strategy deck jdp 2019-2...2019/02/01 · cyrusone 2013 - 2016 41% 333% overlooked survivor &...

Fund Presentation

JDP Capital Management

Jeremy Deal, Portfolio Manager

Business Experience JDP private equity, Secure Wireless Inc. (sold to Nortek, NASDAQ: NTK), Energy Eye Inc. (sold to Somfy SA, EPA:SO), Honeywell International (NYSE: HON)

Seth Lowry, Senior Analyst

Business ExperienceTech Coast Angels, Citigroup Equity Research (Transportation), Merrill Lynch Investment Banking

(Energy and Power), Merrill Lynch (Global Securities Research)

Mark Chapman, Director, JDP Offshore Ltd

Business ExperienceAzur Consulting, Aquamarine Fund Zurich (COO/Director), Deloitte BVI (Managing Partner) Deloitte Cayman Islands (Senior Manager)

15 East 67th Street | New York | NY | 10065 jdpcap.com Vijzelstraat 68 | 1017 HL | Amsterdam

1

Why JDP?

Rare stock strategy that allows for continuous ownership of the right companies

“Best-ideas only” portfolio maximizes total return over the longest periods of time

Designed for outside capital to invest alongside JDP

Highly-curated investor base removes common fund constraints and maximizes potential

Institutional-grade back office infrastructure

Underwriting business quality eliminates need for market-timing


2

JDP summary

Global equity fund, NYC headquarters, Amsterdam research office

Uses public markets to make long-term investments in specific companies

Risk managed by focusing on strong businesses with durable models and unrecognized potential

Targets a rolling 100% return per idea within 3 to 5 years (15% to 25% annualized)

Management’s net worth invested alongside partners on the same terms


3

Founder’s objectives

1. Maintain and grow an attractive long-term track record

2. Operate with a high degree of integrity and expect the same from our portfolio companies

3. Seek performance through fundamental appreciation of individual businesses, not trading

4. Embrace mistakes and improve our investment process over time

5. Protect JDP’s culture, goals and advantages by limiting the pool to like-minded investors


4

Investment Strategy

5

JDP’s evolution

2009 – 2011Fundless private equity sponsor focused on divestitures of distressed public companies

2011 - 2015Formed a hedge fund legal structure with a focus on micro caps, price-based only investment criteria

2015 - 2017Seth Lowry joins the team, investment universe expanded to larger companies going though transitions with compounder qualities

2017 - presentAdopts the “Survivor & Thriver” overlay criteria for all investments, portfolio limited to best ideas only


6

Strategy to discover and own companies that:

1. Meet JDP’s Survivor & Thriver company criteria

2. Can be purchased for a price that supports our return target


7

Survivor & Thriver study

Proprietary JDP research project between 2016 and 2017 on all US public companies over $500M

Studied similarities between companies with extreme outperformance and underperformancebetween peak market cycles

Assumed only buying at the top of major market cycles (October 8, 2007 for example)

Price and market timing was the least important contributor to extreme outperformance


Study became the primary lens for all JDP investments beginning in 2017

8

Study example

Imagine buying at the “peak” market day on October 8, 2007 before the crisis and never selling…

S&P 500 performance: +186% (9.1% annually)

~1,300 total US companies, minimum $500M market cap, and continuously tradable for the past 12 years

Top 10% +1,021% (88% annually for 12 years)Top 25% +630% (18% annually for 12 years)

Bottom 10% -61% Bottom 25% -22%


CapIQ, JDP estimates, assumes buying on October 8, 2007 and holding though October 8, 2019

9

What do the top performers have that the rest don’t?

Business model that is adaptable and relevant in tomorrow’s economy

Durable pricing power protected by a growing competitive advantage

Capital allocation and balance sheet strategy that supports the company’s moat

Significant alignment of interest between management and equity owners


Survivors & Thrivers become “Compounders”

10

Best performing companies Survive and Thrive

Survivor characteristics: Dominant industry player with high barriers to entry supported by a superior brand, financial, legal and geographical advantages

Examples: Colgate toothpaste, Moody’s credit rating agency, Burlington Northern Railroad, the Golden Gate Bridge, DeBeer diamond mines, Panama Canal

Thriver characteristics: Disruptive and evolving technologies or products that cut out traditional-economy costs and barriers and drive demand though creating efficiencies

Examples: Smart phones, social media and e-commerce platforms, Building Information Modeling (BIM), cloud infrastructure, cyber security, machine learning, wind and solar battery storage, 5G


11

Putting it together

“the Golden Gate Bridge of BIM software”

“the Panama Canal of cloud infrastructure”

“the Colgate toothpaste of e-commerce platforms”


12

Survivors & Thrivers are found in every industry – examples12-year performance

Company Market from ”peak” market day before crisis

Trex Company Building products +3,100%Medifast Weight loss +2,000% Bookings Holdings Travel booking +1,985%Dominos Pizza Pizza +1,585%Old Dominion Freight +1,450%Home Depot Retail +835%Intuit Accounting +805%Moody’s Credit ratings +370%Vail Resorts Resorts/Skiing +313%


CapIQ, JDP estimates

13


So why can’t people just hang on?Volatility over 12 years

Company Sector 12-year performance Number of -30% drawdowns

Trex Company Building products +3,100 10 timesMedifast Weight loss +2,000% 11 timesBookings Holdings Travel booking +1,985% 7 timesDominos Pizza Pizza delivery +1,585% 4 timesOld Dominion Freight +1,450% 7 timesHome Depot Retail +835% 3 timesIntuit Accounting +805% 3 timesMoody’s Credit ratings +370% 8 timesVail Resorts Resorts/Skiing +313% 5 times


CapIQ, JDP estimates

14


Buying, Selling & Managing Risk

15

Identifying a pre-compounder

A business strategy focused on rapidly evolving from past models and mindsets

Sustainable internal cash flow that supports long-term growth plans

Long runway to re-invest in growth initiatives, materially de-leverage, or pursue intelligent buybacks

GAAP accounting can be misleading and rarely tells the full story

High conviction enough to be at least a 10% portfolio position


16

Buying on a value-basis

Comparison of today’s price vs. our estimate of future cash flows

Valuation determined by JDP-adjusted cash flow metrics, not GAAP accounting

Rolling 100% appreciation potential every 3 to 5 years (15% to 25% annualized)


17

Common reasons for price dislocation

Negative quarter-to-quarter outlook

Unrecognized growth, strategy shift, societal mind shift

Misunderstood M&A or recapitalization

Under-utilized assets

Regulatory change


18

Margin of safety

Downside protection in fundamentals

Base-layer cash flow insulated by contracts, market position, employee talent, hard assets, switching costs, etc.

Balance sheet debt appropriate for the business or well-covered by underlying value

Optionality in hidden or non-optimized assets (IP, stand-alone subsidiaries, real estate, JVs)


19

Decision to sell

Valuation driven, not volatility driven

Material mistake in the thesis or valuation

Eroding competitive advantage

Discovery of a much better idea


20

Past Investment Examples & Fund Structure

21

Past experiences that helped us improve the most

22*CapIQ and JDP estimate assumes JDP held the stock continuously from initiation though the creation of this presentation on October 8, 2019

Company Period owned JDP Annualized Return

Total return if never sold*

Innophos 2011 - 2012 7% 17% Cheap valuation, specitality chemical products have limited pricing powerBank NY Mellon 2011 - 2013 30% 162% Overlooked Survivor & Thriver characteristics, too focused on valuation and missed organic growth runwayMasco 2012 89% 350% Overlooked Survivor & Thriver characteristics, too focused on valuation and missed organic growth runwayOtter Tail 2012 6% 220% Overlooked Survivor & Thriver characteristics, too focused on valuation and missed organic growth runwayIllinois Tool Works 2012 43% 255% Overlooked Survivor & Thriver characteristics, too focused on valuation and missed organic growth runwayHWCC 2011 - 2012 -20% -55% Valuation below liquidation, commodity distributor with limited competitive advantagesNasdaq 2012 - 2013 26% 326% Overlooked Survivor & Thriver characteristics, sold based on valuation and missed organic growth runway and qualityBoyd Gaming 2012 - 2013 55% 206% Positive IRR only due to low price paid, cyclical, highly leveraged, not a compounderCVI 2011 - 2012 35% 400% Sold due to valuation. Stronger competitive advantages than expected, higher quality ultimately translated into valueLive Nation 2012 - 2013 14% 640% Overlooked Survivor & Thriver characteristics, too focused on valuation and missed organic growth runwayQuality Systems 2012 - 2014 2% -1% Strong balance sheet and high returns on capital could not overcome lack of growth and bad managementGenworth Financial 2012 - 2015 21% -13% Focused on cheap valuation based on discount to working capital, no growth or pricing power, macro headwindsHartford Financial 2012 - 2014 36% 208% Limited pricing power with earnings insulated by regulatory and size advantages, less sensitive to macroCyrusOne 2013 - 2016 41% 333% Overlooked Survivor & Thriver characteristics, too focused on valuation and missed organic growth runwayCarrols Restaurants 2014 - 2017 21% -6% Unexpected shift in corporate strategy and capital allocation due to weak board governance ALJ Regional Holdings 2014 - 2017 44% -20% Private PIPE, low valuation, lowest quality assets, unexpected shift in capital allocation strategy Liberty Broadband 2015 - 2018 28% 98% Overlooked Survivor & Thriver characteristics, too focused on valuation and missed organic growth runwayTERP 2016 - 2019 24% 150% Bad corporate governance, control ownership not aligned with public owners, abuse of minority ownersInfu Systems 2012 - 2014 50% 225% Invested based on the Chairman's activist agenda to sell the company, sold when the offer was declinedTRW 2011 - 2013 46% buyout Overblow legal issues, Strong pricing power and insulated competitive advantages led to attractive buyoutDTV 2012 - 2014 30% buyout Cord-cutting fears lead to a cheap price. 80% of company bought back in buybacks, superior capital allocation, sold to AT&TTeekay Offshore 2017 - 2019 -25% buyout Bad corporate governance, control ownership not aligned with public owners, abuse of minority ownersChicago Bridge & Iron 2017 -50% -18 Cheap valuation, Bad corporate governance, undisclosed distress Perry Ellis 2014 - 2015 38% buyout Invested based on activist agenda to sell the company, sold after a settlement was reached

What happened

Fund structure and fees

US Limited Partnership with offshore feeder (Credit Suisse nominee platform approved)

Monthly subscription, annual redemption

$250,000 initial minimum, $25,000 thereafter

Fees: 1% fixed, 20% performance over a 6% hurdle


23

JDP investor base

High net worth individuals who invest directly with JDP (US and Europe)

Business-owner mindset towards stocks

Successful entrepreneurs, professional investors, inherited wealth

Average LP has 5% to 10% of net worth in JDP


24

Contacts


Fund Administrator – US

Yulish & AssociatesJoshua Sack2 Turquoise WaySan Francisco CA 94131(415) 641-4246

Fund Administrator – Offshore

Perennial Fund ServicesAJ Haas11620 Wilshire Blvd, #400Los Angeles CA 92225(310) 445-2581

Tax/Audit

Spicer Jeffries LLPBob Yurglich5251 S. Quebec St., Suite 200Greenwood Village CO 80111(303) 753-1959

Legal – US

Ragghianti Freitas LLPJack Martel1101 Fifth Avenue, Suite 100San Rafael, CA 94901(415) 453-9433

Legal – Offshore

Harneys Westwood & Riegels LLPPhilip GrahamTortola, BVI+1 284.494.2233

Trading

Jones TradingScott Cooper220 E 42nd StreetNew York, NY 10017(212) 267-0777

Bank and Cash Controls

City National BankRon Garcia100 Montgomery St.San Francisco CA 94104(415) 576-2407

Compliance

Gordian ComplianceJustin Schleifer150 Spear St., No. 825San Francisco CA 94105(415) 762-2845

Prime Broker

Interactive Brokers LLCBen Nguyen8 Greenwich Office ParkGreenwich CT 06831(203) 618-5971

25

Jeremy DealManaging [email protected]

Seth LowrySenior [email protected]

strategy deck jdp 2019-2...2019/02/01 · cyrusone 2013 - 2016 41% 333% overlooked survivor &...

Documents