The Ledger
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Korean government warned Lawrence not to return after Taekwang dispute
“So after Taekwong, and I was told, my lawyer called me up a couple weeks later and said he had gotten a call from the Korean government, and the Korean government said, Tell Mr. Lawrence not to come back to Korea.”
Hydroelectric dams are the world's best infrastructure assets due to near-zero reinvestment
“Really dams are the best infrastructure asset in the world today. That their reinvestment requirements are almost nothing, and so they're essentially financial assets.”
Investors should evaluate funds by capital-weighted returns rather than time-weighted returns
“So if you look at funds, don't look at the time weighted return, which is the NAV, the per share NAV over time. Look at the capital weighted returns, because so many of the big funds, the brand name funds, they did really well with small amounts of money, and …”
China Yangtze Power is the finest infrastructure asset in Asia
“It's the finest energy asset in China, It's the finest infrastructure asset in Asia. It's the lowest cost producer of clean energy in a country that's choking on coal. This is really an important asset period in China.”
Lawrence: Frank corporate engagement in Asia requires strict one-on-one privacy
“And I've always said that you can discuss anything with Asians and be very frank and open and honest with them, but you've got to do it privately and confidentially. If you add more people in the room, the chances of success declines exponentially.”
Grantham study: Fossil fuel divestment cost less than 0.5% in performance
“Jeremy Grantham put out a document three or four years ago that said there was almost no cost to that exclusion. Okay, and this was when the divestment move really happened. People were extremely concerned about just the divestment point of view. So he went fr…”
Overlook pushed Taiwanese portfolio firm to underwrite $2B in offshore wind
“For example, we have a company in Taiwan that has an eight million ton footprint. It's a big footprint. Okay. And we've pushed them to invest in renewable energy to get their energy consumption correct. And they now with offtake agreements have underwritten th…”
Generalist analysts cannot realistically evaluate ESG in one-hour company meetings
“It's just not realistic to ask analysts who are in there trying to figure out what the competitive forces are or what pricing power is to deal with this as well in an hour.”
Lawrence: Many climate philanthropists are bureaucratic and slow
“A lot of climate philanthropists, Are fantastic, and they're critical, they're providing critical service to the world, but they're very bureaucratic and slow.”
Booming economic conditions often fail to generate good equity returns
“And I think booming conditions often don't lead to good equity returns.”
Chinese equity markets resemble Asia 25 years ago, dominated by unsophisticated punters
“And in many ways, China today is just like Asia, 20, 25 years ago. The local investors are largely punters. They're largely short term. They don't really have the sophistication.”
Corporate pricing power is as valuable in deflationary environments as inflationary ones
“Pricing power is as good, In a deflationary environment as is an inflationary environment.”
Overlook's AUM capacity cap equalized its time- and capital-weighted returns
“And then about 20 years ago, I came up with this idea, let's limit the amount to, I think it was 12% of the last four years average NAV. So in big years, I bring in percentage-wise less, and in bad years, I can bring in percentage-wise more, and so you're kind…”
Studies show capital-weighted fund returns lag time-weighted returns by 7.5%
“And so it's been documented that if a fund has a, say, for example, a 10% time weighted return, the studies have shown that the capital weighted returns about two and a half.”
Lawrence: Small governance nudges prompt corporate leaders to finish the job
“When you can take a company and move it from like 12 o'clock to one o'clock, We're not trying to move it to two o'clock or three o'clock or four o'clock. Just move it a little bit to one. Then he begins to see the benefits of good corporate governance. Then he…”
Lawrence: Poor ESG correlates with low-margin, capital-intensive businesses
“And what I saw, what I began to piece together is this concept of a pyramid, and if you think about a pyramid, and that includes the entire universe of public companies, and at the top are these very special, really terrific, world-class companies, but at the …”
Overlook excludes carbon-intensive industries from investment universe annually
“And then about eight or nine years ago, we started taking action every year to outlaw an industry. And the early years, it was really a fight on my part. We started out with coal, coal mining, coal transportation. We outlawed fossil fuel refineries, which in A…”
Lawrence: China Yangtze Power made $5B cash flow with under $200M capex
“So last year it made about five billion dollars US of cash flow, and they had to reinvest less than two hundred million to maintain the dams, the hydroelectric dams.”
Lawrence: Carbon Disclosure Project succeeded in the West but failed in Asia
“We support CDP. We're pushing all our companies to undertake CDP work, which is formerly known as Carbon Disclosure Project. It's been very successful in Europe and the U.S., been very unsuccessful in Asia.”
Lawrence: Misallocating climate capex creates 15- to 20-year structural problems
“And then when we talk to the board, when we engage the board, what we're looking for is the allocation of capital expenditure consistent with Paris agreement. And it's really when you start misallocating your capex, you're building in a problem for the next 15…”
Lawrence: 44% of Overlook's portfolio failed ESG review over missing emissions
“44% of our portfolio got failing grades last year, simply because they could not tell us what their admissions were.”
Lawrence: Overlook incorporated sustainability 8 to 10 years ahead of BlackRock
“BlackRock comes out and says that they're going to be incorporating sustainability. We did this eight, nine, 10 years ago.”
Lawrence: Fossil fuel industry outspends all climate philanthropists annually
“The fossil fuel industry spends way more than the whole group of climate philanthropists would pay, or would spend every year”
Lawrence: China's renewable energy investment far exceeds the rest of the world
“Number two, you need to acknowledge the amazing investment that China has made in renewable energy. It far exceeds anywhere else in the world, and yeah,”
Superior businesses self-finance growth and maintain debt-free balance sheets
“Superior businesses have free cash flow. They generate cash. They have a large moat. They have high returns on investment, whether you return on equity, operating return, however you want to do it. They largely have debt free balance sheets, and they're self-f…”
Indonesian, Thai, and Korean equities fell over 95% in 1997-1998
“Indonesia, Thailand, Korea went down over 95% in dollar terms.”
Overlook bought Kingboard at 2.5x and Café de Coral at 6x P/E
“October in 1998, so right towards the end, we had just raised thirty million, so taking us from forty million back up to 50, 60, seventy million. And within one week, we found two companies in Fosan, Hong Kong. Kingboard Chemical at about two and a half times …”
Fund managers must offer radical transparency to investors during bear markets
“I have created what you call the roadmap for a bear market, so calling every single investor more transparency, more discussion, more You know, give them the detail and the transparency through the portfolio. You can't hide. There's no denying I just kicked th…”
Companies growing at 30% with 10% ROE will inevitably dilute shareholders
“Because the guy growing at 30% with a 10% return on equity, you just haven't figured out he's going to dilute you because he can't fund it, right?”
Overlook pivoted to put the bulk of its capital into China A-shares
“But now, four years ago, we really pivoted and put the, what's today, the bulk of our money into China, particularly A shares.”
Overlook liquidated all Southeast Asian consumer stocks upon reaching 30x PE
“We had had a lot of consumer stocks in Southeast Asia, Hong Kong, and whatnot. And they all got up to 30 times earnings, and I kind of don't know how to make money from 30 to 40 PE, so we literally, we sold them all. Literally within six month time, we built u…”
Overlook prohibits discussing a stock without completing a full financial forecast
“I have a policy that I don't want to talk about a company until I or one of my colleagues has done full financial forecast on the business.”
TSMC was the gold standard for corporate pricing power in Asia
“When we knew something like TSMC, TSMC was gold standard for pricing power.”
Systematic rebalancing removes emotion from selling and preserves capital
“Selling is an intensely emotional time. It's much more controversial than buying. And that's where rebalancing is so perfect because, and I'm so thankful for Charlie Ellis for teaching me this, but it's a completely unemotional event. But, you know, as stocks …”
Overlook exits markets when macro indicators like loan-to-deposit ratios flash red
“The other reason we sell is when the macroeconomic conditions that I talked about earlier, LD ratios, current accounts, fast loan growth, no Forex reserves. When those flash red, we get out of Dodge.”
Overlook limits its portfolio to 22 names, forcing sales for new ideas
“If you're really limited to 22 names, something's, if something's gotta get in the portfolio, you're gonna go shoot something.”
Overlook cuts management fees only after good years to avoid signaling weakness
“And what I do is I cut after good years. After bad years, I don't cut. I don't want to show a sign of weakness.”
Dam depreciation schedules artificially distort China Yangtze Power's P/E multiple
“CYPC or China Yangtze Power had debt. Well, it should have debt. If there ever was a business on Earth that should have debt, that's it. But likewise, it depreciates its dams over 26 and a half years, but they're going to last over a 150 years, so that's wrong…”
China Yangtze Power converts 98% of its cash flow into free cash
“98% of their net free cash flow was Free because they had so little maintenance requirements on maintaining the dams.”
China Yangtze Power raised its dividend 85% with a 5-year guarantee
“They also announced an 85% increase in the dividend and guaranteed it for five years.”
Asian currencies should have been hedged when current accounts exceeded 5%
“You know, if I could have one thing to do over, I would have realized that I should have hedged the currencies in Asia when current accounts went above five percent.”
Lawrence: Taekwang Industrial depreciated a $600M facility in three years
“In fact, he built a six hundred million dollar spandex lycra facility that were back-to-back facilities, and he depreciated the whole thing in three years. And he was a guy who didn't like to pay taxes, obviously. But as a result, the stock was at two times ea…”
Lawrence: Taekwang Industrial's CEO and his mother were jailed for misconduct
“About six years later, I got a newspaper clipping from a client of mine who'd been in Seoul, who had remembered this fight I had, and it was a newspaper clipping where the CEO was going to jail, and not only he put himself in jail through bad behavior, but he …”
Lawrence: Ørsted fully transformed into world's largest offshore wind generator
“Orsted used to be called Dong, which was the Danish oil and gas company. And 12 years ago, 10 years ago was classic oil and gas company. And it transformed itself. 100% transformed itself from an oil and gas company into now the largest generator of offshore w…”
Lawrence: Overlook invested in China Yangtze Power, Asia's largest renewable company
“Through an investment we made about six, seven years ago in a company called China Yangtze power. And this is the largest renewable energy company in Asia. One of the largest in the world.”