May 20, 2024 · 1h 16m · capital-allocators
Brett Barakett - Digging for the Puck at Tremblant Capital (EP.386)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Tremblant Capital founder and CIO Brett Barakett to explore his 23-year career managing fundamental equity strategies, executing proprietary primary research, and launching innovative active ETFs. Barakett shares actionable insights on risk management, team culture, operational rigor, and sustaining long-term performance across dynamic market cycles.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 18.3% of the talking time here. How this is scored →
Ted as informed peer 3.6 Guest teaching 2.4 Guest disagreement 0.6 Ted pushing back 0.0
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 37:20 Dismissing broad data lakes for little data
Brett sharply contrasts Tremblant's targeted research against the industry trend of scraping giant data lakes, calling big data largely useless without specific thesis-level insight.
Hardest push from Ted ▶ 56:59 Probing compensation balanceTed specifically presses Brett on how Tremblant balances firm-wide compensation versus individual performance attribution given the retention risks for top talent.
Biggest teaching moment ▶ 27:25 Deconstructing accounting assumptions to cashBrett delivers an extensive instructional masterclass on decomposing financial statements, explaining ROIC, incremental ROIC, and GAAP depreciation assumptions versus cash reality.
Ted holds their own ▶ 46:22 Synthesizing large-cap analytical edgesTed pinpoints the exact challenge of finding information asymmetry in mega-cap names like the Magnificent Seven, demonstrating sharp market awareness.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Mailbag Segment: Host Connection and Crisis De-escalation | 4 | 1 | 1 | 0 | Ted opens with a mailbag story highlighting Chris Voss's negotiation techniques before initiating a friendly conversation with Brett about childhood lessons from hockey. Brett enthusiastically explains how hockey taught him resilience and teamwork. | |
| From Canada to HBS and Brand Management at P&G and Reebok | 3 | 1 | 0 | 0 | Ted prompts Brett on his transition from Canada to Harvard Business School and brand management. Brett recounts how following his brother to HBS and working at P&G and Reebok shaped his early career thinking. | |
| Discovering Hedge Funds and the Joy of Analytical Puzzles | 4 | 2 | 1 | 0 | Ted inquires about the practical advantage of operational experience versus pure finance. Brett outlines the extreme difficulty of real-world operational execution and introduces P&G's fact-based decision-making approach. | |
| Sell-Side Perch to Founding Tremblant Capital | 3 | 2 | 2 | 0 | Brett explains why he started on the sell side to observe buy-side clients and dismisses technical charting in favor of fundamental cash flow analysis. | |
| Launching Tremblant and Setting a Clear Failure Plan | 3 | 2 | 1 | 0 | Brett explains the terrifying initial launch of Tremblant in 2001 and his strict 24-month failure plan to avoid endless capital burn. | |
| Weathering September 11 and Discovering the Post-Crisis Retail Trend | 4 | 3 | 0 | 0 | Brett shares a vulnerable story about breaking down in Central Park during 9/11 before uncovering a surging home-improvement consumer trend via primary channel checks. | |
| Navigating 2001–2008 and Mitigating Lehman Counterparty Risk | 4 | 2 | 1 | 0 | Brett describes navigating the pre-GFC environment and pulling all client capital out of Lehman Brothers in 2007 purely on counterparty risk principles. | |
| The Resurgence of Long/Short and Identifying "Smoking Gun" Shorts | 4 | 4 | 1 | 0 | Ted asks about long/short dynamics, and Brett delivers a comprehensive four-part breakdown of Tremblant's fundamental framework, contrasting cash flow with GAAP accounting distortions. | |
| Developing Independent Research: The Abercrombie & Fitch Case Study | 3 | 3 | 0 | 0 | Brett details his Abercrombie & Fitch case study, explaining how hiring students for store channel checks gave him high conviction despite market skepticism. | |
| The Evolution of Primary Research: Big Data vs. "Little Data" | 4 | 3 | 2 | 0 | Brett contrasts the popular industry obsession with broad 'big data' against Tremblant's focus on focused 'little data' targeted at the single thesis-defining variable. | |
| Evaluating Management Integrity, Granular Knowledge, and Alignment | 4 | 2 | 0 | 0 | Brett discusses assessing management alignment, recounting rigorous background checks and admiring operators like Costco's Jim Sinegal who obsess over micro-operational details. | |
| Portfolio Construction, Conviction, and Position Sizing | 4 | 3 | 1 | 0 | Brett breaks down portfolio construction, explaining why Tremblant caps position sizes at 2-5% across 20-25 names to rely on a high hit rate rather than outsized concentration bets. | |
| Establishing a Perspective Edge: The Amazon Business Model Insight | 4 | 3 | 1 | 0 | Brett explains how Tremblant gained a perspective edge on Amazon by recognizing the explosive ROIC of third-party fulfillment and targeted advertising when short-sellers focused on GAAP PE. | |
| Disciplined, Fact-Based Sell Decisions | 3 | 2 | 0 | 0 | Brett emphasizes strict sell discipline based on hitting price targets or thesis breaks without emotional debate, and outlines the empowerment given to PMs with local intel. | |
| Tremblant's Five Levels of Risk Management | 3 | 4 | 0 | 0 | Brett details Tremblant's five levels of risk management, differentiating fundamental business loss from paper volatility and detailing strict CDS-triggered counterparty removal. | |
| Investment Team Organization and Global Sector Coverage | 4 | 2 | 0 | 0 | Ted probes into compensation structures, and Brett explains aligning incentives around firm performance first to eliminate mercenary silos and promote collaboration. | |
| The Launch of TOGA: Active ETF Architecture and Tax Advantages | 3 | 3 | 0 | 0 | Brett explains the rationale behind launching TOGA, highlighting the significant tax advantages, liquidity, transparency, and lack of NAV discount in active ETF structures. | |
| The Emerging Wave of Active ETFs in Asset Management | 4 | 2 | 0 | 0 | Ted and Brett discuss the growing wave of active ETFs and Brett shares life and investment lessons learned from his mentor Charlie Ellis. | |
| Career Longevity, Passion for the Craft, and Life Balance | 4 | 1 | 0 | 0 | Ted asks why Brett remains deeply engaged in investing when many peers have retired. Brett reflects on family, balance, treating investing as a joyful puzzle, and the relocation to Florida. |
Statements from this episode (33)
Only Two of 800 HBS Grads Entered Hedge Funds in Early 1990s
“I think in my year, 800 people graduated HBS. I think, off the top of my head, I think roughly two went into hedge funds.”
Wall Street Analysts Naively Underestimate Operational and Supply Chain Friction
“In my travels on Wall Street and in finance and sell side and buy side, people's assumptions about, oh, well, you just do this. Take those machines and put them over here. Take the equipment out of wherever, China, and just move it to the Philippines. It's lik…”
Founders Must Define a Strict Failure Plan and Runway Upfront
“Know in advance what the failure plan is, and so what I concluded was that I'd fund the business for 24 months, and if by month 25, I was not cash flow break even, then I should shut down.”
Tremblant Capital Managed $72 Million in AUM by August 2001
“And so I think on August first, I think we had seventy two million AUM, which was pretty good.”
Tremblant Reached Nearly $1 Billion AUM Within One Year
“By our one year anniversary, we had just under a billion dollars AUM and then we grew from there.”
ZIRP and Zero Short Rebates Made Long/Short Equity Less Attractive
“And so when money's for free and there's no rebate anymore, particularly after Oh eight in hindsight, long short to a degree became less attractive.”
Return of Real Cost of Capital Makes Shorting Environment Phenomenal
“Well, now there's finally a real cost of capital again. And we think it's a phenomenal shorting environment. Why? Because there's a whole bunch of people that are carrying a ton of debt that was basically for free, which is not for free anymore. And so what we…”
Cheap Multiples Are Value Traps Without Factoring in Industry Disruption
“Blockbuster traded three to five times free cash flow until it went to zero, and so you got to look at change, and change comes in many ways.”
Amazon Historically Generated Massive Cash Flows But Reinvested Every Dollar
“I love when people say like, oh, back in the day, Amazon trades at 150 times earnings, and they don't generate any cash. And like, what are you talking about? They're generating an insane amount of cash. They're just reinvesting it all back in the business.”
Financial Models Do Not Create Alpha; Identifying the Core Driver Does
“You're not going to outmodel the other guy. We're going to build models. Figure out the one driver that will dictate success or failure to your thesis, and then spend all your time on that one thing.”
Barakett Remains Skeptical of AI Consumer Surveys Versus Real Polling
“I'm still a little suspect on this. AI can do that for you. You can say, tell me what an 18 to 24 year old would think about this brand or this product, and the AI will tell you. I'm still old school enough. I want to do the survey. I want to ask actual people…”
Satellite Parking Lot Data Is Useless Without Weather and Holiday Context
“Looking at the parking lot today versus exactly one year ago may be completely useless depending on what the weather was like the prior year, whether it was raining or sunny, what the holiday was Easter earlier or later that month.”
Tremblant Prioritizes 'Little Data' Drivers Over Massive Data Lakes
“We are the opposite. We talk about little data. We want to go find that one thing that's going to drive success or failure and bring a lot to bear on that one thing, and that is where we spend all of our time.”
Never Allocate Serious Capital to Managers Without Deep Background Checks
“How you do one thing is how you do all things is a great way to assess not just management teams, but also investment managers. I don't know why you would ever put serious capital with an investment manager that you didn't do a deep dive on their background.”
Tremblant Made and Lost Substantial Money on an Early BlackBerry Position
“We made a bunch of money in BlackBerry, and then we lost a bunch of money in BlackBerry. We were early, one of my partners was like, this mobility thing is going to scale much faster than people think, and the winners are going to be Apple and Google and Black…”
Tremblant Targets Stocks That Can Double in Three Years or Less
“We're not interested in good ideas. Like, Hey, I think if this, and this happens, we can make 15%. It's like, well, that's good, but we're long-term investors. And so we're looking for things that we think can double or more in three years or less.”
Tremblant Holds 20 to 25 Stocks With Positions Capped Around 5%
“For me, 20, 25 names is probably about right. We can do a lot of research. So you say, well, we should have two to four percent positions. We don't really outsize massively anything. A big position for us might be five percent.”
Tremblant Capital Views the P/E Ratio as a Useless Valuation Metric
“The PE ratio, which we think is useless was infinite”
Amazon Will Ultimately Generate Over $100 Billion Annually in Ad Revenue
“Amazon's not going to be doing billions in advertising revenue. They're going to be doing tens of billions and ultimately over a hundred billion a year in ad revenue.”
Tremblant Sells Rigidly on Price Target Realization or Thesis Change
“You sell when it hits your price target, and nothing else has changed. It feels good when it goes up. I think it's gonna go higher. Really? Your opinion? Or is that a fact-based decision? You gotta be fact-based. You gotta stay rigid. So you said the stock was…”
Tremblant Operates Fully Liquid Portfolios With No Private Investments
“In what we do, everything's infinitely liquid. We're not in privates.”
Talented Analysts Quit if Top Managers Micromanage Their Investment Decisions
“What I found is people who are talented don't want to keep going to the quote head person and saying, Hey, I think we should buy da da da. And the person who spent three hours on it is saying, Hey, this is really compelling. And the head guy's like, nah, I don…”
Tremblant Portfolio Managers Manage Firm-Wide Positions Rather Than Carve-Outs
“The people who are in the portfolio manager seats, they're managing positions for the entire portfolio. These are not carve-outs. It's, hey, you're going to take a two to four percent position for the firm, and you're going to decide when to do that, and you'r…”
Tremblant Capital Pulled All Funds From Lehman Brothers in Summer 2007
“We took our money away from Lehman Brothers in the summer of oh seven.”
Tremblant Pulls Funds Without Discussion if a Counterparty's CDS Spikes
“We measure the risk of our counterparties. Very simple. We look at the CDS of anybody who holds our client's money. If the CDS goes above a certain level, we pull our money. There's no conversation. We do not get paid to take that risk. We need counterparties …”
Tremblant Has Never Instituted Redemption Gates on Its Strategies
“We've never had gates on our strategies. We don't need them because we're super liquid.”
Tremblant Typically Holds Portfolio Stocks for Two to Three Years
“As I said earlier, we own 25, maybe 30 stocks and our holding period is usually two to three years on a name.”
Tremblant Compensation Ties First to Fund Results, Then Individual Contribution
“Everybody at the firm gets paid first on how we perform for our clients. And secondly, on the relative contribution to that performance.”
Tremblant Eliminated Multi-Year Profit Bleed-Out Economics for Departing Partners
“Because somebody exits a firm, And they were getting X percent of the economics. And then there's a bleed out for a number of years where, you know, three or five years where they get some portion of those economics. You have enough of that. And then the peopl…”
Tremblant Employees Cannot Be Promoted Without Demonstrating They Develop Internal Talent
“You cannot get promoted here unless you can show that you're developing people because we want to develop talent internally, and that's worked out really well for us over time”
Active ETF Structures Defer Capital Gains Taxes for Fund Investors
“The brilliance of the ETF structure led by Vanguard is create a structure that we can own Microsoft. We don't, but we can own Microsoft and Toga. It can double. We could sell Microsoft and the owners of Toga won't pay the capital gains tax until they sell thei…”
Long-Short Equity Fund Managers Will Increasingly Launch Actively Managed ETFs
“I think there is a lot more conversation around active ETFs from people who look like us. Start as long short funds, this kind of stuff. I think you'll see a lot more. I don't know why you wouldn't, because for your own money, it makes too much sense.”