The Exchanges

Q What was that early hedge fund experience like right out of college?

A Oh, it was terrific, and you know, because you were there, but I came out in 2002, and it was like drinking from a fire hose. It was just enormous alpha pool. The firm hired accounting professors from business school to teach me accounting when I got there, and I went right in. I still remember the looks on CEOs' faces when a twenty-year-old in a floppy, ill-fitted suit would walk in, So disappointed that they had to meet with me for an hour, but there was no LinkedIn. They didn't know who I was. I took the opportunity. It was like tons of field research. I would show up at annual meetings and harass business executives and board members. I would go to landfill hearings. I would pull court documents, just tons of stuff like that. After the dot-com bubble burst, I got to do distressed debt. I got to do domestic equities, international equities, look at all sorts of different asset classes. It was just really fun, and I was pretty tenacious about figuring out who the best investors were. I would hunt them down, and I would try to figure out what they did and replicate it. I would go back on 13 Fs from three or four or five years lag and say, okay, let's go back to 1999, 2000. Why did this person make this investment? So it was really a great time to learn. My takeaway from that period was you had no talent there. It was early. That's why I got a job. They needed to manufacture yo…

AI assessment note: “Oh, it was terrific, and you know, because you were there, but I came out in 2002”

Q That's great. Which two people have had the biggest impact on your professional life?

A My father's love of business and my parents' love of a good deal impacted my life. The founder of Eagle, Ravenel Curry, gave me enormous opportunities and trust at a young age for which I'll forever be grateful and changed my life, and he's just a terrific entrepreneur and long-term thinker, so it's been wonderful to spend so many years with him. But the person by far who's impacted my life on a business sense is my partner, Alec Henry. So I met Alec a couple decades ago in the investment world, and we've been talking daily or almost daily ever since. And we talk about everything from financial markets to the psychology of sales to are cold plunges actually healthy? It's everything. What I'll tell you about Alec is he's brilliant. He's very sharp. He's curious. He's kind. And he's one of those people that always does the right thing. And if you surround yourself with somebody like Alec, it can't help but bend you in a good direction. I like to think he's had that impact on me. If you find somebody that you respect, that you have mutual admiration for, and you like to get to the answers of things and debate things, and you can do it behind closed doors, the amount you can learn is off the charts. And it's even a little bit better than that, Ted. So Alec is articulate and concise. So he says really smart things very quickly. So when we talk, I learn a lot, but I also get to speak…

AI assessment note: “Ravenel Curry, gave me enormous opportunities... the person by far... is my partner, Alec Henry.”

Q Other than your friends making fun of you, what was it like to move from the hedge fund to the long-only structure?

A It wasn't as different as you'd think. One of the funny things about the industry is everybody looks at somebody at a private equity firm or Citadel or a hedge fund or long-only and thinks they're so different. They're the same people. They're just moving around seats. You meet somebody from Citadel, they have some of the best analysts in the world, or Millennium. You meet somebody from a top single manager hedge fund, they're some of the smartest people you ever met. You meet somebody from a top mutual fund, they're some of the smartest people you ever met. But what was clear was that the competition set when people were looking at us was easier. That was very obvious from day one. A day before, you're up against all these great people that had these great twenty-plus percent return streams for the last 10 years, and you're like, oh, should I give money to this firm versus I'm comparing you to this big mutual fund house. From a relative basis, it gave us an interesting opportunity set to attack because the competition set were worse. But if you look at duration, the pejorative term for long onlys at the time, and I think still people think this is, it's like a asset gathering business and lazy capital. They would say people would use the term time arbitrage. The joke was, I just underperformed short term, but that's deferred alpha. And so that's why All the capital was seeking…

AI assessment note: “It wasn't as different as you'd think.”

Q You're in the hedge fund. You've got this wide remit. You feel like the returns aren't going to be as interesting. What do you do when you're sitting in that seat?

A I really like my seat, and I love that world. If you're lucky to have a good first employer like I did, where you can learn a lot, You'll learn things that you like and that you want to do differently over time in this business. We're all wired genetically differently to be able to prosecute different opportunity sets. So I just had to learn over time where my skill set was, what I was good at. But as I started thinking about it, it's like, look, what I really like to do is I'm trying to compound my own money and clients' money. I want to align myself in interesting swim lanes where I'm going to be able to generate great returns. Maybe in hindsight, It's obvious, but I think it was pretty clear at the time that if a lot of money flows into an area at very high fees, the future returns would be lower. So I started to think about what I want to do next. And my partner here, Alec, and I were talking about different opportunity sets. And I had a good fortune to meet the folks at Eagle, had a terrific track record, and I think an advantage structure. And I got to thinking about it. I was like, okay, let's think about fees in this industry as a cost of capital. If broadly the hedge fund world had higher fees and broadly the This firm had more attractive fees. Could we do the same thing? Why can't the net returns in this structure be higher than the other structure? Let's look at the …

AI assessment note: “So I started to think about what I want to do next.”

Q I want to pick apart some of the aspects of the business process and the investment process. On this concept of paying salaries only and not bonuses is very different from what you hear commonly. What have you found are the subtle benefits of doing that?

A That's an interesting question. We're counter-positioning in many ways against the multi-managers who are paying terrific sums of money and hiring a lot of the best talent out there. Imagine we're trying to hire from a top single manager or a pot. The way those fee structures work at a single manager, they're charging a base fee and then an incentive at the end. So their earnings are lumpy. We don't have that issue as a firm. There's no reason we have to pay a base plus bonus because that's not how the partners are paid. Structurally, it's irrelevant to us. So the right question we ask ourselves is what's the best thing for the analyst in the firm? There's no proof that this is the right way to do it. It's just the way we've done it. If you're at a top fund, You're getting a base plus bonus. The way it actually works is you get your base salary, you wait all year long for your bonus, and you're thinking you can't focus on anything else at the end of the year, and then you get your bonus, and for one or two days, you're like, okay, I got my bonus, and then you start thinking about your next year's bonus. So it creates a really acute, sharp focus on whenever the bonus season is. We wanted to push people away from that, number one. Number two, in our structure, the N is so low. They're not buying a bunch of new names over time. So to evaluate them on short periods of time, when we…

AI assessment note: “We wanted to push people away from that, number one.”

Q What are some examples of situations where the path is uncertain, but the destination you have more confidence in?

A Pull up our 13 F. You'll see a lot. It's not fun. I don't want to be blasé about it. You buy one of these things and it goes down every day. And every time we sell something that has momentum in it, it goes up the next day. Let's give a few random examples of what that could look like today without being too stock specific. So let's look at Something in the headlines today, like SaaS companies. Everybody thought they were these great businesses. And now, today, they're trading at low multiples on our view of normalized earnings. So what we want to know is what's the end state margin structure of a business? What does that mean? Stock comp, you have to tax. And so a lot of these are stock comp pigs. So we care a lot about who's managing these. What's the retention rate of the business? How is the sales efficiency look over time? And then what's the natural end state of the margins of that? We have a view on some companies. And so the reason they're trading cheaply is because AI. Now, AI might be right. AI might take out all these SaaS companies. That's a legitimate bare case, but it might not. You could look through that opportunity set, and there's a lot of smart private equity firms still deploying capital there, and you could say, are all of them going out, or are there going to be some that survive, and they look like they're trading at very low multiples in a world that's p…

AI assessment note: “Let's give a few random examples of what that could look like today”

Q Do you look out over the next couple of years? What do you think Eagle becomes from here?

A We're pretty simple. The firm is named Eagle. It's not named after any one person. Doing our job well means continuing to grow the talent side of the firm and continuing to attract great clients. If we can do that, I think we'll be able to out alpha over time. There's no growth mandate here. We're big enough to hire who we need to hire and build this great firm that we think we built, but we're also small enough that we can still find interesting pockets of alpha. It feels about the right size. We could grow a little, shrink a little. The north side of us is really growth and excellence. That's what we're solving for. People focus in this industry on flows and all this stuff. I get it. But like, if our performance is up 15% or down 15%, that influences much more than anything else. So what we can solve for is talent, making ourselves relevant in the world, and trying to build the excellence of Eagle. And I think if we do that, everything will play out well.

AI assessment note: “There's no growth mandate here. We're big enough to hire who we need to hire”

Q When you started your career with this very wide opportunistic mandate, cross asset classes and geographies, and now it might be a little more narrow, you're just buying stocks. Where do you start thinking about where you want to look for ideas?

A That was a nice way of saying it. The reason everybody came into the hedge fund world because it was so fun. You had this big mandate, a partnership vehicle, you could do anything you wanted. That doesn't really exist anymore in broad strokes. It's been diced up. You've got the distress funds, you've got the pods, you've got some single managers left, but there's not so much capital going to broad opportunistic mandates. It's become more specialized. I was having this debate with somebody recently talking about return streams over the last 10 years, and We're proud of our record here. She made the case that, yeah, but you guys have that return stream because you're a large cap equity investor. And I said, Hmm. I think you're saying that in a pejorative way. The truth is that's not the way Alec and I saw it. The way we saw it is we picked to do this. We thought the returns going back in time ex ante of larger domestic equities were really good return streams with very low risk, and it was a great way to compound our capital personally and for clients. We picked that. So that's our personal selfish view of it. I know people can take issue with that. The starting point is, can we generate Absolute double digit returns over a long period of time. Think of us as absolute return investors living in a relative return world. We're modeling companies out five, six, seven years, looking …

AI assessment note: “The starting point is, can we generate Absolute double digit returns over a long period”

Q If you go back to your friends teasing you about, well, your track record is just large cap growth. When you have the opportunity to spend the time to dive in on a large cap company, what does that work look like to get your hands around something that presumably everyone has access to all the information on a big company?

A I grew up doing a lot of small cap stuff and mid cap. It is true. You can get better access and differential access. There's no sell side coverage or limited there. People aren't focused on it. The problem is that asset pool is not as rich as it used to be. If you looked at the small cap index today, it's a lot of biotech, a lot of unprofitable companies. A lot of the big conglomerates took out a lot of the best franchises there. Private equity owns some of them. And then there just haven't been as many IPOs of those companies. It's not that we're dispositionally wanting to do large cap. I don't consider myself a large cap investor. We own some smaller companies. It's that in a world of AI, tech change, globalization, these companies got to grow bigger and stronger and scale faster than we had seen in history. So the process of ripping them apart, it's a little different if we're being intellectually honest. Some of the big tech platforms, the founder doesn't go meet with us a lot, right? It's like, they got better things to do. They're worth a 102 hundred billion dollars without taking my phone call. That said, we actually do get pretty good access to them. The easier companies to rip apart are the ones that are less oriented as conglomerates, because if you buy a big conglomerate with 10 business lines, you're not going to rip apart every business line. But some of these big …

AI assessment note: “And so the research process here is first, could this be an interesting return stream?”

Q When you had that breadth of opportunity set, and you're just a couple years out of college, like, how did you find your grounding to learn what it was you were looking for?

A So I don't want to overstate my skill in each area. If credit is a little too cheap, I'm not the guy to do it. What I'm always doing is looking for outliers in any asset class. Today, my partner Alec Henry and I will follow late stage privates. I follow credit. I follow real estate. I follow assets all over the world. I think this is more of a generalist for specialist approach. I grew up in a more of a generalist framework. If something is really dislocated, it's pretty simple to understand a distressed debt. You're buying into a pipeline at a low multiple of earnings. If you think about this, you learn pretty quickly that you got to look at where money is flowing in and flowing away. So I would look at that period and say, Hey, you had this great alpha pool. What happened? There's very low barriers to entry in the investment world. So big alpha pool, highly, highly remunerated profession. Hedge funds on the front page of the newspapers, TV shows about them, houses in the Hamptons, all this great stuff. What happens? People come to it. Capital flows in. Lots of competition gets in there. And all of a sudden, those great gross returns come down, and now they have a huge fee load on them. And so that created more efficiency. You didn't used to have dedicated distress funds of the size you have today. The special situations were really interesting. The Joel Greenblatt stuff. You …

AI assessment note: “I grew up in a more of a generalist framework. If something is really dislocated”

Q As you built out that team, the concept of maybe you can bring that hedge fund intensity to the long only world. How did that work over the years from when you first came to today?

A Eagle was a terrific firm before I got here, and if Alec and I do our jobs, well, it'll be a terrific firm when we leave one day. The first principles analysis of this industry are low barriers to entry, enormously talented people. If it's not the most competitive industry in the world, it's certainly one of the few most competitive industry in the world. If your strategy is, let's just be the smartest guy in the room, and you want to create a structure on that, that's not going to work. That would be impossible. What we try to do is build Eagle to have some competitive advantages, and talent is one part of that, I'd like to think we've built up some barriers here that have gotten bigger over the years, or a right to win, as I would call it, is first, the firm was built over 35 years ago. It has duration in its bones. Wendell, the founder, cared very much about that. The investment time horizon, we hold a stock for over five years on average. We model companies out five to seven years looking at normalized free cash flow and earnings per share. We've had clients with us for many years. They trust us to think long-term. We have an average client relationship Circa 10 years. The client base is diversified by end market, endowment, foundation, pension, high net worth, sovereign. All of those actors can act differently at different times. This all creates ballast and duration into …

AI assessment note: “What we try to do is build Eagle to have some competitive advantages”

Q Once you dive in and start to get conviction in a company, how do you integrate the idea of where fund flows are going? And you could think about it as both the index funds and passive management and the pod shops on the other end of the spectrum.

A So I like the question. I'll accept it. My career starting in 2002 is very clear in retrospect that the markets were trending towards efficiency. I thought indexing was a big part of that for a long time. The easiest way to explain to somebody who's not in the industry is you and I go into a poker parlor. There's a hundred people around the table. You take out the 40 worst, which was indexing, and the remaining 60 is harder to beat. That makes it more competitive. Returns should go down. This actually happened in real life. I think maybe 15 years ago I read a story about when the U.S. made it so you couldn't play poker online. There were a lot of people who were making a living here playing against people in financial services who were having three beers at night, hobbyists, or whatever. They were playing 15 hands at once and great poker players. So they were making a living. And when they could no longer play here, a lot of people moved offshore. Slowly over time, they were effectively playing against each other. And this is what our framework for investing had been. One of the misnomers of what's happened to the active management world over the last 10 years, a lot of people think That this framework is what killed active management. Impossible to beat the market. The world was trending towards efficiency. That's why a lot of active management hasn't done well for the last 10…

AI assessment note: “I like the question. I'll accept it. My career starting in 2002”

Q What are some of the ways you're trying to improve the team, create that excellence going forward?

A We're trying to hire people that are better than me, and I think we've done that. I mean, it's pretty special. My wife was a kindergarten teacher. She's like, this is ridiculous. You get to meet with all these interesting people all day, work with these really smart people who are super talented, meet with management teams, and you get to learn. Effectively, I think I have the best job in the world. I get to learn all day long and work with these really talented people. Organizationally, to increase the excellence, We recognize that every year that goes by, we have to get better, and we're competing against these really smart players out there. It's making sure the management layer of the firm is thinking through all the ways we need to be able to track both capital and talent. On the talent side, it's how can we make this a great seat for them, a great career for them? And if we can continue to do all this stuff, I think a lot of the industry is falling away. We can get better while a lot of the industry is under siege. And if they keep shrinking their time horizons, and we keep using duration and investing organizationally, then I think our wedge continues to grow, and that's what it's all about.

AI assessment note: “We're trying to hire people that are better than me”