Rishi Renjen, ROAM Global Management

Rishi Renjen is the Founder and CIO of ROAM Global Management that will launch in the Summer of 2018. Prior to founding ROAM Global, Mr. Renjen was a Managing Director and Sector Head at Maverick Capital, a Partner at TPG-Axon Capital, and a Senior Analyst at Glenview Capital. Prior to Glenview, he was a Private Equity Analyst at Warburg Pincus and began his career in investment banking at Citigroup. Renjen earned a Bachelor of Science in Economics, with a concentration in Finance, from The Wharton School at the University of Pennsylvania.Renjen has been an Adjunct Assistant Professor in the Value Investing Program at Columbia Business School since 2012 and continues to teach year-round. He is also on the Board of Trustees of the Excellence Community Schools, a charter school management organization, and on the liaison committee to the DREAM Charter School and Washington Heights Expeditionary Learning Schools (WHEELS) as a Board Member of the Maverick Capital Foundation.

Graham and Doddsville (G&D): Can you talk about your background and what led you to this point of launching your own fund?

Rishi Renjen (RR): I grew up in the Northeast and had an interest in finance from an early age, which led to my undergraduate path at Wharton and four investment banking internships during my four summers in college. After college I joined Citigroup and then Warburg Pincus, working in private equity from 2005 to 2007 which was the peak of the buyout boom. Early on, I was taught to take the long view in my career, and I consider those first eight years my foundation in investing where I developed critical analytical and business skills. I spent the next ten years in global, equity long/short investment management. My early days as an analyst at Glenview are still very present for me, as Larry Robbins instills in you to be “the smartest person on your name” and holds each member of his team to a high standard of detail with investment write-ups, financial models and deep fundamental research. I often say that Glenview is one of the best places on Wall Street to train — the analytical rigor is tremendous. At Glenview, I observed first-hand how to manage volatility within a concentrated portfolio as well as how to motivate a team through a challenging period. Glenview left a strong mark on me and my career.

In 2009, I joined TPG-Axon in London as I wanted to truly understand the global component of investing, and Dinakar Singh was at the forefront of that. I spent a third of my time in Asia covering a range of industries and dove into investing in India as that market grew. I had a range of experiences in India, from visiting IT parks to assessing land banks while sitting on the board of a private real estate company. TPG-Axon gave me a deep appreciation for the nuances of global investing as well as for managing risk, which was a core component of that firm. Returning to the U.S. as a Partner in 2011, I felt I had made the jump from an analyst covering a single position to an investor driving portfolio-level decisions — I credit Dinakar for that. I also began to hone in on my own investing style, which was rooted in my experiences at Glenview and TPG-Axon but clearly moving in a different direction.

G&D: Is that what led you to Maverick Capital?

RR: Yes, exactly. I was introduced to Lee Ainslie in 2011 and we spent a year getting to know each other. At that point in my career, my thought process focused not only on investing but also leadership and culture. I was fortunate to join Maverick Capital in 2012 as a sector head and, over my five years there, I ran a number of sectors — business services, consumer, and media and telecom. What was critical to my decision is the one- portfolio approach of Maverick, where capital flows to the best ideas. I believe strongly in this investment approach, and during my time there was asked to join the Stock Committee and Advisory Committee as part of the leadership team at the firm.

Working at Maverick, I was very cognizant of the legacy I was a part of. Few funds have built a twenty-five year track record at that level across multiple businesses, from fundamental investing to venture capital to quant. I have even more appreciation for this legacy now that I am starting my own fund, ROAM Global Management. Lee is in a league of his own. Sitting next to him for five years — my office was right next to his — was one of the most remarkable things to happen in my career, not just for investing but also from a business and leadership perspective.

G&D: What will you bring to ROAM Global from working with three such notable investors in your career?

RR: Mentoring is critical to the business of investing, and I have been very fortunate to learn from three pioneering investors. From Larry Robbins, I learned that you should have an extraordinary level of knowledge on a name before underwriting it, so that you have pre-built the conviction when the market goes against you. Working for Larry is where I gained the perspective and confidence to run a concentrated portfolio.

From Dinakar Singh, I learned about investing on a global basis, which is a defining component of our strategy at ROAM Global. And from Lee Ainslie, I learned about culture, vision and risk management. I believe culture is what has kept Maverick in the top-tier of a hyper-competitive industry for more than two decades. I still sit on the Board of the Maverick Capital Foundation for this reason.

Beyond those investors, the other noteworthy mentor in my life is my uncle, Rana Kapoor, who is one of the founders of Yes Bank, one of the leading private-sector banks in India. My uncle has been hugely influential in driving my entrepreneurial spirit from an early age.

G&D: What is ROAM Global’s strategy?

RR: ROAM Global Management is a global, equity long/short fund with an emphasis on single-name shorts. It is an extension of the strategy I ran at Maverick Capital, but with a higher degree of concentration. Our approach is entirely fundamental and bottoms-up and we focus on four sectors of expertise where I have managed portfolios in the past — consumer, media and telecom, business services, and select cyclicals. I believe our four-sector focus provides enough breadth to be opportunistic and flexible, yet is targeted enough to allow us to develop deep expertise — an ideal balance.

Given that we run a concentrated portfolio, our maximum position sizes are 20% on the long side and up to 10% on the short side, if the opportunity presents itself. We offset this level of concentration by running a lower level of gross exposure, typically between 75% and 150% of the fund’s capital, which we believe is critical to managing a portfolio in an increasingly volatile environment. I firmly believe gross exposure is the best risk management lever, in part because I have seen the adverse effects of portfolio leverage during key points in my career.

G&D: What kind of companies make for a core long holding? And what about a core short?

RR: An attractive long position is one where business quality and management value creation strategy align with our investing principals. That’s critical for concentrated portfolio investing and we have no flexibility on that mandate. Beyond that, a certain degree of analytical rigor and a variant perception, be it quantitative or qualitative, are requisite for us to initiate a position. Lastly, margin of safety is key, since we will size positions based on the asymmetry of return outcomes.

On the other side, an attractive short is not about where a stock price will be in 90 days but rather a business model that is undifferentiated, and where moats are eroding at a greater speed than the market appreciates. I often find myself shorting businesses that are operating at near-peak fundamentals where one variable or one line item in the P&L is driving our variant perception. Single-name, alpha shorts are where we spend a significant amount of our time at ROAM Global, and how we will drive a lot of our differentiation over the long term.

G&D: What is the duration of a typical long?

RR: Although I have been teaching the Applied Value Investing class at Columbia for six years, I am not a traditional value investor. While margin of safety is a governing principle for my investing philosophy — we are constantly questioning “How much money can we lose from here?” — we ideally like to compound earnings with our core holdings, assuming the reward-risk merits capital and the market hasn’t fully realized our view of intrinsic value. In that context, we tend to think about long positions on a one-to-three- year basis. We have a private- equity approach to investing given my background, but we will let risk-reward drive the portfolio.

G&D: And shorts?

RR: On average, we underwrite shorts to a one-to- two year time horizon. We are compelled to short more as those names go up because we have high conviction in our fundamental analysis — tying back to my learning from Glenview. On a max short, I am focused on take-out risk and more broadly risk management. We are now in a world where organic growth remains challenged, debt is still cheap by historical standards, and private equity firms have significant dry powder — so even take-outs that seemed inconceivable in the past may happen. It also means companies can extend their lifelines longer than we anticipate.

Western Union is a great example. I was short the stock for five years and the stock price hadn’t changed during that time even as the broader market has gone up. It was at $18.50 five years ago, and is at $19.00 today.

G&D: Isn’t that situation a win? As long as the short was flat, you can fund long investments with that capital, correct?

RR: Yes, and our measurement of success is the long/short spread that we generate. Given the market has more than doubled over that time period, I find that short to be an extremely huge win because of the spread we generated against it. Still, I have to ask in my post-mortem, which is critical to our investment process: If I thought fair value for that name was $12.00, then what changed and was I “right” in my assessment of fair value?

G&D: You mentioned margin of safety. Most people can define that on the long side, but how do you define it on the short side?

RR: It is much harder on the short side, and often comes down to judgment and experience as an investor. I often find that a stock with a high multiple is probably the one that has the greatest continued upside as people are conceptualizing new markets or growth not apparent in the near-term cash flows. Tesla is a great example. Autos investors assess units sold, track global SAAR trends and apply peak/trough margin frameworks to names like Tesla, as I have in the past, but in their assessment of intrinsic value may not be considering the possibility that Elon Musk is one of the greatest technologists of our generation since Steve Jobs. There is no margin of safety in the latter.

G&D: Is there any significance to the name ROAM Global?

RR: There is. I wanted to have “global” in the firm name because it speaks to my experience and is core to our investing mandate. One of my colleagues who joined early asked me, “So what do you do when you go to a new city?” I said, “I usually grab my iPhone, put in my ear buds, and roam the streets.” She said, “Why don’t we name the firm ROAM Global?” I love it because “roaming” also signifies being freethinking — remaining independent of the crowd. Internally, our tagline is “we are roaming globally” which captures the spirit of how we invest, and our mindset.

G&D: Can you talk about the global aspects of ROAM Global?

RR: Being truly global is a critical way to differentiate. Fact-pattern recognition helps us find compelling investments. For example, one of the most fruitful opportunity sets in my career has been connecting patterns from developed markets to emerging markets. We look for markets rebounding off cyclical troughs with accelerating fundamentals, like in Latin America, or markets where political realignment is complementing economic recovery to create a large new fishing pond, like in India. I have been investing globally my entire career, have lived and worked abroad, and have deep family and business roots in India. All of this lends to unique perspective. That said, we are not making top-down calls.

G&D: How have you built the rest of your team?

RR: The ROAM Global team comprises six professionals today who will be the team at launch and for the foreseeable future. Point to point, it will be a year from when I left Maverick to when I launch ROAM Global because I wanted to spend the time investing in the build-out of the business and in finding the right people. Talent development and setting a culture upfront is core to differentiation and therefore core to ROAM Global. It is the “X factor” that people can’t directly analyze when assessing a fund’s returns.

Very few businesses have such clear and frequent dynamics of being right and wrong as the investing business. When you’re wrong, not only are you wrong, but you are wrong with extremely talented people on the opposite side and in an extremely public manner. There are flashing lights in front of you daily signaling whether you are right or wrong. For me, what cuts through this intensity and pressure is culture.

G&D: How did you specifically set the culture upfront?

RR: Every person who joined the firm from day one is a partner, so our success will be collective, which I believe is critical to concentrated investing and a one-portfolio approach. I have experienced various compensation schemes and cultures across the institutions I worked for, which allowed me to think about how I wanted to approach these topics at ROAM Global. I want everyone to feel that we are in this together.

The other important cultural component is our physical space. We have a large, open trading floor — no separate offices. I have a small office without a computer in it for a reason. If you want to discuss something, just stand up. There is no need to wait for the team meeting because we don’t have those. The debate is continuous, always happening. There is a clear, documented process for how we do our research, but the debate is iterative and organic in the office.

G&D: How does the team bring up ideas, conduct research, and put them into the portfolio?

RR: Our analyst-first mentality and analytical rigor will differentiate us. How do we get to a name? We start with themes that we come up with collectively. Our view is if we get the themes right, we will make money, and if we get the right one or two names within a theme right, we will truly differentiate returns. Beyond that, our defined stages of our investment process help us cycle through names in an efficient manner.

In terms of how we work together, everyone’s opinion is required but it is never about building consensus. It is about the debate and constantly challenging the thesis, something I very much enjoy. That is why we come into work every day. In my classes at Columbia, I ask students “What do you think?” Sometimes they start with “Well, the market is…” To which I say: “No! What do you think?” This is a job where everyone’s opinion matters. It is then incumbent upon me, as the portfolio manager, to weigh the viewpoints as appropriate.

G&D: You talked about post- mortems earlier. Can you elaborate how and why you conduct them?

RR: You can make money without being right. For example, a stock may appreciate from a takeout offer, but was a takeout anywhere in your thesis? If not, then it is a failure in your investment process. Or, if you assessed fair value at $175 to $200 a share but the management team is choosing to sell out in an all-stock deal at $150, then where was your understanding of management’s alignment of incentives? This type of reflection is why post-mortems are important — you have to make sure your process is strong. Reflecting on your wins and losses can help build a repeatable process that is constantly improving.

G&D: What have you looked for so far in analyst candidates?

RR: I look for passion for investing and intellectual curiosity — a desire to learn combined with a work ethic. Zach Rieger ’17, my first analyst hire, has these qualities and also understands my investment process from being a student in my class at Columbia. We have other similarities as well — the University of Pennsylvania, investing banking, private equity• — but beyond this I was drawn to his sound business judgment and his deep appreciation of analytics. I think one of the primary reasons he wanted to join ROAM Global was that he knew my commitment to talent development. Across the team, passion is key because we are communicating all the time, even on weekends, about stocks and investing. You have to really love this business to be successful.

G&D: Some people may have expected you to launch your own fund sooner. Why now?

RR: It is not about age but about being at a certain stage in your career and your life, when you can sit credibly in front of your team and potential investors. You only get one shot at this, and I wanted to be prepared and methodical. And a decade of global investment management experience gives me great confidence at ROAM. Launching an investment management firm is about building an institution that instills confidence in the firm’s business operations and its clearly defined investment process.

G&D: When analyzing an investment, what kind of conversations do you have with management, and how do you incorporate that into your process?

RR: A dialogue with management is important, but not the single variable driving an investment decision. We are fortunate to have a long list of management teams we have invested behind, and the frameworks we have taken from those case studies are applied in our investment decisions. We are focused on management incentives and alignment, and with that comes a history of value creation that we can study.

G&D: If you were to summarize in one phrase the biggest differentiating factor at ROAM Global, what would that be?

RR: I believe it is the combination of our investing DNA and my teaching DNA. You need a sustainable, repeatable process combined with the intangible quality of understanding and managing talented people to invest in today’s challenging markets. I believe that has resonated with everyone who interacts with ROAM Global.

G&D: Teaching at Columbia seems to have been an integral part of the last seven years of your career. Students have talked about how you challenge them in class. What do you get out of it?

RR: Teaching means a great deal to me — the classroom is a seamless extension of what I do at work. When people ask, “How do you have time for teaching?” I say, “It’s the best thing I’ve ever done.” You have to be passionate about investing. You have to live and breathe it. I teach application of theory, so for me teaching is like replicating my workplace environment — the sense of responsibility and accountability, the idea that your voice really matters and that it’s incredibly important to calibrate what you know and don’t know. My students keep me honest and in tune with the world, which I deeply appreciate.

G&D: Since you’ve worked with so many students and young analysts, what are the biggest mistakes you see them make?

RR: The most common mistake I see in all analysts, not just the younger ones, is underappreciating the range of possible outcomes. Often, it is difficult to analyze that range and realize things can be very different from where they were six months ago. I see analysts account for 30% upside and 30% downside all too often, but I promise you there is a broader range of outcomes for every business, even the boring, stable ones.

G&D: Any other advice for students?

RR: First, identify the work you can do on your own early in your career. This is a business that requires you to be a self-starter. Second, find your own authentic voice. We all can have the same information, but how we choose to refine it can be very different. You may think long, I may think short — ultimately, it comes down to judgment. Work towards synthesizing what the information means to you to find your own voice. This is how you build your own investing DNA.

G&D: Thank you.