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Graham & Doddsville


Page 44 Jared Friedberg

Page 44 Jared Friedberg (Continued from page 1) Jared Friedberg ’99 Partner of Compass Global Investments LLC, a singlefamily investment company based in New York. Prior to Compass, Jared was a Principal at Cortec Group, a U.S. middle-market leveraged buyout fund where he was involved in a myriad of industries including healthcare, retail, and value-added manufacturing. Jared has also held positions in the M&A group at Salomon Brothers and in equity research at Brown Brothers Harriman & Co. Jared earned his MBA from Columbia Business School and graduated magna cum laude from the University of Pennsylvania with a B.A. in Diplomatic History. Graham & Doddsville (G&D): Could you tell us about your background? What brought you to investment management? What was the origin of the Mercator Fund? Jared Friedberg (JF): I graduated from Columbia Business School in 1999. I was very interested in learning how to analyze businesses using a value investing philosophy. I focused on finding work in private equity, on the leveraged buyout side. My logic was to see many kinds of businesses in tremendous detail. Coming out of business school, I got a job at Cortec Group, a middle-market leveraged buyout fund. It was a hands-on, operationally focused firm. Over the course of my seven years there, I had the opportunity to analyze hundreds of businesses, and to own businesses and be forced to live with those investment decisions; a valuable experience in seeing patterns in investing. You tend to think about risk and the potential for capital impairment differently when you're buying something and putting a lot of debt on it. What happened afterward was an interesting life event. In 2006, my father-in-law and my wife started the process of setting up a single-family office. My father-in-law was a Latin American industrialist and, starting as early as the 1980s, had been investing in alternative assets. They were essentially taking their holdings and putting them under one roof. Throughout the course of that year, as they were putting the pieces together, I became interested in the family office as a platform for investing. I liked the intellectual honesty that you could bring to bear using that platform and the focus on capital preservation that investing your own capital requires. At the end of 2006, I left Cortec to help set up the family office. I liked the prospect of having a seat where you are looking at other investment managers, both on the private equity and public sides. You get to see what they're doing well, what you think they're doing incorrectly, where your philosophy jibes with theirs, etc. It was very interesting for me to go from my previous micro-level analysis of companies to thinking more broadly about capital allocation. As the financial crisis hit in 2008, the family had the good fortune to be sitting on a lot of cash. We started to consider where to deploy that capital in such a distressed environment. And when we considered the risk positioning of certain managers that we were invested in—both into the crisis and then their business stability and psychology when opportunities presented themselves during the crisis— we found ourselves less than satisfied. G&D: How so? JF: Certain managers were reaching for risk too much on the way into the crisis, and not reaching for it enough on the way out. Of course, you don't always know whether that is purely psychology or whether that is driven by a lack of stable capital, or both. G&D: So is this when the Mercator Fund came about? JF: Yes, a family office provides a great stable capital base for taking advantage of mispriced opportunities with an uncertain time horizon. So we set up a series of managed accounts for the family, with the mandate of taking my private equity and debt experience, and applying that to public market opportunities. From the outset, we wanted to be able to invest across the capital structure. It was clear that the opportunities weren't only in equities. We were witnessing some incredible fixed income opportunities at that time. By going higher in the capital structure, we could get access to returns that were very attractive, so we were initially more heavily weighted to fixed income, with the (Continued on page 45)

Page 45 Jared Friedberg rationale being, why take more risk if we don't have to? The other factor central to the strategy relates to my private equity days. If you think about private equity dynamics, a private equity fund raises a pool of capital and they have a time limit to put that to work. You put that money to work or you're out of business as you won’t be able to raise the next fund. The incentives are not ideal. We don't have those incentives. We felt that part of being intellectually honest had to be that we didn't have to be fully invested. If we weren't finding compelling opportunities, our strategy was, and is, that we don’t have to invest the capital. G&D: So you’ve been around for eight years and have a solid track record, yet you seem to be quite under the radar. JF: Yes, until very recently we primarily managed capital for the family and some business partners with similar philosophies to ours. And in 2013, we converted the managed accounts into a fund and spun out of the family office. The family remains our largest investor, but now we also have some high net-worth individuals, other family offices, and a couple endowments as investors as well. We are seeking to grow the capital in a gradual, disciplined manner. G&D: How did your background in private equity inform your worldview and your investment process for public securities? JF: When I graduated business school, I had the idea that private equity was a less trafficked area. Then I quickly realized that when an asset is for sale in the way that private companies are today, there are typically many middle-market buyout funds that are looking at a given opportunity. Proprietary sourcing of deal flow is challenging. In private equity, you're creating this environment of perfect competition when you’re looking at an asset. I realized quickly that in the public market, the competition is sometimes less perfect than I would have expected and sometimes things are out of favor in ways that are irrational. You can take advantage of this dynamic in a very fluid way, which you rarely can in private equity. G&D: What is the Mercator Fund’s investment approach? JF: We operate in three asset classes—equities, fixed income, and cash. It is important to us that there be no preset allocation among the three. Within equities, we're really trying to do two things: we're seeking underappreciated compounders, which means something specific to us, and special situations. In terms of compounders, we’re always looking out for systemically important businesses whose existence is critical to their industries. Our markets are developed markets with good legal regimes like the U.S., Canada, and Western Europe, which provides us with multitudes of industries and thousands of publically traded companies to explore. We pay attention to industries, even niche industries, that are growing and where competition is rational. If we identify a company that is becoming more dominant or growing faster than the industry, especially with pricing power, we continue our work. And if the dynamics we described are resulting from a sustainable competitive advantage that we can identify, that’s where we really get excited. “In private equity, you’re creating this environment of perfect competition when you’re looking at an asset.” Now, within that dynamic, you do not often find those opportunities undervalued. But we don't approach sourcing compounders from a value perspective, we come at it from a quality perspective. We are doing work on opportunities irrespective of the value today. The idea is to create a backlog of businesses that you dream of owning when they are temporarily misunderstood or out of favor. Special situation equities are more amorphous. We're generally looking for situations where value is obscured by complexity. That can come in a lot of forms; there are scenarios we see repeatedly to help us identify such situations. Let me provide a few examples. First, liquidations. We recently identified REITs that we thought would be prone to liquidation and got involved with them, owning them into a potential liquidation, and then throughout the process. This (Continued on page 46)

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