The Exchanges

Q How do you define the characteristics of those types of businesses?

A So we have six criteria at SANS. The first is sustainable above average earnings growth. What that means is a business being able to deliver at the low end, at least double digit core type of earnings CAGR. When you're looking out over our investment time horizon, which we define as five years or longer, we're looking for leadership in a promising business space. One of the reasons why we focus on Either companies that are the clear market leaders, or they're on the path to becoming number one over time, is because in many of the markets that we invest in, a disproportionate amount of the economics tend to accrue to the market leader, and therefore you want to own those businesses. Now, significant competitive advantage is our third criteria. That's where we spend a tremendous amount of time, because that is what really underpins the sustainability of the earnings growth over time. The business that's growing at above average rate without competitive advantage, that's really just momentum. So the fourth criteria is clear mission and value added focus. That's really, in many ways, our governance and capital allocation criteria. We only want to invest behind management teams that not only have a demonstrable track record of creating wealth for shareholders and making effective capital allocation decisions, But we also want management teams that have protected the rights of minori…

AI assessment note: “So we have six criteria at SANS. The first is sustainable above average earnings growth.”

Q So what was SANS when you got there?

A Yeah, so there's a lot of things that are similar. We still have our same mission. We still have our same investment philosophy and our same six criteria. We actually celebrated our 30th year anniversary last year. The firm was founded in 1992. But when I joined in 2006, we're definitely much smaller. We had about 50 people. We have close to 200 today. We had a single investment strategy at the time, which was our U.S. select growth strategy. Around 2006, even though we had one strategy, we had already started really thinking about globalizing our research process. In the early nineties, when San was started, if you looked at the revenue generation of the portfolio businesses in that select growth portfolio, maybe 25% of revenues on average were outside the U.S., As you fast forward to 2006, almost half of the revenues of the companies in our U S portfolio were being generated outside the U S. So we already knew that we wanted to globalize our research platform. So we are just at this transition point where we were going from a single strategy at the firm to actually launching our global strategy, which we launched in late 2008, early 2009. Over time, we launched our emerging markets strategy back in 2013. We also built out our private market capabilities. So today we have about fifty billion in assets under management in public equity strategies. And then we have a couple bill…

AI assessment note: “when I joined in 2006, we're definitely much smaller. We had about 50 people.”

Q What are some of the biggest challenges you see in the business and in performing going forward?

A Well, one of the biggest challenges that we're obviously getting a lot of client questions and we're thinking a lot about internally relates to the concentration of the value creation that's happening in the Russell 1000 growth related to the magnificent seven. So it's been a very, very narrow market over the last number of years now. Really? And our sort of response to that is we don't look at the Magnificent Seven as just one group of businesses. We think each one is very different. If you were to take something like Apple over the last five years, a big driver of Apple's growth has actually been valuation driven rather than earnings driven. But then if you take something like Microsoft, for example, it's seen some multiple expansion, but the predominant driver of the exceptional stock price in Microsoft for the last five years has been earnings. And we think that's a much more sort of sustainable driver. Long term. So we just go company by company and develop our thesis. And at the firm wide level, we own five of the seven across our various different portfolios. But two of them, in this case, Apple and Tesla are companies that we have not embraced. And we're still very much have high active share across our strategies. And we have a collection of businesses that we think are going to definitely be able to meaningfully add value when we're looking out over the next five year…

AI assessment note: “one of the biggest challenges that we're obviously getting a lot of client questions”

Q Brian, I don't want to let you go without asking a couple of closing questions. What is your favorite hobby or activity outside of work and family?

A Yeah, so I'm definitely into fitness. Given the demands that are on an investment professional in today's environment where there's information coming at you at all times, 24 hours a day, seven days a week, having an activity that allows you to stay physically fit and just sort of escape a bit from all the noise, I think is helpful. And And working out is definitely one of those for me. Similarly, I absolutely love reading. I mean, one of my favorite activities is just to have a cocktail in my hand, sitting at the beach, where the nature is just incredibly powerful, the sight of it, the sound of it, the smell of it, and then with a really good book in my hand. I mean, there is nothing better on earth than that. In my mind.

AI assessment note: “I'm definitely into fitness... Similarly, I absolutely love reading.”

Q What's one fact that most people don't know about you?

A I grew up in a very international environment, I guess I'd say. So my wife actually originally grew up in Russia. My mom was actually born in Cuba, left Cuba when she was 11 years old back in the sixties. My brother was actually born on the naval base in Naples, Italy. We lived on the naval base in Guantanamo Bay, Cuba when I was a kid at one point. So this idea of the world just being a much, Much bigger place than my immediate surroundings. I mean, that concept was pretty ingrained in me at a young age. And I think all that moving around and having all that different cultural exposure made my personality pretty adaptable and flexible in a lot of different team environments. In part, just because that was the only way to survive when you were moving every two and a half years and plopped into a different school and a different neighborhood. And I think A lot of that is probably one of the things that attracted me to investing in emerging markets and global investing as well as just sort of being able to continue to find a way to pique that interest by meeting people and traveling all around the world.

AI assessment note: “I grew up in a very international environment, I guess I'd say.”

Q Why don't you take me back to your upbringing and your path to getting in this business?

A I graduated from Yale in the mid-two thousands, and I had received a fellowship as a Yale Silver Scholar, and that program's a little bit unique in the sense that they choose five undergrads to go straight to business school. And it was really there that I learned a lot more about how the investment management industry worked. My dad was a naval officer, so he was in the Navy for 27 years. He actually ran a Navy hospital, so he was in hospital administration. My mom was also in hospital administration, so she actually ran civilian hospitals. I didn't really have much institutional knowledge about how The investment management industry work, but I did have a very strong interest in not only healthcare, given the family background, but also technology and business. When I was in high school, I owned my own web design company, so I had this extra cash lying around, so that's when I bought my first mutual fund. There's definitely an interest in investing, but I got sort of cultivated in that business school environment because that's the first time I met other people who had Worked in the industry. That's when I really dug in to try to learn everything I could. Right around that time, David Swenson was a rock star on campus. Even if you didn't know much about investing, everybody knew who he was because of the impact he had had on student life with how successful the endowment had …

AI assessment note: “My dad was a naval officer... There's definitely an interest in investing, but I got sort of cultivated”

Q So let's walk through those basics. You mentioned the same mission, the same investment philosophy, growth strategy. How do you define the mission of the organization?

A Our mission at Sands is we exist to add value and enhance the wealth of our clients with prudence over time, and those are literally the same words that we've had since the firm's founding, and we think they're as meaningful today as they were when they were first written. So from the perspective of adding value and enhancing wealth, what we're really trying to achieve is Delivering attractive absolute and relative results versus the relevant benchmarks on a rolling five plus year basis. Because a core tenet of our investment philosophy is having that long term approach. So we want to exclusively focus on high quality, leading, innovative growth businesses around the world. And we want to own those businesses for long periods of time. And then we're very client centered. That's why clients are very squarely in our mission statement. And we're in the risk taking business, but we want them to be prudent risks rooted in our investment criteria.

AI assessment note: “Our mission at Sands is we exist to add value and enhance the wealth”

Q What are some of the things you're doing in your investment process better and differently today than 15, 20 years ago?

A One of the things is the globalization of our research platform. One of the reasons why we ended up launching global and emerging markets was It was also to enhance our research capabilities, even just for that U.S. strategy. So if you looked at a Nike or a Starbucks, which were businesses that we owned in that 2006 portfolio, for example, two of the biggest incremental areas for growth included Asia with China and then Latin with Brazil. So having the capability to go do that work on the ground For all of our businesses, including our US businesses, is one of the ways that we've really sort of evolved our research process over time. A second thing related to that concept is it's one of the reasons why we originally got into our private equity strategies. So we did our first investment in a private business back in 2010. And it was in the DNA sequencing space, and one of the reasons for it was because we felt like we had owned Illumina in the public markets at the time, and most of the innovation was actually happening in the private markets from a competitive advantage standpoint, and so to really sort of understand emerging technologies, we felt like It would give us an advantage if we were active in the private markets, and so we actually made our first investment in a business called Complete Genomics off our partner balance sheet back then at the time. So the window in the…

AI assessment note: “One of the things is the globalization of our research platform.”

Q How about beliefs about the stock market alongside of the growth of these businesses?

A I believe strongly you need a variant perspective over the long term to have differentiated value creation. And I think one of the things that's really interested in the time that I've been in this industry over the last, call it, 17 years or so, is that if anything, the average time horizon for investors has shrunk rather than elongated. And I think that creates A time arbitrage opportunity, which essentially creates an inefficiency in the market. Another way I'd sort of describe this is we'd actually say and agree with the concept that most businesses are not special. They may be able to grow at an above average rate for a year or two. But the power of mean reversion is very, very strong. However, what we believe is that there's a very small group of special businesses that can defy the laws of mean reversion and grow for much longer and for much faster than the market anticipates or priced in. And we want to exclusively focus on those types of businesses.

AI assessment note: “I believe strongly you need a variant perspective over the long term”

Q What do you have to believe about growth investing and that strategy as part of your philosophy that underpins the business characteristics that will lead to the success that you're trying to generate?

A Well, one of the things that you fundamentally have to believe in is the long-term relationship between the earnings power of a business and stock prices when you zoom out the time horizon long enough. And I've seen enough of the data looking back at, call it the S&P, 500 over the last 6070 years, as well as the anecdotal data of looking at our own Data stands over the past 30 years, and just being a practitioner in the industry to have a firm belief in that relationship that when you zoom out, the time rising long enough, and really five to seven years is the minimum you need when the horse really starts pulling the cart, and so that's a fundamental sort of relationship that you have to believe in. Now, that doesn't mean you can completely ignore valuation, and valuation is One of our six criteria, but it just means that you believe that the predominant driver of a stock price over the long term is the core earnings power of the business and the ability for it to compound.

AI assessment note: “fundamentally have to believe in is the long-term relationship between the earnings power”

Q Which two people have had the biggest impact on your professional life?

A Well, one of them is definitely Frank Sands Sr. He was just definitely one of those people who he was just very thoughtful and articulate in how he communicated. He also used silence strategically in order to emphasize a point. Words really, really mattered to him. That's something that I've picked up from him and sort of rubbed off on me. It was really important to him, for example, if he heard someone say, Investment products at Sands. He would just get so frustrated. Very professionally, but he would be one of the first to correct you that we offer investment strategies. We do not sell investment products. By the time I met him in 2006, he'd already had a very enviable investment track record. He started Sands Capital when he was 50 years old. So talking about taking risk. And he had three kids and was willing to go start on his own. Incredible track record. Great human being. I just feel privileged to have had the opportunity to be mentored by him. And despite all that professional success and personal and financial success that he'd had, he was just so down to earth to talk to, which I think is very, very rare.

AI assessment note: “Well, one of them is definitely Frank Sands Sr.”

Q I'd love to ask you, Brian, what are some lessons that you've learned from CEOs of your portfolio companies?

A That's a very interesting question. There's a couple things. One is around talent management, and the reality is, is that some of our most impressive management teams, interestingly, in charge of some of the biggest wealth creation opportunities that we've seen are entrepreneurial or family run. If you go throughout history, Amazon with Jeff Bezos is a great example, or Walgreens, that was entrepreneurial and family run, or Walmart is also a fantastic example of that, or many of the tech platforms, for example, Google. I'm also a portfolio manager on our emerging market strategy, and when you think about the amount of wealth that's been created by the Tata family, Across a whole number of different companies, one of which we own, which is Titan, the leading gold drawer franchise in India, or Asian Paints, which is a lot like the Sherwin-Williams in decorative paints in India. They have over a 50% market share in a very under-penetrated market. Dr. Reddy with Apollo Hospitals in India, they run not only the largest for-profit hospital system in India, but also the largest retail pharmacy in Company in India. Dr. Reddy was inspired by the Frisk family who had built HCA here in the US. So these entrepreneurial family run businesses, some of the biggest lessons that we've learned from them, and I think also comes naturally given that Sands Capital is an entrepreneurially built busi…

AI assessment note: “our best managed publicly traded businesses are ones that are able to maintain that long term lens”