The Exchanges

Q So once you did that at school, how did you set out on what would become your professional career?

A After college, I went to law school. I got a job at a law firm. It was interesting because I had interned for a smallish firm after my second year. I continued to work there during my third year, and toward the end of that year, probably in late April, the firm announced that they were bringing in a lateral litigator to run the litigation department. By that time, I had accepted an offer from them to return after graduation as a litigator. I went and introduced myself to this gentleman, and he said, well, show me your resume, and I'll see if we have room for you. So here I am about to graduate from law school, studying for finals, I had to worry about the bar exam, and I quickly decided I had to go find a job as well. So I had a plateful that month, and I ended up finding a job with a firm called K Scholler, where I practiced litigation for four years.

AI assessment note: “I ended up finding a job with a firm called K Scholler”

Q And from that first project, What was the first big set of opportunities that you saw?

A So that would have been 1988 that I went there, and shortly thereafter, Drexel started to go bankrupt, and then we had the savings and loan crisis. So that created a bunch of unforced sellers of bank debt and bonds. So the first big opportunity we really transacted in that was new was buying bank debt, and bank debt did not historically trade. So these were one-off transactions. It was pretty much a small group of banks and funds that were doing it. I think Goldman Sachs, Oppenheimer & Company, Lehman Brothers, Bear Stearns. We were there. Randy Smith was there. Maybe Chuck Davidson was playing around at Steinhardt Partners a little bit. So we started buying bank debt, and then the real entertainment came when we had the opportunity to buy an unfunded revolver. Marvin had this thing, he would call you up to his office several times for the proponent of an investment to explain it, and you'd go over it, and over it, and over it, and he'd pick up any difference in the presentation and question you about it. So to try to explain to somebody that you were buying an unfunded revolver at 50 cents on the dollar, and the seller was going to give you 50 cents, so forever unfunded, you just pocketed 50 cents, was pretty entertaining, and we ended up doing it. But the lesson there was we were completely focused on what we were doing. We were buying senior and secured debt in bankrupt and …

AI assessment note: “the first big opportunity we really transacted in that was new was buying bank debt”

Q You decided to retire some time ago. What was the thought process that went into that?

A Well, there were two things. I got first is a year or two before I retired, a very good friend of mine was taking the train from Westchester County to New York, to the city. He got to Grand Central Terminal, felt pain in his left chest, got back on the train, went back to White Plains, and was rushed to the hospital with a heart attack. And that just reinforced for me that life changes on a dime. And what is the good Of having a fair measure of success. And not having the time to really enjoy it and use it when things can just turn on you right away. So that was part of it. Another part of it was I wanted to have more control over my time. There were other things I was interested in doing. And if you're in a partnership, I believe you have to be a hundred percent in or not there. And if you're not a hundred percent in, you're not doing your partners a favor and you're not doing yourself a favor. So, I discussed with my partners. They had asked me to stay on for a year beyond my original target to make for an orderly transition, and it went very smoothly, I'm happy to say, and it gave me the opportunity to spend more time with my children, to really delve into some reading that I had not focused on for years, and to develop my philanthropy in a more meaningful way. The biggest concern I had when I decided to step back was intellectual engagement. At a firm like Davidson, I don't…

AI assessment note: “Well, there were two things. I got first is a year or two before I retired”

Q How do potential investments fall off your radar in the process?

A There's about five or six things that are really important to understand whether something's a no go. First off, if we're looking at a sponsor and there's two partners and they've never worked together before, that's something I'm always apprehensive about. I think that one of them will not be there in six months, and I don't want that institutional risk. Along the same vein, when there are two partners who are co-chiefs, Who's the ultimate decision maker? If in meeting them there's not a clear answer to that, that's a red flag. We also always ask more about the mistakes they've made and what they've learned rather than their winners. If there's reluctance to discuss mistakes or what they've learned from them or what the lesson is, that's not really a good sign about their intellectual honesty or transparency. Of course, we also looked at whether our interests are aligned. Are they investing alongside us and are the fees that they are taking out much greater Than the capital investment they're actually making. And with respect to that capital investment, is it actually cash invested, or are they just not taking their fees out? Finally, there's something having to do with misleading marketing information. Are they cherry picking data? Are their graphs and charts skewed so as to obfuscate what really happened? And the last thing would be any inconsistent Or question marks raised …

AI assessment note: “There's about five or six things that are really important to understand whether something's a no go.”

Q Why don't you take me all the way back to your upbringing?

A That's going back quite a ways. I grew up in Montreal. My father was a congregational rabbi. Growing up in Quebec in the sixties and seventies was interesting, highlighted particularly by what's going on today, since there was pretty significant antisemitism from the Roman Catholic church at the time. That wasn't a driving factor for us. In the late sixties and early seventies, the separatist party began to emerge in Quebec, which wanted to separate Quebec from the rest of Canada. That one time that resulted in some terrorist kidnappings and the imposition by Prime Minister Pierre Trudeau of the martial law in Montreal and Quebec. So at a time there were tanks and soldiers stationed all over Montreal. In any event, it became obvious, certainly by 1976 and 77, that if French was not your native language, your career opportunities in Quebec would be limited. So, my brothers all went to university in the United States, as did I. And the transition going to the States from Canada was not that difficult, and quite frankly, coming from a day school, I was a little surprised at the light course load I had at university. It seemed easy at the time. Any conversations that we had at the table, aside from the Montreal Canadiens or Montreal Expos, focused on ideas. There was not much discussion about gossip or people. It was Idea drone.

AI assessment note: “I grew up in Montreal. My father was a congregational rabbi.”

Q What was your path from practicing litigation to investing?

A The first step was not enjoying being a litigator. I found it not very rewarding, and the hours were brutal. By matter of serendipity, I was introduced to Marvin Davidson, who was running MH Davidson and Company at the time. I was told it was a hedge fund. I had no idea what a hedge fund was. I met Marvin and spent 45 minutes talking to him On the parlor level of a brownstone on East 63rd Street, and he said they were interested in hiring somebody to invest in the financial instruments of distressed and troubled companies. I said, okay, that sounds interesting. And as I was leaving, he said, make sure to introduce yourself to Tommy, Tom Kempner, and don't let the grass grow under your feet. I met Tommy, we spoke, they guaranteed me the same salary I'd have made as a lawyer, We shook hands and that was it.

AI assessment note: “The first step was not enjoying being a litigator. I found it not very rewarding”

Q So DK is now on what its third generation of leadership. So after you had brought in and trained your people, how did you keep them around for so long?

A So I think the original structure at Davidson was created by Marvin and Tommy, and it was basically an old Wall Street partnership structure. In that respect, every partner in the firm did well if the firm did well, and did poorly if the firm did poorly. And the hope there was that If merger arbitrage is having a gangbang year, then the guys in distress where I was would not glom onto capital for mediocre ideas. We would prefer to let the arbitrage guys make a killing because we would do well financially from that. So partners were incented for the firm to do well, and at the associate level, there was generally some sort of Broad band of profits that would be used to compensate the associates. Associates who were outstanding would get paid more. Associates who were less outstanding would get paid less. And associates who were even less outstanding would get paid materially less. To my knowledge, the structure has changed a little bit over time as there are now managing directors And other interim levels between associate and partner, and I think that there are some other incentives that are put in, in terms of profit sharing and co-investment for the other levels. But at the end of the day, the focus was always to have all of the investment professionals be incented for the firm as a whole to do well.

AI assessment note: “all of the investment professionals be incented for the firm as a whole to do well”

Q Once you stepped away and you'd had some success, you now have your own balance sheet. How did you think about investing your capital on your own?

A I began to look at ways to broaden my own portfolio, and I began to think about where could I find inefficiencies, where would there be room to create an edge, and by that I mean a serious edge, and that arena was obviously in the private markets. In those markets we see mispricing and information asymmetry. Now, of course, you have to be on the right side of that, and that's something we spend a lot of time trying to assure we are. To create a vehicle for finding those investment opportunities, I started what originated as my family office. It was called Portage Partners. The original idea was to create a nimble vehicle That could compound my personal capital through cycles. I want it to be diversified. I want it to be flexible. So when we look at the private markets, some of the large investors are geared to certain strategies that incentivize them to write huge tickets irrespective of the market environment. In a way, that's indiscriminate capital deployment, which is really a big no-no in investing. It's something to avoid. Over time, we had some other investors come into the fold, and they were pretty shrewd guys who liked our model, who had all made money on their own in the markets. Each of these individuals added significant value to us. And we call them partners. Today, we have a thesis-driven focus on capacity-constrained niche exposures across all sorts of private ma…

AI assessment note: “I started what originated as my family office. It was called Portage Partners.”

Q What were some of the ways you saw effective coaching of people on the team?

A I think just having to go up and explain an investment idea repeatedly is a way of coaching. It's not overt coaching, but it's a way of coaching. Tell me what you think. Tell me why you think it, why we should do it, how much capital we should commit, then do it again. Over time, you get to really know whether you have a good idea or not. The other big coaching thing here is never rush. When somebody is rushing you to make a decision, back then it was enough to say I'm not doing it, and to this day I won't do it. If somebody's rushing me that you have to act now on a new idea, say what was tomorrow? Forget about it. I'm not that interested. There's millions of investment ideas out there.

AI assessment note: “having to go up and explain an investment idea repeatedly is a way of coaching”

Q What's an example of a recent investment you made?

A We invested recently in a medical device fund where the guys came out of some large medical device companies, and as they explained it to us, their friends at the large device companies would say, we're looking for a new ankle. So they would go and find the three or four firms that are developing new ankles. They would choose the best one, try to take a controlling stake, Build it up from X dollar revenues to Y dollar revenues to make it of interest to the big guys, and then they'd sell it. So in some ways, it's like a retained search. They know exactly what they're looking for. They know who the end buyer is, so they can do it right. They're going to have this enterprise with all the I's dotted and T's crossed for FDA purposes and sell it to the big guys.

AI assessment note: “We invested recently in a medical device fund where the guys came out of”

Q Where do you hope Tennis goes in the ensuing years?

A Well, that's an interesting question for me to answer. I usually don't know what I'm going to wear to work the next day, so thinking about how a business will evolve over the years is a little bit of a challenge. Having said that, I think the place to begin is about the quality of our membership. We're seeing investors come in from so many top institutions in finance And that's a great signal about the fact that we have something tangible here. So really the key question is, how do you solve for enduring performance and create broader access to that without the trade-off that comes with scale? We see the answer really as being choice and solving for choice. And in that regard, letting our members pick and choose what makes sense for them. That may be higher octane deals. It may be lower risk exposures, but everyone is different, and that's why our flexibility matters so much. Over the last 10 or so years, we've learned that not everyone opts into the same opportunities, so I'm not really concerned about having to scale up our bespoke opportunities to deal with huge demand.

AI assessment note: “We see the answer really as being choice and solving for choice.”

Q In your own organization, you mentioned that there were some lessons you had learned from how to structure an organization at DK and create incentives to keep people around. How did you set that up in your internal family office?

A I think it's similar. We look at how the firm in general does, and everyone's individual contribution is, of course, extremely relevant to how they are personally compensated, but it still has to be how the firm is done. We take into account the way people work together, their personal contributions to the success, but at both Davidson and here, I think one of the key Elements to retaining talented people is to create a tableau where people have a sense that they will be doing something different and more challenging tomorrow than they are doing today. If somebody thinks they're going to be doing the same thing every day by rote, there's not much incentive to really wake up in the morning and dig your teeth into it. So I think you have to create opportunities Where people know that as something grows, their responsibilities will grow, and they'll continue to be intellectually and professionally challenged down the road.

AI assessment note: “We look at how the firm in general does, and everyone's individual contribution”