionals to launch

alternate strategies for investors. Partnerships

are key to success, and I would like to relaunch on

a larger scale with other like-minded individuals.

In additional to institutional capital, ideally I

would like to specifically accommodate investors

that are entertainers, athletes, or musicians. I

think this is an underserved group of investors. I

would like to do my part in reducing the number

of great artists and professionals that go bankrupt

as their careers descend.

This has been truly insightful. Thanks, Troy.


Billy Duberstein is a second-year MBA student at NYU Stern. This past summer, Billy was an equity research intern at Wedbush Securities in Los Angeles, which built upon his prior research internships at Express Management Holdings, Culmen Capital, Resolve Capital Management’s Eco Fund, and years of personal investing. Prior to Stern, Billy was a filmmaker under his own production company, Stone Oak productions, and at several large production companies in Los Angeles, and then a political researcher on energy issues for Beehive Research. Billy has a B.A. in Music with a minor in English from University of Virginia. He can be reached at [email protected]

BUY Ubiquiti Networks (NASDAQ: UBNT)

Current Price: $34.33; Price Target: $70 (100% upside); Time Horizon: 2 years Summary: My favorite mid-cap stock is Ubiquiti Networks, due to 1) its disruptive business model and competitive advantages 2) large potential TAM in both its core businesses as well as new product lines 3) an ambitious, 37-year old owner-operator that still owns 2/3 of shares, who is not only a technological visionary but an exceptional capital allocator and 4) low relative valuation with outsized risk/reward.

Company Overview: Founded in 2005 by former Apple engineer Robert Pera, Ubiquiti Networks designs wireless

networking products for the unlicensed Wifi band. In 2010, its breakthrough Airmax product solved the “last mile”

problem with a disruptively priced point-to-point and point-to-multipoint Wifi radios that were affordable for emerging

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company launched indoor wireless networking products (access points, routers, voip phones, security cameras) for

enterprise, SMB/ SOHO, hotels, and schools under its Unifi brand. Recently, the company announced it was leveraging its

worldwide network of internet service providers to deploy solar under its Sunmax brand, a low-cost, complete solar

solution. The company went public in 2011. Robert Pera still owns 67% of shares.

Thesis #1: Disruptive Business Model: In the wake of Ubiquiti’s breakthrough Airmax product in 2010, CEO Robert

Pera kept the incredibly lean business model of a startup even as the company scaled. Instead of investing in a large sales

force, Pera developed the Ubiquiti Online Community. The Ubiquiti online community usually has over 1,000 users online

at any one time, has had nearly a million total posts since inception, and gets nearly 1,000 posts a day. This is where the

entrepreneurial customer base of Ubiquiti comes to share stories, give each other product support (there are a lot of

variables, bugs and fixes with any tech product), suggest new features, and can directly communicate with members of

the R&D team. Because it was first, (and combined with a disruptive product) the Ubiquiti community has what I believe

to be a “network effect” where most WISPs who want to talk to other WISPS go to the Ubiquiti Community. This means

the company doesn’t have to hire a traditional sales force, in-house product testing, or customer support. The close

relationship with customers allows Ubiquiti to be nimble in reacting to problems, to get ideas for new products their

customers want, and the R&D team thus feels more of a keen sense of ownership and responsibility. Ubiquiti also does

not assume the task of distribution. Instead, the company, sells their products through master distributors all over the

world. Ubiquiti also outsources all manufacturing to further streamline operations and limit costs. This lean structure

affords Pera the ability to hire “All-Star” engineers and focus on the R&D, which is where all the value is. The results of

this are high quality products, rock-bottom prices, and an ROIC of over 100%. I believe these advantages are sustainable

due to the online community network effect, Ubiquiti’s brand equity among its customers, and its cost advantage.

Thesis #2: Fixed Wireless Internet Still Underpenetrated. The penetration of fixed broadband is only around 45%

worldwide, yet growth in this area will not happen in a straight line. While the developed world is roughly 80% penetrated

in terms of internet deployment, the developing world, which is far larger, is only 40%, and the entire world is only 45%

penetrated. Moreover, Ubiquiti has not been able to penetrate China or India as quickly as Pera would have hoped- the

Asia Pacific region accounted for only 13% of sales last quarter. Pera has suggested putting “a man on the ground,” in

these two markets (previous markets were able to be penetrated with no sales force on the ground) as a solution.

Thesis #3: Alignment of Interests with a Visionary CEO. Pera currently owns roughly 2/3 of shares, and does not pay

himself a salary or options. Therefore, there is an alignment of interests with shareholders, and this makes me comfortable

investing alongside him. Prominent VC Bill Gurley (investor in OpenTable, Yelp, GrubHub, Twitter, Zillow, and Uber) said

of Pera back in 2012: “Robert Pera, the founder and CEO of Ubiquiti, is one of the smartest, most disruptive technology

founders I have ever met. His revenues per employee and profits per employee out-class that of Google and Facebook.

Additionally, the fact that Cisco has never had a price disruptor over 30 years seems to violate the rules of the “Innovator’s

mailto:[email protected]


Dilemma.” I think many people believe that a disruption from underneath is overdue. If I had to bet on anyone pulling that

off it would be Robert (Forbes)“. While some are worried that Pera bought the Memphis Grizzlies, I do not think that he

is the type of person to “ride off into the sunset.” In fact, at the recent WISPAPALOOZA conference, he said that he loses

sleep that some people think Ubiquiti is a one-hit wonder, and claims he wishes to triple revenues in the next three years

– an ambitious goal, given that the past 12 months showed minimal growth – and that in order to do so he will have to, in

his words, “completely transform the company.”

Valuation: I looked at UBNT’s valuation in 2 ways: Through a DCF, and comps to both its networking peers as well as

certain “all-star” tech companies. For the DCF, if one believes that the company will continue to grow as efficiently as it

has in the past for the next 5 years, then G= Reinvestment * ROIC. I capitalized R&D, but amortized it quickly (2 years),

then the company’s ROIC = (adj. EBIT*(1-t)/(Last year’s Book Equity + Research Asset + Debt –Cash)) = 110%. The current

reinvestment rate is 19.59%, which projects out to a 21.5% growth rate. While seemingly high compared to the past 12

months’ growth, when looking at Pera’s ambitions, the past 5-year CAGR of 34%, and current growth catalysts, I think this

rate is feasible. I project this out 5 years, then decelerating to a terminal growth rate of 2% in year 10. My discount rate

is roughly 9%. The value I get is $74/share, leaving a significant margin of safety. When looking at UBNT compared to

networking peers, it is remarkably cheap despite superior operating metrics, and also compares favorably with Apple,

Facebook, and Google when considering returns on capital, growth, and trading multiples.

Catalyst #1: New Products, New Ventures, all with low initial investment. The transition to the 5mhz (AC) wifi band

is new, and Ubiquiti just rolled out its new Unifi AC products in the late summer, which should take off this quarter and

next. Its AirmaxAC radios should become backwards-compatible this winter. Moreover, the company has stepped up R&D

this year, and is looking to take its disruptive business model into new areas. In October, Ubiquiti released SunMax, a

complete residential solar solution. The company is offering this on a wholesale basis to its worldwide community of

internet service providers at $1.5/watt, along with a centralized training hub on the community website. For comparison,

the costs for the biggest residential solar players SCTY and VSLR are $2.84 and $3.12, respectively.

Catalyst #2 Massive Recent Buybacks: UBNT does not buy back stock regularly. The only time in the company’s history

when it bought back stock was in 2012 when the piracy issue hit and the stock plunged below $10 a share. This winter,

Pera returned to repurchasing stock (essentially, insider buying) when the stock fell to the mid-high 20s, and has been

accelerating the buyback program through the summer. In fact, the recent 10Q just revealed that Pera extinguished the

entire $100MM authorization that was just approved in August, retiring roughly 3% of shares in 3 months. This is an

amazing turn of events for a company that had not spent anything on buybacks in the past 2 years. The board has just

approved a fresh $50MM authorization program. It seems clear what Pera thinks of the current price.

Comps, vs. Networking co.’s and “All-Stars”, DCF assumptions

Apple Google Facebook Cisco Ubiquiti AAPL GOOG FB CSCO UBNT

Market Cap 658 billion 468 billion 280 billion 148 Billion 2.6 billion 5 4 3 2 1

Operating Margin 32.10% 30.23% 50.97% 23.20% 35.24% 3 4 1 5 2

ROIC n/a 18.31% 16.72% 23.6% 110% 1 4 5 3 2

ROE 46.10% 11.44% 11.18% 16.69% 42.08% 1 4 5 3 2

Net cash/ market cap 23.78% 14.94% 5.03% 23.76% 13.57% 1 4 5 2 3

4-yr Rev CAGR 19.98% 16.41% 40.51% 3.27% 31.73% 3 4 1 5 2

P/E (trailing) 11.92 28.30 63.68 13.42 14.25 1 4 5 2 3

EV/EBITDA 5.74 29.89 24.16 5.50 8.21 2 5 4 1 3

EV/ FCF 10.33 -26.24 -86.62 11.09 12.32 2 4 5 2 3

Employees 92600 57148 10955 71883 435

Revenue/ Employee 2.42 1.22 1.32 0.68 1.37 1 4 3 5 2

20 41 37 30 23

Rankings*(all numbers adjusted for capitalized

R&D w/ 2 year amortization period)

Metrics

Length of High Growth Period = 10 Forever

Growth Rate = 21.55% 2.00%

Debt Ratio used in Cost of Capital Calculation=3.25% 10.00%

Beta used for stock = 0.96 0.89

Riskfree rate = 2.00% 2.00%

Risk Premium = 7.68% 7.63%

Cost of Debt = 2.40% 3.65%

Effective Tax rate (for cash flow) = 11.50% 25.00%

Marginal tax rate (for cost of debt) = 12.50% 25.00%

Return on Capital = 110.00% 40.00%

Reinvestment Rate = 19.59% 5.00%

Value of operating assets of the firm = $6,194.53

Value of Cash, Marketable Securities & Non-operating assets = $446.30

Value of Firm = $6,640.83

Market Value of outstanding debt = $88.60

Minority Interests $0.00

Market Value of Equity = $6,552.23

Value of Equity in Options = $66.26

Value of Equity in Common Stock = $6,485.98

Market Value of Equity/share = $74.21


Kevin is a first year MBA student at NYU Stern School of Business. Prior to Stern, Kevin worked as an investment banking analyst at Lazard Korea. He also worked as an equity research associate at Nomura, covering the small-cap Korean cosmetics sector. Kevin started his career at J.P. Morgan as an equity research associate, supporting the Korean insurance sector and equity strategy. Kevin holds a B.A. in Economics and Applied Math & Statistics from Johns Hopkins University. Kevin can be reached at [email protected].

Kevin Park

Investment Summary Medy-Tox's (MT) share price has corrected ~24% since its peak in July 2015. This is due to investors' profit taking activities after a long share price rally. However, the recent sluggish share price performance offers a good entry point. The current share price does not fully reflect the value of the company's license-out contract with Allergan for MT's next-generation product, Innotox. Also, rising revenue contribution from direct sales and potential increases in product pricing power (resulting from the company’s success in meeting global production standards), provide significant long-term upside potential. My target price of KRW650,000 represents ~44% upside to the current share price of KRW453,100.

Business Description Listed on KOSDAQ, Medy-Tox produces and sells type-A botulinum toxin biopharmaceuticals primarily in South Korea. The company offers botulinum toxin, a neurotoxin for facial wrinkle reduction, as well as for the people with blepharospasm, cerebral palsy; Neuramis, a hyaluronic acid filler injection; and diagnostic kits for the botulinum and anthrax toxins. The company exports its products to 40 countries and has ~40% of market share in Korea (~2% market share globally).

Investment Thesis 1) Positive outlook on launching "Innotox" in developed markets through Allergan – Allergan's deal with MT (entered in Sep-13) on an exclusive global sales right, excluding Korea and Japan, proves MT's superior

R&D capability and assures high quality of Innotox, which can successfully penetrate global markets through Allergan's existing channels.

– Global botulinum toxin market has grown at ~13% CAGR between 2009 and 2014 ($3.1 billion in 2014), and the growth trend is expected to remain at 8-10% level given growing demand from aging population in developed countries to look younger and potential of unlocking more indications to increase usage of botulinum toxin products.

– Since MT's Innotox will replace some portion of Allergan's Botox sales, additional franchise value will be added to the product, offering MT stronger product pricing power in the future.

– Given Allergan's extensive experience in getting U.S. FDA approval, the probability of failure or extreme delay in registration of Innotox looks fairly low.

– Even if a 50% discount is applied to the valuation of the contract - it still adds KRW320,000 to the per share value of the company's existing business.

2) Strong revenue contribution and margin expansion from direct sales in China/Taiwan/Japan – Direct sales in China, Taiwan, and Japan will allow MT to generate higher revenue than comparable sales made through

agencies (Previously, MT sold its products in Korea through an exclusive sales distributor, Pacific Pharma. However, MT now jointly markets its products with Pacific Pharma in Korea, resulting in +10% operating margin improvement in 2014).

– MT's newly established JVs with two regional pharmaceutical product distribution experts (Bloomage (000963 HK) in China and Dynamic Medical Technologies (4138 TT) in Taiwan) will provide access to rapidly growing botulinum toxin markets in China and Taiwan.

– The JV partners' previous experience in dealing with local regulatory authorities will expedite the product approval process. – Chinese botulinum toxin market is nearly 4x the Korean market as of 2014 and is expected to grow ~30% per year in the next

five years given 1) rapid expansion of middle class in China, 2) growing interest and usage of cosmeceuticals, and 3) positive sentiments on Korean culture and beauty products.

– Delivery price of MT's botulinum toxin products is nearly half of the price of Allergan's Botox, while the quality of these two products are nearly the same. Price competitiveness of MT's products will facilitate quick market share gain in each country where MT makes direct sales. Post product registration is expected in 2017/2018.

Company: Medy-Tox Rating: Strong Buy Ticker: 086900 KS

Current Price: KRW453,100 Target Price: KRW650,000 Upside to Target: 43.5%

Date: November 20, 2015 2016F P/E: 39.3x, EV/EBITDA: 31.5x Market Cap.: KRW3,502B (USD3,028M)


3) Increased capacity with global production standards to benefit future product pricing power – MT's new factory built in 2014 is currently under validation for U.S. "Current Good Manufacturing Practice" (cGMP) and EU

GMP standards. This represents MT’s attempt to meet the highest quality production and specification requirements of developed countries. The outcome of these processes offer additional opportunity for the company to add a premium to its future product price.

– Meeting the strict and high standard requirements for production coupled with successful Innotox registration in the U.S. will lower MT’s barriers to entry for other developed markets as well as emerging/developing markets.

– Recent addition of production lines and a newly built factory increased aggregate production capacity by ~9x, satisfying both current and future global demand.

– Once high production standards are met, the company will have more flexibility with its pricing strategy for future products. This offers additional potential to produce premium product lines in both botulinum toxin and filler products.

Valuation – SOTP valuation of KRW650,000 (44% upside), separately valuing existing company (target P/E of 29x, KRW330,000) and

Innotox contract value (DCF, KRW320,000). The target P/E of 29x is equivalent to the average of 1) Korean cosmetics players and 2) Ipsen. The current share price does not seem to fairly reflect the contract value with Allergan and provides new investors the opportunity to enter, and existing shareholders to increase their holdings.

– In calculating the net present value of the Innotox contract, I used a 50% probability of success, which seems conservative, considering Allergan's notable track record in handling and getting approval of U.S. FDA approval on its Botox products.

– Meaningful revenue growth from direct sales in China/Taiwan/Japan is expected to materialize in 2016-2017. Risks Failure/extreme delay of product registration in the U.S.: Despite high likelihood of obtaining U.S. FDA approval through Allergan, uncertainty of successful product registration in the U.S. remains as a potential risk. Weaker-than-expected growth in direct sales (China/Taiwan/Japan): Weaker than expected sales growth in China, Taiwan, and Japan could hinder MT's future overseas revenue growth as unit sale value through direct channel in these markets is higher than that through agencies in other countries. Unfavorable currency fluctuation: Since a significant portion of MT's total revenue is generated from overseas (~50% of total revenue in 2014), sudden KRW appreciation could result in sales and earnings deterioration.

Appendix I: Key Financial Metrics & Innotox Contract Value Projection

Appendix II: SOTP Valuation

Company Financials Global Botulinum Market Projection & Innotox Contract Value

2014A 2015F 2016F 2017F 2018F 4-YR CAGR 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F

(KRW in billions, except per share data) (USDmm, except noted otherwise)

Income Statement

Revenue 76 80 119 164 161 20.6% Global market size [A] 3,092 3,403 3,694 4,054 4,446 4,844 5,231 5,650 6,102

Gross Profit 69 72 107 147 144 20.2% Growth (%, y-y) 10.0% 8.6% 9.8% 9.7% 8.9% 8.0% 8.0% 8.0%

Operating Profit 50 47 75 107 101 19.3% Allergan's Botox sales (73.8% of [A]) 2,282 2,511 2,726 2,992 3,281 3,575 3,861 4,170 4,503

EBITDA 51 50 78 110 104 19.4% Innotox sales through Allergan 299 656 1,072 1,158 1,251 1,351

Net Profit 44 39 63 94 103 23.8% (30% replacement rate applied)

Growth (%, y-y) MT - Milestone (USD102mn remaining) 12 29 47 14

Revenue 94.6% 5.9% 48.6% 37.1% (1.8%) MT - Commercialization milestone 90

Gross Profit 101.3% 4.5% 48.6% 37.1% (1.8%) MT - Royalty revenue 16 72 118 127 138 149

Operating Profit 198.1% (6.9%) 60.7% 42.6% (5.2%) MT - Operating revenue 37 164 268 290 313 338

EBITDA 184.1% (3.2%) 56.8% 40.9% (5.0%) MT Innotox revenue (USDmm) 29 47 67 236 476 417 450 486

Net Profit 205.1% (11.0%) 61.1% 49.9% 9.3% MT Innotox revenue (KRWbn) 34 54 78 273 551 482 521 562

Profitability (%) 34 54 56 175 286 309 334 361

Gross Profit 91.0% 89.7% 89.7% 89.7% 89.7% Terminal value (KRWbn) 2,265

Operating Profit 65.8% 57.9% 62.6% 65.1% 62.9% Sum of PV (KRWbn) 1,157

EBITDA 67.7% 61.9% 65.3% 67.1% 64.9% Net present value (KRWbn) 3,422

Net Profit 57.5% 48.4% 52.4% 57.3% 63.8% Probability of success 50.0%

Net Debt (Cash) (76) (76) (118) (189) (256)

EPS 8,042 7,161 11,534 17,295 18,907 Value per share 320,000₩ * Note: FX rate W1,130/USD applied.

Net Profit from Innotox (57.9% margin)

1. Existing business valuation 2. Net present value of Innotox sales in global markets through Allergan 2-1. Net present value sensitivity analysis

2016F EPS 11,534₩ Allergan's botulinum toxin M/S 73.8% WACC 9.0% (KRW) Replacement rate

2016F target P/E 29.0x Replacement rate 30.0% Terminal growth 1.0% ###### 10.0% 20.0% 30.0% 40.0% 50.0%

Value per share (1) 330,000₩ Running royalty 11.0% 10.0% 110,000 200,000 300,000 400,000 500,000

Net profit margin on Innotox 57.9% 10.5% 110,000 210,000 310,000 410,000 510,000

SOTP valuation Innotox price to Botox price 25.0% Net present value (KRWbn) 3,422₩ 11.0% 110,000 210,000 320,000 420,000 520,000

Existing business value per share (1) 330,000₩ Probability of success(*) 50.0% Value per share (2) 320,000₩ 11.5% 110,000 220,000 320,000 430,000 530,000

NPV of Innotox contract value (2) 320,000₩ 12.0% 110,000 220,000 330,000 440,000 540,000

SOTP value per share (1+2) 650,000₩ Note: (*) Probability of successfully obtaining U.S. FDA approval on Innotox

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Featured Undergrad Idea

Darrell Leong (Stern ’16); Davis Meiering (Stern ’16); Kes Rittenberg (CAS ’16); Robert Yin (Stern ’18)

Misvalued spectrum assets with a clear path to monetization. BUY Dish Network (DISH) with 54.7% Upside. DISH Networks operates in a satellite-TV duopoly with DirecTV. DISH provides video services and programming packages that include regional and specialty sports channels, premium movie channels, and Latino and international programming. In addition, DISH provides satellite broadband services, wireline voice and broadband services under the dishNET brand. The true value driver, though, is DISH’s wireless spectrum license assets, which management will monetize in the near future.

Investment Thesis: Stable core business likely to continue to perform with niche customers: DISH and DirecTV, the satellite TV duopoly,

currently serve a niche target market – residents in rural America. This is a stable industry – DISH has been able to make EBITDA margins of ~18%, and has had no problems passing on programming price increases to consumers, steadily growing top-line. We like that this is a differential oligopoly with both players steadily raising prices year-over-year, without trying to undercut each other. CEO Charlie Ergen estimates this market to be about 40 million people (households without fiber-to-the-curb). Since it is highly uneconomical for cable providers to expand coverage to such markets, rural customers have no choice but to stick with satellite TV in the future.

Sling TV will drive further topline growth: DISH recently introduced Sling TV, an over-the-top (OTT) online TV service.

This is an extremely affordable product – for a monthly subscription fee of $19.99, customers get ~22 channels. This compares to regular cable (north of $130 for an average of ~100 channels), and is an alternative for value conscious “cord-cutters”. While the financial impact of Sling is still marginal due to its small subscriber base, it demonstrates Ergen’s foresight. Sling launched in January 2015, a full 6 months before Verizon started offering its own skinny bundle and was the first time ever that ESPN was offered on a non-traditional platform. Sling is also the first time many millennials subscribe to an actual TV product, and offers advertisers unique insight into the viewing habits of “cord-nevers”.

Highly undervalued spectrum assets: For a long time, low frequency spectrum has commanded a valuation premium over high frequency spectrum due to its ability to travel (propagate) across longer distances. With low frequency spectrum, wireless companies would have to build less towers to cover a fixed geographical area. However, with the surge of wireless demand in urban areas, traffic per cell tower has grown at an exponential rate over the past several years. Wireless carriers now find themselves having to build more towers to meet demand in these concentrated areas anyway, and spectrum capacity has become more valuable than its propagation abilities. The latest spectrum auction (Auction 97) clearly demonstrated this, with mid-band spectrum going for prices that blew the precedents out of the water. Due to Ergen’s strategic spectrum acquisitions (at distressed, fire-sale prices), DISH has a mid-band rich spectrum portfolio today, specifically the AWS and PCS bands which the big four carriers (S, VZ, T, PCS) are using to support their 4G LTE network. With a limited supply of mid-band spectrum and rising data consumption, we are confident that the price/MHz*POP for the AWS and PCS bands will increase in the future. Unforutantely, this paradigm shift is lost on Wall Street – the Precedent Transaction comparables methodology that the sell-side uses to value DISH’s mid-band rich spectrum portfolio have given DISH an artificially low value due to the lack of its low-frequency assets, which are valued higher for reasons stated above.


Path to monetization: We see two clear ways for DISH to monetize its spectrum assets – either a sale or a lease. We examined the spectrum portfolios of the four wireless carriers, and it became clear who could end up as possible buyers (or lessees) of DISH’s spectrum. AT&T and Dish share the same 700 MHz spectrum. Verizon is already in the process of transforming its PCS spectrum to accommodate 4G usage, and we see it being interested in DISH’s PCS H-Block spectrum and the recently auctioned AWS-3 spectrum because it has the lowest PCS spectrum holdings among the big 4 carriers. Indeed, the company has indicated interest in DISH’s spectrum on some of its conference calls. Finally, DISHs AWS-4 spectrum would be attractive to any of the four carriers because the buyer would have the optionality to convert the spectrum to 100% downlink. A leasing scenario would also be highly attractive to DISH. DISH’s spectrum assets would now be considered operating assets, and DISH would be allowed to mark these highly discounted assets (since they were strategically acquired at distressed prices by Charlie Ergen) to market, and start depreciating them, gaining the subsequent tax benefits.

Precedent spectrum valuation:

DCF and spectrum valuation: All of DISH’s debt is at the Pay-TV operating subsidiary level, so we subtract that from our Pay-TV DCF value and arrive at

$12.24/share for the legacy business. On the spectrum side, we value DISH’s spectrum at the latest AWS auction values in the base case, and see that even in the bear case, where we assume an unlikely fire sale liquidation, we have a tremendous margin of safety.

Base Case PT: $95.20 (54.7% upside)

Bear Case PT: $65.39 (6.2% upside)

Spectrum Type MHz POP MHz*POP Total MHz*POP MHz*POP After-Tax

700 MHz 6 233 1,398 $712 $0.51 $1.85 $1,930

H-Block Paired 10 312 3,120 1,564 0.50 2.72 6,064

AWS-3 Paired 19 138 2,626 7,908 3.01 3.01 7,905

35 7,144 10,184 1.43 2.66 15,899

AWS-4 (Leased) 40 312 12480 2.85 21,926

Total $37,825

Spectrum Type MHz POP MHz*POP Total MHz*POP MHz*POP After-Tax

700 MHz 6 233 1,398 $712 $0.51 $1.85 $1,930

AWS-4 Optionality 40 312 12,480 2,860 0.23 1.50 13,169

H-Block Paired 10 312 3,120 1,564 0.50 1.50 3,589

AWS-3 Paired 19 138 2,626 7,908 3.01 1.50 5,328

Total 75 19,624 13,044 0.66 1.52 $24,017

Model Outputs

WACC 8.0%

Perpertuity Growth 0.0%

PV FCF $3,911,800

Terminal Value 14,684,432

Implied Enterprise Value 18,596,232

Implied EV/ 2015E Adj EBITDA 6.4x

DTV Transaction EV/ LTM EBITDA 7.7x

Implied Discount to DTV Transaction 20%

Net Debt $12,926,700

Implied Market Cap 5,669,532

Shares Outstanding 463,200

DISH Per Share Value $12.24


SIMR Recent Events (Fall 2015)

1st Annual Stern Non-Equities Competition Summary

From a competition/discussion perspective, non-equity asset classes are widely untapped in MBA circles. There is

no existing prominent competition that brings together talented students and expert industry professionals to

discuss potential non-equity ideas. With this consideration in mind, NYU Stern’s Investment Management and

Research Society (SIMR) launched the first annual Non-Equities Competition on Nov 12-13, 2015.

On Nov 12, the competition’s keynote speaker Mr. Tony Kao, Managing Principal and Co-Founder of SECOR Asset

Management LP, shared his views on the increasing importance of data, analytics and technology in the investment

management space. He also shared his insights on the current scenario where we can see “unbundling of a bank” due

to various technology disruptors. He reviewed his journey since grad school and underlined the importance of

embracing change as one moves forward in their career.

On day 2, the competition challenged teams from top MBA programs to pitch their best non-equity investment ideas

in front of a panel of investment professionals. The teams pitched asset classes ranging from high yield and

investment grade corporate bonds to credit default swaps. Stern’s team was represented by Jorge Fdez Cuervo (’17),

Neha Garg (’17), Rishi Gokharu (’17) and Rafael Feler (’17). After two exciting rounds of Q&A, Wharton emerged in

first place, pitching a “Buy” recommendation for 10.75% senior unsecured notes of Aurora Diagnostics for a potential

IRR of 21%. Other ideas included:

Buy recommendation for 7.05% 30-year bonds of Frontier Communications for an IRR of 17% by Columbia

Business School

Buy recommendation for 7.875% senior notes due 2022 of Grupo Posadas for YTW of ~9% by Chicago Booth

Buy recommendation for 7.125% 2nd lien senior notes due 2021 of Aerojet Rocketdyne by Darden Business

School, University of Virginia

Buy Spain CDS and Sell Italy CDS, to play on the Catalonia situation in Spain to earn a potential gain of 28%,

by NYU Stern School of Business

Day 2: Team from Columbia Business School presenting in front

of judges

Day 1: SIMR Co-Presidents Perryne Desai and Tyler Albright with

keynote speaker Tony Kao (Center)


The competition was very well-received from students and professionals alike and we eagerly look forward to

continue this legacy going forward.

Stock-pitch Competitions

The Annual Stern Internal Stock Pitch Competition was held on Sunday, Oct 4, 2015 to select the best original

investment idea among first year Stern MBAs. The stocks provided to participants were Masco (MAS), Jack in the box

(JACK), Dexcom (DXCM), Solar City (SCTY) and Jetblue (JBLU). The contest’s nearly 15 entries were narrowed down

to 6 finalists, who presented original long and short investment ideas. The top three contest finishers were Steven

Zheng (Long JBLU), Kevin Park (Long JBLU) and Neha Garg (Long SCTY).

Stern also participated in prominent inter-school stock pitch competitions.

Steven Zheng, Kevin Park and Neha Garg represented Stern at Cornell stock pitch competition where they

pitched Under Armour (UA: long), Workday (WDAY: short) and Alaska Airlines (ALK: long).

The Columbia stock pitch competition saw participation from Marian Ross, Rishi Gokharu and Victor Ciquero,

where they pitched Nvidia (NVDA: short) and American Airlines (AAL: long).

Jerry Jiang and Katherine Shinkareva participated in Ross investment competition and pitched Twitter

(TWTR: short) and Gamestop (GME: short)

Marian Ross, Neha Garg and Katherine Shinkareva formed the team for Women in Investing Conference in

Boston and pitched Polaris Industries (PII: long)

Ricky Singh, Steven Zheng and Sung Tae Kim represented Stern at Darden @ Virginia Investing Challenge

and pitched Dexcom (DXCM: long).

Sung Tae Kim also participated in the UNC stock pitch competition and pitched Dexcom (DXCM: long)

Judges await presentations at the Stern SIMR non-equities competition


eVALUATION – GET INVOLVED! The mission of eValuation is two-fold, (1) to broadly spread awareness of research and investing to interested parties and (2) to foster a greater connection between NYU students and alumni in the investment community. On that front, if you would like to get involved, or provide us with feedback, please don’t hesitate to reach out. In addition, if you would like to be added to our newsletter e-distribution list going forward, please send us your contact information. Thanks for reading! Visit our student club affiliation, Stern Investment Management & Research Society, on the web: http://nyustern.campusgroups.com/simr/home/ Connect with SIMR students/alums on LinkedIn! SIMR LinkedIn Page

Fall 2015 Editors

Siddharth Dandekar is a second-year MBA student at NYU Stern. Prior to Stern, Sid was an emerging markets investment banker, assisting large Indian corporations in raising debt capital. Between his first and second year at Stern, Sid completed his summer internship at UBS's US Equity Research team in New York, covering semiconductor companies. He has completed all three levels of the CFA examination and also manages his family’s investment portfolio across equity, debt, real estate and other alternative asset classes. Sid has a M.S. in Industrial Engineering from Purdue University and a Bachelor’s in Computer Science from the University of Mumbai, India.

Siddharth Dandekar ([email protected])

Ethan is a second year student at NYU Stern specializing in Finance and Accounting. This past summer, Ethan worked as an Equity Research associate at Morgan Stanley. Prior to Stern, Ethan was a decorated member of the U.S. Air Force, where he served for six years. His most notable role was as a Satellite Operations Analyst, in which he safeguarded multibillion-dollar satellite constellations, while leading a five-member team in a top-secret security setting. Ethan earned his Bachelor of Business Administration from the University of Vermont, holds a Masters of Science in Financial Analysis from the University of San Francisco and is a CFA Level III Candidate.

Ethan C. Ellison ([email protected])

Neha is a first year MBA student at NYU Stern. Prior to Stern, she worked with the Global Markets division at Citigroup for over 2.5 years and gained experience in fixed income trading, asset-liability management and market risk management. Before Citi, she worked at CX Partners ($500M private equity fund) for a year evaluating potential investment targets in the hospitality and road infrastructure sector in India. Neha earned a Masters in Finance from University of Delhi, India and a Bachelor’s in Information and Communication Technology (ICT) from Dhirubhai Ambani Institute of ICT, Gujarat. She is also a CFA Level III Candidate.

Neha Garg ([email protected])

Marian is a first year MBA student at Stern School of Business. She started in banking as a credit analyst evaluating the creditworthiness of large companies and structuring debt for their balance sheets. For the past 5 years, she worked on the “buy side” at a boutique asset manager formulating investment strategies and researching and selecting fixed income assets for different pools of capital. Marian has a Bachelor’s in Economics from Western University, Canada and is a CFA Level II Candidate.

Marian Ross ([email protected])

http://nyustern.campusgroups.com/simr/home/

https://www.linkedin.com/groups/4999514/profile

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