The Ledger
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Non-correlated cash flows suffer secondary correlation if reliant on PE exits
“And we might find the most non-correlated business and its cash flows are not correlated with general GDP cycles. But if we own that asset or that company and we want to exit it to another private equity firm or take it public, even though we might have a non-…”
Heller: Niche alternatives exploit the gap between perceived and actual risk
“And I think our original supposition and now bolstered by 10 years of being in this business is that that's not actually the case. Now, there are absolutely risky things in this niche space, and there are lots of things that you don't want to invest in, but wh…”
Intellectual thinkers who espouse compelling theses often cannot run operating businesses
“Sometimes these deep philosophical thinkers are not always the right people to run business. They can usually espouse a really interesting view, but they can't run businesses.”
Heller: Most PE firms lack time to source and structure niche assets
“I mean, we have to spend a lot of time to find these things. We have to spend a lot of time to structure these things. We have to spend a lot of time to understand these things. And I think it's something that a lot of other Private equity firms, asset manager…”
Heller: If a business is easy, others will arbitrage the opportunity away
“If you start something that's easy, other people will come quickly and arbit away. The struggle is the moat. It is what keeps the value in whatever you've started.”
Heller: Cordillera avoids fast auction deals to maintain diligence time advantage
“So I think the thing that we think about most is our single biggest advantage is time. If we're doing our job correctly, We are not looking at assets or looking at deals with a ton of competition where you have to have an LOI or a term sheet in within two week…”
Siloed deal sourcing fails when investing across disparate niche alternative assets
“It's not like we can send people off in their own little silos to go find deals and come back and put them in the portfolio because they're so disparate and so different.”
Heller: Unscalable operational friction and bespoke structuring create niche investing's moat
“Our business is not super scalable. By definition, if we've got twenty billion dollars in a fund, we're not doing niche things anymore. And so there are lots of things and struggles that keep people away. But in that struggle and in the fact that it's hard and…”
Heller: Alternatives' promise is early outsized returns and idiosyncratic diversification
“What was the original promise of alternatives? It's twofold. It is first, by being early to finding an asset or an idea or an investment, you can extract outsized returns before the world finds them. And secondly, finding assets that have non-correlated idiosy…”
Heller: Initial work product quality strongly predicts management's execution success
“The quality of a work product that comes out of an individual or a group is highly correlated With their success executing whatever they're going to do.”
Heller: Decide on niche asset investments at 80% to 85% understanding
“Oftentimes, we have to get 80 to 85% of the way there, and that extra 10 to 15, always, you could spend another year or two to try to understand it, but sometimes you have to move and you have to make a decision, and that's typically about then understanding T…”
The best operators always leave behind an easily discoverable wake of superfans
“The best people in the world in any industry always leave behind a wake of superfans. People that just love them, are shouting from the rooftops about them, and it's not hard to find them. When you have to really search to find someone to give a reference, or …”
Cordillera exits niche strategies when large funds enter and compress returns
“As soon as a big player has raised a big fund around it, or something has happened that is widely adopted and returns have been arbed down, we're moving on to the next thing, and that's a huge piece of our ethos.”
Heller: Entering undiscovered asset classes yields outsized returns before competition arrives
“One prong is being early to an asset class before competition and capital has competed away returns. Is useful and beneficial, and we came at this first and foremost from a return perspective. You can be early to a place where the world hasn't found yet. That'…”
Cordillera exited music publishing and litigation finance after returns compressed
“When we were early on, we were investing in things like music publishing and litigation finance, which was in our minds, very cutting edge at the time in 2014, you know, fast forward to today and the whole world has found music and litigation finance, and subs…”
Heller: Cordillera rejected alligator farming deal due to ESG concerns
“We actually really liked that investment from an economic perspective. We ended up saying no to that investment from an ESG perspective, and we have a pretty heavy ESG overlay to our fund.”
Heller: Cordillera requires viable exit markets to exist at underwriting
“When we underwrite a deal, we have to know exactly that there's a viable market to exit that deal today. It can't be, hey, look, this is a great idea. Let's invest in it now and figure out if five years, six years down the road, something will develop to sell …”
Heller: Cordillera structures deals to take revenue share in operating partners
“Today, the way that we structure is we will, the fund, our funds and our LPs will get a revenue share in that business. So we will get the return of the assets themselves. And then if the operating partner can build a big business around that, our LPs will ben…”
Heller: Litigation investments take far longer to liquidate than anticipated
“Like, I think the big takeaway, whenever somebody asks me, because we've done lots of things in litigation, what is your takeaway? It's that they take forever. And it takes way longer, no matter where you are in that space. It just generally takes longer to ge…”
Heller: Inbound consultant interest signals it is time to exit a niche asset
“Just for us who are trying to be on the cutting edge, generate returns that we need. Once everyone's asking about it, probably time to think about moving on.”
Heller: Niche strategies covered in books or blogs are likely too crowded
“I think the moment there's a book or a blog about something we're doing, it's likely not for us.”
Heller: Cordillera exited music royalties to invest in live music and other media
“While we've moved on from music publishing and music royalties, there are other things in the live music space and other media royalties that we invest in and we learn from our previous deals.”
Cordillera acquires FCC wireless spectrum licenses to resell to carriers
“Wireless spectrum licenses. We buy out of FCC auctions and own Wireless spectrum licenses and sell it back to carriers when they need it for their networks.”
Cordillera focuses on self-liquidating investments to avoid sponsor exit risks
“So a lot of things that we do are self liquidating. Most of what we do, we don't have to sell to other private equity firms or take public, but there are some things that we do.”
Cordillera is evaluating an inventory financing deal in aging cheese
“We're looking at a deal right now in cheese. We like to look at things that need aging. This fits into that inventory finance theme.”
Heller: Cordillera took 18 months to underwrite its initial whiskey investment
“Whiskey as something that when that came across our desk six years ago, we knew nothing about investing in whiskey. Literally nothing. Three different groups pinged us and said, hey, you got to look at what's happening in the aging curve. I didn't even know wh…”
Heller: Cordillera's deal flow is split 50/50 between inbound and thematic sourcing
“About half of our deal flow comes across our desk and about half of our deal flow is thematic.”
Cordillera takes equity, warrants, or revenue share in partner operating businesses
“We didn't used to take warrants or equity or a revenue share in their business. We do today, because oftentimes when we put an operating team in business, they could generate a track record, and then they could go out and raise more capital, and we want our en…”
Cordillera finances specialty inventory including whiskey, wireless spectrum, and data center land
“And so we have the theme around specialty inventory financing. And the way that that manifests itself is in very different things like whiskey and wireless spectrum licenses and land for data centers, but underlying it might be some actual same thing, liquidit…”
Only one of Cordillera's initial 300 target LPs invested at launch
“Of that list, I think it was close to 300, one of those people actually invested in our business.”
Cordillera buys and ages whiskey barrels for craft brand inventory financing
“We buy and age barrels of whiskey, and we sell them back to craft brands immediately when they want to put it into a bottle and sell it. They don't want to use their balance sheet to warehouse whiskey.”
Heller: Cordillera insures whiskey inventory based on projected one-year-ahead aging value
“For whiskey, we insure a year ahead from the aging curve, so whatever the value is today, we actually insure it for a higher value for what we predict the value of the whiskey will be a year ahead. So if we get wiped out for some reason, the collection for the…”
Heller: Most Cordillera deal underwritings take six to 12 months
“We are not in a bake off or a competitive process where we have to have a deposit down and an LOI down within two weeks. Otherwise we're going to lose a deal. Most of our underwriting takes six to 12 months.”
Cordillera evaluates investments in aging cheese alongside spectrum and precious metals
“We also have expressions of this in wireless spectrum licenses that we invest in. There's some precious metal strategies that we invest in. And so, and then we're looking at a deal right now in cheese and aging cheese.”