Oct 7, 2021 · 1h 12m · capital-allocators
Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Former endowment CIO Ellen Ellison interviews Edenbrook Capital founder Jonathan Brolin to examine his concentrated, private-equity-style approach to investing in public micro- and small-cap companies. The conversation explores Edenbrook's disciplined research culture, collaborative governance philosophy, LP alignment, and patient risk-management framework.
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 9.7% of the talking time here. How this is scored →
Ted as informed peer 3.2 Guest teaching 3.0 Guest disagreement 0.9 Ted pushing back 0.6
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:03:30 Rejection of late-cycle valuation expansion arguments
Brolin sharply criticizes prevailing Wall Street rationalizations that investors must expand valuation parameters, asserting that overpaying for assets remains fundamentally destructive to long-term investing.
Hardest push from Ted ▶ 50:01 Host challenges guest on activist reputationEllison directly challenges Brolin on how young CEOs would naturally view him with suspicion, pressing him to explain how he proves he is not a short-term activist looking to flip their stock.
Biggest teaching moment ▶ 36:20 Step-by-step asymmetry calculation tutorialBrolin delivers a detailed mathematical explanation demonstrating how a slight price drop doubles an investment's risk/reward asymmetry from 5:1 to 11:1.
Ted holds their own ▶ 58:49 Host quotes guest's letter to probe market extremesEllison leverages Brolin's own written thesis on market excess to push him beyond standard micro-cap analysis into addressing macro late-cycle portfolio construction.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Allocator Due Diligence and Sourcing Off-the-Run Managers | 5 | 3 | 0 | 1 | Ted Seides conducts a structured due diligence interview with Ellen Ellison about her underwriting of John Brolin. Ellison shares detailed institutional allocator insights on manager temperament, background checks, and non-mark-to-market volatility governance in a highly collaborative exchange. | |
| Baseball Philosophy and the Investment Process | 2 | 2 | 0 | 0 | Ellison prompts Brolin about the recurring baseball metaphors in his quarterly letters. Brolin elaborates extensively on how baseball's rhythm, large data sets, and long-term process mirror patient public equity compounding. | |
| Career Foundations and Designing an Unpolluted Research Culture | 3 | 3 | 1 | 1 | Brolin discusses building an unpolluted investment culture in the suburbs by avoiding daily P&L screens, morning sheets, and consensus lunches. Ellison lightly probes on his Bloomberg terminal usage, which Brolin clarifies is kept strictly as a research pull-tool with no P&L tracking. | |
| Applying a Private Equity Framework to Public Micro-Caps | 3 | 4 | 1 | 0 | Brolin outlines how Edenbrook applies a constructive private equity lens to public micro-caps, engaging with post-VC companies needing cost right-sizing without engaging in hostile activism. Ellison provides open prompts allowing Brolin to deliver an in-depth operational walkthrough. | |
| Concentrated Portfolio Management and Asymmetric Risk/Reward | 3 | 4 | 0 | 0 | Brolin articulates the mechanics of managing a high-conviction micro-cap portfolio with up to 15 percent position sizes. He breaks down numerical risk/reward asymmetries and explains how operational improvements increase upside while reducing downside risk. | |
| Sponsor Break: Ridgeline AI-Native Investment Technology | 3 | 3 | 1 | 0 | Following an ad read, Brolin details his deliberate pacing in fundraising, rejecting seed capital and asset-gathering incentives in favor of performance compounding and a hard capacity cap. Ellison validates his discipline based on their early partnership history. | |
| Collaborative Governance, Board Directorships, and Take-Private Deals | 4 | 3 | 1 | 2 | Ellison pushes Brolin on how management teams distinguish him from hostile activists, and inquires about board directorships and take-private transactions. Brolin explains the tactical drawbacks of being restricted on boards and outlines strict parameters for opportunistic take-privates. | |
| Market Cycles, Portfolio Protection, and Cash as Strategic Optionality | 4 | 4 | 3 | 1 | Ellison quotes Brolin on market excess collapsing rather than moderating and asks how he navigates cycle turns. Brolin rejects Wall Street rationalizations for expanding valuation multiples and argues against the conventional belief that holding 20 percent cash is a drag, framing it as strategic optionality. | |
| Lightning Round: Habits, Intellectual Honesty, and Life Lessons | 2 | 1 | 1 | 0 | In the closing lightning round, Ellison asks standard personal reflection questions. Brolin highlights intellectual honesty, avoiding blame shifting in team dynamics, and learning from past mistakes in an amicable, reflective finish. |
Statements from this episode (14)
Brolin: Edenbrook Separates Research From Portfolio Sizing to Avoid Performance Bias
“I've intentionally separated research from portfolio management. And so we just don't have those discussions. It's much easier not to fall into those traps of defending something that's down too much or being gun shy about being asked about it if you never hav…”
Brolin: Suburban Office Shields Edenbrook From New York Hedge Fund Groupthink
“We're out in the suburbs. Why? A, it's close to my house and I like that, but also we don't get polluted by other people's ideas. We're not going to ideal lunches all the time. Our big idea is what are we going to have for lunch today? That's part of the proce…”
Brolin: Edenbrook files 13Ds without engaging in confrontational shareholder activism
“We do file 13 D's on companies, but we're not confrontational activists. We're looking for situations where we can interact positively with management teams and boards.”
Brolin: Public markets have no appetite for slow-growing, unprofitable companies
“There really is no market for a slow growing or declining unprofitable company.”
Brolin: Edenbrook builds positions up to 15% and lets winners run
“We will build a position up to 15% At market, and then we generally aren't buying after that. We let it work, but if we're going to build something up to 15%, we also have to let it run. We can't build it to 15 and then say 20 is our max, because then we're on…”
Brolin: Edenbrook held a 15% position that gained 300% in Q4
“Last year, we had a position that was a 15% position that went up 300% in the Fourth quarter.”
Brolin: Edenbrook Capital has turned down more capital than raised
“We've turned down more capital than we've raised because people are not great fits for it.”
Brolin: Edenbrook caps raised institutional capital at $500M
“We've capped ourselves at five hundred million dollars of raised institutional capital, so We'll be above that because of compounding. Something in that high hundreds of millions of dollars range feels like the right place to stop. So whether it's six, seven, …”
Brolin: Board seats harm public managers by closing post-earnings buying windows
“In general, I would prefer not to because it's very time consuming and I don't want to be restricted. I don't want our investors to be restricted and it's not so much the sale because I think if we get the risk reward correct and the asymmetry of it, it's real…”
Brolin: Raising dedicated private strategy funds tempts managers to force bad deals
“I had conversations with some of our family office investors who said, why don't you just have a separate private strategy for that, which I'm reluctant to do because I think if you go out and you raise capital for an idea, you're tempted to put the capital to…”
Brolin: Edenbrook monetized puts when VIX hit the low eighties
“Coming into March of 2020, we had about low double digits in cash, but we had all of these puts that we had bought. And so when those puts really paid off, they became an extra significant amount of cash in the portfolio. So the VIX went up into the low eighti…”
Brolin: Edenbrook holds over 20 percent in cash
“We're 20 plus percent now in cash, and we would be, no, there's some things that we're buying today, and there's some things that we're selling today, so there's some changes to that, and we have periodic inflows, so that can change the cash level.”
Brolin: Wall Street average net cash is around two percent
“But I think the average net cash position across all of Wall Street right now is about two percent. So there's not exactly a lot of dry powder.”
Brolin: Cash is a costless option that beats drag
“Cash to me is a costless option. People say, oh, it's such a drag. It's such a drag. I don't think it is. I mean, you've seen those situations we've had where something we have falls 40% on earnings. If you have a 15% position and it falls 40%, now it's a nine…”