On this episode Shiv interviews Gus Araya, Co-Founder and Co-Managing Partner of Cordillera Investment Partners, to discuss how PE firms can generate alpha by investing in alternative assets like marinas, music royalties, and spirits.
Gus shares Cordillera’s approach to targeting niche, less correlated markets, using a repeatable process to source, diligence, and professionalize non-traditional assets. He explains how their flexible toolkit and operator partnerships create enterprise value.
He also covers how to convince LPs to back unconventional strategies and why avoiding crowded sectors unlocks unique opportunities in private equity.
The information contained in this podcast is not intended to constitute, and should not be construed as, investment advice.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Often your guests should talk about they have some really good
strategies about winning deals, right?
Because they're usually sitting alongside 345 other firms
looking to acquire a business inour world where, you know, very
explicitly trying to avoid that and saying, hey, what are some
areas that are truly alternativetoday where we're not competing
(00:22):
with a lot of institutional capital and where we can go and
kind of take our time underwriting and where we can
quote, UN quote, do a deal without have to when it when it
on, on valuation or or one of the those typical metrics.
Welcome to the Private Equity Value Creation Podcast where we
interview leading investors, operators, bankers, and advisors
(00:44):
to help you answer one question.How do we increase the
enterprise value of our companies?
My name is Shiva Narayanan, and each episode I will dive deep
with a guest to help you become a better value creator and
capital allocator. So with that said, let's jump
right in and let's get started today's episode.
(01:04):
My guest today is Gus Ariah of Cordillera Investment Partners.
And what I really enjoyed about this conversation with Gus is
that we often meet private equity firms that are investing
in very similar types of businesses.
And what really distinguishes Gus and his firm is that they
look at alternative assets to invest in, in all kinds of
industries and verticals that are offline.
(01:27):
In agriculture, the the investedin the Marina, they invest in
spirits companies. And so it's very different in
terms of asset classes that theylook at and gush sheds light
into their process for finding these investments, how they get
deal flow, how they diligence these investments and also how
they create enterprise value inside all kinds of different
(01:47):
companies, which is quite different from a lot of the
investors that have been on the show.
And one of the things that I feel is that technology
companies and software companiesand lately I companies have been
getting so much capital from investors.
Meanwhile, you have this long tail of solid businesses that
are high growth or high revenue or high EBITDA or margin
(02:07):
businesses that don't get that level of attention, even though
they're solid business models tobe invested in.
And one of the reasons is that it's how PE firms have
positioned themselves to LP's and how they raise capital.
And they're almost kind of handcuffed to the thesis that
they're kind of operating within.
And meanwhile, there's all theseassets out there for the taking,
but people are kind of competingfor a limited set of assets that
(02:31):
all the other PE firms are also trying, trying to land.
So I found Gus's perspective to be quite refreshing and I think
the private equity industry in general needs to be thinking
about some of these creative avenues to deploy capital as a
way to generate alpha for their LP's and investors.
So I hope you learn from it as much as I did and I'll leave you
(02:51):
to it. Enjoy the house.
All right, Gus, welcome to the show.
How's it going? Very well, Shiv.
Thanks for having me on. Yeah, excited to have you.
So why don't we start with your background and your firm, and
then let's take it from there. Sounds great.
Well, I actually started out by studying mechanical engineering.
(03:14):
And as I was getting that degree, I ended up working in
the IT department of an institutional brokerage firm.
And just through serendipity, ended up pivoting out of the IT
department into working for someof the research analysts and
building financial models for some public companies based in
(03:34):
Latin America. And I fell in love with modeling
businesses. This is back in the day when we
were using Lotus 123. And it's where I caught the bug
and realized, hey, I actually want to be an investor, not not
an engineer. I then spent a few years at
Horsley Bridge Partners, both inSan Francisco and in London.
(03:56):
And that's where I got my first exposure to private equity and
venture capital. This were in the kind of booming
days in the late 90s where here in the Silicon Valley there was
there was a lot going on as partof the ofthe.com bubble, if you
will. But I learned a lot about
innovation. I learned a lot about how
(04:17):
investors and owners and privatecompanies look to add value.
And that's probably where I first realized that the idea
that, hey, you know, that's whatI actually want to do when, when
I grow up. I then spent a couple years
getting my MBA and then with theadvice of one of my mentors,
actually spent a few years inside an operating business, a
(04:38):
software company, where I was a product manager.
And that was a really interesting experience in terms
of getting to work with the realproduct, thinking about
marketing, about AP and L working with different types of
people throughout a larger organization.
And something that has really been useful kind of through the
rest of of my career, as I've gotten more involved in, in
(04:59):
working with, with portfolio companies.
I then was really lucky to be able to kind of pivot back to
investing. And I joined the Hewlett
Foundation here on Sandhill Road, got to work with some
amazing people and there got to continue investing in, in
private equity and also learned quite a bit about some other
asset classes, including real estate and natural resources.
(05:22):
And had the good fortune to workfor the late Lori Hoagland and
learn about asset allocation, which is this idea of how do you
take these different asset classes, these different types
of investments and put them together to create a portfolio
that has a good kind of risk andreturn and diversified
diversification profile. After a few years there, I
(05:46):
joined McKenna Capital in 2006. It was a spin out from the
Stanford University endowment, also investing in the endowment
style. Very fortunate to work with a
lot of great people there. And again, kind of continue my
focus both on private equity as well as as natural resources.
And most importantly, that's where I met Ashley Marks and
(06:08):
Chris Heller, MY2 cofounders. And in 2014, after working
together for 8-9 years, the three of us decided to spin out
and start Cordier. And the idea behind Cordiero is
actually really straightforward,which is just that we believe
alternative investments can playa really important role in
(06:29):
helping improve kind of the riskand return profile of
alternative investment portfolios.
Our kind of differentiated view was really around the idea that
a lot of these asset classes that ship we grew up calling
quote, UN quote alternative aren't really that alternative
anymore. They've attracted a lot more
(06:50):
capital, they're bigger, they'remore efficient, they're return
streams are are more correlated.So for example, today private
equity as an asset class is a, you know, multi trillion dollar
global asset class with thousands of managers very, you
know, smart people working hard,very sophisticated, which just
makes the whole asset class morecompetitive.
(07:11):
It doesn't make it a bad asset class, but just simply it's not
quote, UN quote quite as alternative as as it used to be.
And so our view is, hey, why don't we focus on just finding
these areas that are, we call them niche, less correlated,
where we can get 2 main benefits.
(07:33):
One is around the idea that if we spend our time in fishing
ponds that are less overcrowded with institutional capital, we
have a better chance at, you know, generating more return per
unit of risk. We're not competing with a lot
of people. Often your guests should talk
about they have some really goodstrategies about winning deals,
(07:57):
right? Because they're usually sitting
alongside 345 other firms looking to acquire a business in
our world where, you know, very explicitly trying to avoid that
and saying, hey, what are some areas that are truly alternative
today where we're not competing with a lot of institutional
capital and where we can go and kind of take our time
(08:17):
underwriting and where we can quote, UN quote, do a deal
without have to when it when it on on valuation or, or one of
those typical metrics. That's yeah.
Expand on that a little bit morebecause just to bring it live
for the audience, what are some of these alternative asset
classes or types of businesses that you're deploying capital
(08:38):
into? Sure.
Why don't we go back a little bit in history because frankly,
she had. They change over time.
So when we got started back in 2014, one of the earliest areas
we got involved in was music royalties.
This is where you can own songs or catalogs of songs that you
know have been around for a longtime and generate some very
steady Eddy cash flows. And if you go back to 2015, the
(09:02):
music industry was out of favor.People were not really looking
at that industry yet. We were able to see that you had
these cash flows that were very steady that you could buy at
fairly attractive multiples. And then also we're pretty
uncorrelated, meaning if you thought about what drove the
return stream of some of those copyrights or catalogs, they
(09:23):
didn't change a lot year to yearand certainly didn't have much
to do with what's happening withinterest rates or with the S&P
500. So for example, we were
fortunate to partner with some great operators and start buying
those those types of assets and what we thought were very
attractive multiples. And then Fast forward shift 5-10
years later, it's something thatthe the general market and
(09:47):
institutional investor certainlydiscovered today you have lots
of funds and lots of investors that owned or are looking to buy
those types of assets. What have you seen?
You've seen returns compressed and probably some of those
assets become more correlated. So what's typical for us is we
try to be 3 to five years early into finding those
(10:07):
opportunities. Once the rest of the world finds
them, we step away. Another example is around
litigation finance here. This is, you know, imagine two
companies in a legal dispute. One of those companies may need
some capital in order to kind ofsee that through.
And I think for most people you can kind of intuit that, you
(10:29):
know, this company A or B when that lawsuit has nothing to do
with is the S&P 500 gonna be up or down that year.
So there there's kind of a very important diversification, non
correlation element to that strategy.
And again, we were fortunate to get involved early on in
providing capital for those types of situations.
(10:49):
Again, Fast forward 5 to 10 years, the rest of the
institutional world founded today, you have lots of funds
that do that. And so we had Cordillera, you
know, just kind of step away. We're on this constant
treadmill, if you will, to go and find the next thing and I'll
mention one more ship and then I'll stop, which is our
investments in boat marinas. So also 10 years ago, we spent a
(11:14):
lot of time looking for kind of fragmented industries.
And for a variety of reasons, the institutional world had
defined real estate into some very particular buckets.
You have office buildings, multifamily, industrial and
hotels. And even though there's over
5000 boat marinas in the United States, it was just not an area
(11:35):
that institutional capital had focused on.
And so over 80% of all boat marinas in the US back then were
owned by mom and pops, unlike, you know, in office buildings
that are mostly owned by institutional investors.
And so that meant, you know, it was a really inefficient market.
And so we were able to find a great operator within a company
(11:58):
structure, go and acquire these assets and you know, put them
together into a growing businessin an area that was not
competitive and also fairly diversifying.
If you think about the Marina business, unlike other areas of
real estate, you don't have, youdon't get the boom and bust
cycles through over building. It's very, very difficult to
(12:18):
build any new boat marinas. And it's also like a storage
business where you're kind of steady Eddy kind of, if you
will, parking boats on water or on land for some period of time.
Fast forward again 10 years, andjust earlier this year, we had
one of the largest private equity firms in the world
acquire, you know, the largest boat Marina business in the US
(12:41):
And so that now is likely to become, again, a more
institutional asset class. So those are hopefully 3
examples that show you kind of how we try to find things ahead
of the crowd, find them when they're least competitive, and
eventually exit those opportunities when the rest of
the world finds it. Yeah, that's great.
Actually, one of the things thatI've noticed and it's kind of an
(13:03):
interesting pattern is that in alot of ways, P funds are captive
by the way they raise money fromtheir LP's that restricts them
from investing in some differenttypes of assets.
And I'm seeing obviously more PEfirms starting to like be more
creative because they have capital to deploy.
(13:24):
So they're going more into sports, they're going more into
music, they're going into different assets because you
need to find quality businesses to acquire.
But a lot of people firms are still stuck in, I got to find
that software business or recurring revenue business that
has a certain amount of net revenue attention and it they
all kind of look and sound the same.
And so everybody ends up competing for the same assets.
(13:47):
Meanwhile, like there is this huge group of businesses and
different industries that are profitable.
They just have different business models.
They have recurring revenue, quote UN quote in different
ways. But the underwriting of that is
not being done in the same way. And I feel like a lot of
opportunities are being missed. OK.
Can you talk a little bit about that?
And then the second part that I'd love to kind of hear on is
(14:10):
what about selling that into your LP's and helping them
understand that you're going after alternative asset classes?
Yeah. Well, look, very much agree with
your first point, Shiv. And there is a structural
element to this. If we go back to the idea of
asset allocation, you know, look, alternative investing has
been around now several decades and so it's become a little bit
(14:31):
more codified, you know what youmean by private equity.
And within private equity there's buy outs and there's
growth and there's venture capital.
And then within each of those, there is some further
segmentation. And so the industry has become a
little bit more calcified in that sense.
And frankly, it can be easier toraise capital if you fit very
(14:55):
neatly into an existing bucket that institutional investors
want to put capital into. So that's the easy part.
But you're absolutely right thatthe downside of that can often
be that you you have a little bit of a straightjacket.
You've been hired to invest in something that fits within some
very specific parameters. Might be an industry, it might
(15:18):
be a stage of a company, it might be a geography, it might
be a business model like SASID or recurring revenue of a
certain type. And that that like I said, has
some pros to it, which is you can become a specialist at it,
but you are really constrained and moving into other areas that
you think have more white space and are less competitive.
(15:42):
Also a lot of consultants that are out there recommending
funds, you know, they often think about these asset classes,
they think about benchmarks. And again, it's easiest if you
can kind of play into those buckets and benchmarks because
then you know, it's easier for them to kind of talk about you.
It's easy for them to recommend you.
(16:02):
But the downside again as you get in this kind of
straightjacket, very calcified investment approach, which may
leave you stock in very crowded areas.
And it's harder to generate alpha when everybody's chasing
the same deal. And that pushes the valuations
up, right? You kind of need to be in places
where you don't have as much competition and find assets and
(16:23):
places where people aren't looking.
That that's certainly our view. That's what we think the
original promise of alternative investing was, right?
Go to these areas that today arejust not overcrowded with
capital because otherwise it is very competitive.
And you know, private equity, you've got very smart people
with a lot of capital with, withbusiness models that that drive
(16:44):
a lot of efficiency around finding a certain type of deal.
So your second question, shit, because I think they're related,
which is, you know, there is. So it's, it's not easy to go and
then convince people around the idea of necessarily, well, we're
just gonna go and find things that are really different
because things that are different sound scary, You might
(17:06):
say, well, I, I've never heard of this before.
You don't know what asset class they belong in.
They're not easy to benchmark. So all of the things that kind
of push people toward those kindof very specific business models
are some of the challenges of kind of taking the approach that
we do, which is out there looking for these less crowded
(17:28):
kind of non institutionalized areas.
But the way that we have found most successful to to to talk to
investors about that is again, remind them about why this makes
sense. It it it is not about looking
for something different for the sake of being different.
You have to believe that being in a less competitive area is
going to help your returns. And if you overlay looking for
(17:50):
things that are really diversifying that kind of have a
return stream that big when everything else sags that that
can be very valuable to their portfolio to increasing their
sharp ratio. So that that is the starting
point as to why. And then it's really around the
idea that how do you do it? Do you have a repeatable process
(18:12):
to go and do this because it is a lot harder ship than it
sounds. And so just like any other firm,
we have a kind of wash, rinse and repeat model.
Ours just starts in a very different part of the equation
for most of your guests. Often time you know they, they,
they source a very typical type of business within a, within a
particular industry and they have a really clear plan about
(18:35):
their hundred day and one year etcetera.
For us, you know our process starts with how do we go and
find these areas that are not overcrowded and we have to talk
to her about to our investors about having a true north and
that true north is still about we're trying to generate a
certain level of return. We are you know we think a lot
(18:58):
about managing risk and about the downside.
We are looking for areas that webelieve can be diversifying that
aren't just going to go up and down with everything else in
their portfolio and where we canfind great operators.
So she have everything that we do ultimately, whether it's it's
running about Marina or buying amusic asset, you know, we
(19:20):
partner with with great operators in those businesses or
assets or platforms. And so it's being able to kind
of explain to investors why we have a repeatable model across
all of that, which really has taken us years to really develop
and perfect is why we ultimatelyget people across the line say,
(19:41):
OK, this makes a lot of sense. Last thing I would add there,
Shiv, is many of our investors were already trying to do this
themselves. They had said, you know what, if
we're going to outperform our peer in some way, we need to be
a little bit more innovative. We need to be out there finding
these things. And, and maybe they did and they
(20:03):
realized it was really, really hard.
You, you have to do a lot of primary research.
Things don't come nicely packaged.
You don't have a 10 year track record of institutional
investing in these areas. You know, something that that is
a lot of work. And so ultimately, you know, why
they would come to a Cordillera is basically to say, wow, you
(20:26):
guys only spend your time doing that.
You have those expertise, you can be our team extension, our
eyes and ears into kind of, you know, bringing those deals in
house and also education. A big part of our value add is
not just doing the deals, but helping to explain to investors
why does it have these interesting characteristics.
(20:48):
Right. Yeah, I understand that.
But help me understand the valuecreation side because you
touched on that a little bit earlier.
Buying, let's say, a piece of a music business is very different
than buying a boat Marina, whichis very different.
And let's say investing in a triathlon league and some of
these other assets that you haveand value creation would look
very different inside each of these assets.
Yeah. So how do you explain that to
(21:10):
LP's? And then what does your process
look like for creating enterprise value beyond just
bringing capital to these types of investments?
Yeah. It's a, it's a great question.
You know, the starting point forus often is if we're doing our
jobs well by being in these morekind of off the beaten path
areas, we are often can add value in almost the kind of
(21:37):
investing in private equity 101 type way.
Meaning we're going to end industries where we even have to
explain how does private capitalwork.
Why is it that we can add value in some of the simplest ways of
helping you professionalize partof your team, getting your
financials to be transparent andclear, setting KPI's for your
(22:01):
business and your sales team. All of the things that in call
it the more middle of the fairway, traditional private
equity, it's almost already doneby a company by the by the time
it's been sold 3 or 4 times to to a private equity firm.
All of that stuff is really, really dialed in when we're
going into some of these new areas that can be really
(22:23):
transformative to a business. Just bringing that capital and
bringing what we call the Cordillera in a box, helping put
all of the key pieces to institutionalized
professionalize in area that hadnever really seen that type of
capital before. Another value add component is
helping kind of educate and evangelize.
(22:45):
So for many of our businesses, ultimately, if we want to to
grow them or or kind of really create the most amount of value,
we want to bring in more capitalover time.
And we've developed a little bitof the, the muscle and know how
of how do we go and take an areathat most investors haven't
heard it out, it doesn't really fit a typical asset class.
(23:09):
And how do we explain to them, you know, what are the drivers
of returns? Why is it uncorrelated?
How we can create value and almost like lower the bar for
these businesses or assets or platforms to grow by bringing in
that institutional capital. And so that can really be value
added from from our perspective shift, which is to to almost
(23:32):
help institutionalized some of these areas by bringing in the
right, the right operating partners.
We also, as you mentioned, don'thave A1 size fits all approach.
You know, sometimes we're investing just in assets,
sometimes we're investing in a company, sometimes we're
creating a platform and we have to have different toolkits.
(23:53):
We work with different law firmsthat specialize in one type of
structure versus another. We work with different valuation
firms. Some might be really good at,
let's say, valuing a music assetthat might be a very different
valuation firm that helps us do appraisals on boat marinas, for
example. We work with different
(24:15):
accounting firms and so really kind of being able to have a
full toolkit where we can, to your point, look at each
different beast bespoke investment and say we're not
going to make everything fit into, you know, every square peg
fit into this one round hole that we've defined.
We actually go and say we'll bring the right toolkit to add
(24:36):
value to that business in whatever way it makes sense.
Yeah. Does that change kind of your
own operating model as a firm, because there's so many
different types of businesses and you might need different
resources, different types of operating partners or advisors?
Like how do you manage that on the cost side as a firm?
(24:57):
Because I can totally see how, let's say a PE firm just focused
on fintech or health tech can find economies of scale.
But for a firm like yours, you almost need different resources
for different companies. So how do you structurally
manage that? Yeah, I think it really starts
merged with the team and the culture at Cordillera.
So we do not sell set ourselves up to have asset classes or
(25:22):
specialists where, you know, someone's a hammer looking for a
nail. Meaning we don't hire someone
and say shave. You're hired to be, you know,
the whiskey aging expert at Cordillera and that's what
you're going to go do for the rest of your life.
Here we take a break, a broader approach around working in
teams, growth mindset, working together, learning together so
(25:48):
that we can make first of all the best decisions.
If you're going to compare a music opportunity with a whiskey
aging opportunity with a spectrum license investment,
first of all, you need a team that can really understand what
are the trade-offs that we're making across the whole
portfolio and across these different types of investments.
(26:08):
And so that is a very important element of how we have organized
ourselves that allows us to really kind of attack, you know,
the broadest field as possible. So we can find things that that
that are more off the beaten path.
Second is to get to get that that scale or that institutional
knowledge. Operators are really important
(26:30):
to us, Shiv, and we do get some scale here because in our
perfect world, and unfortunatelythis happens often is we get
more than one bite at the apple.So, you know, first we invested
in music and then as that got more crowded, we looked at other
areas related to film and video games and e-books and short form
video content, all things that, you know, we're kind of the
(26:52):
white spaces that remained as music got more crowded.
And we were able to work with some of the exact same
operators. So we didn't have to go and
start from scratch and, you know, find the new accounting
firm and find the new valuation firm and find the new operating
partner. That is a huge plus to us and
something that we have now call it 11-12 years into our business
(27:15):
that frankly was very, very difficult right when we get
right when we got started. So even though we have a broad
set of opportunities, we have, you know, call it an established
stable of operating partners that can already be or go to
people and many of the things wedo, and that's a huge efficiency
(27:36):
advantage. We know who they are.
We know how to work together. We're not reinventing the wheel
every time. We can kind of reuse certain
processes or legal documents or partners in different ways that
allow us to move those deals forward without without starting
from scratch. But you're right to point out
that, you know, if we go into somewhere that's totally a
(27:59):
blank, you know, a blank field of play for us, it does require
a lot of time. That is the bottleneck in our
business model, which is we needthe time and put in the
resources to go and learn and investigate and do the primary
research. And that's why we're
differentiated. That is the mode around our
(28:20):
business. If that were really easy, Shiv,
you know we probably wouldn't exist.
Yeah, I think, I think that right there, there is the secret
sauce in that because I think that would be hard for other
firms to duplicate in terms of being able to buy a lot of these
companies and even be competitive with you guys.
Because it's building that process, having the operators,
having the value creation plan and all and all the everything,
(28:43):
everything else that kind of goes along with that.
Talk about the sourcing side, because again, if you are
focused on a specific sector, there is kind of like a rinse
and repeat playbook that you cango after companies in that
space. But in a in a model like this,
you almost have to be looking inmultiple areas and source
multiple types of deals and havethe capacity to be able to meet
(29:06):
that many companies and underwrite deals like that.
So walk us through your sourcingapproach.
Yeah. This is probably the most
important area of focus for us given our our investment
strategy. And so there's a few different
elements that frankly, again, we, we, we didn't start out with
all of this. It took us, it took us years to
(29:27):
put them together and we do think it's a competitive
advantage today. So one of them is thematic and
it's the one we had day one. So for example, we back in 2014
thought, hey, there's a lot of interesting things going on with
different types of royalties. They seem to be able to meet our
return profile. We, we, we have a sense that
(29:49):
they may be uncorrelated. Let's pick that as a theme and
let's go proactively look for some things in that area.
And so that's how we found musicroyalties, you know, back in
2015 and a few other areas that we've invested in that are
related to those types of royalties.
Another thematic view for us wasaround environmental markets.
(30:10):
Back in 2014 and 15, you startedto hear about carbon markets,
cap and trade markets, differenttypes of allowances and offsets.
And we said, huh, that sounds interesting, let's go spend time
thematically understanding that area and what is that
opportunity. And we found several things in
(30:30):
environmental markets that we'vedone over the last decade.
So that thematic approach is really important because it
allows us to focus our energy proactively into an area that we
have some reason to believe is going to be productive.
And it starts with way of havinga true North.
So we do know against some return profile, some risk
(30:51):
profile, some diversification profile that we're aiming for.
And that helps us kind of filterthose themes because look,
there's lots of things out therethat might be uncorrelated, but
they have a really low return. And so we shouldn't be spending
a lot of time chasing those things down.
That's the beauty of that. The other approach that has
(31:11):
been, you know, really beneficial for us, you know,
over the last kind of five plus years is the inbound.
So when we got started, no one knew who Cordillera was.
In fact, people still can't really pronounce her name.
But you know what's happened nowthat we've been in the market
for a decade, we've done lots, lots of different deals in
different areas. People who are who are out there
(31:33):
with a different type of asset, with a different type of
strategy, with a different type of business will find their way
to Cordillera. So one example is in the whiskey
aging industry, you know, you had a couple of folks that
spotted this really interesting opportunity back in 2018, which
had to do with kind of a supply demand imbalance and the the
(31:57):
slope or the contango, the whiskey aging curve.
You can imagine these folks fromKentucky knocking on the door of
some institutional investor and saying, hey, I want to talk to
you about this really interesting whiskey opportunity.
And the first question they get asked is great.
What asset class is it? Should I connect you to the
private equity person, the real estate person, the hedge fund
(32:19):
person? And they say, I don't know, I'm
just here to talk about whiskey.Those folks will eventually find
their way to Cordillera. We put a lot of effort into
building those networks and that's really, really valuable
because they'll come to us. You know, we've got kind of this
open door policy where we say, wow, never heard of that before.
(32:39):
That sounds really interesting. And again, we have some filters
that say, OK, great, let's let'sdig into that.
And that is incredibly valuable for us.
Again, it took us a few years tobuild that pipeline, but you
know, that really means that things can come inside
Cordillera that weren't necessarily part of a very
(33:00):
explicit theme. Um, the other sourcing channels
really are investors. So again, most of the folks who
invest with us, you know, prior to even meeting Cordillera
thought it was a good idea to goand try to find truly
alternative investment areas. And so they themselves are
looking for these things. They have deal flow that maybe
(33:21):
we don't see because of where they're located.
Maybe it's a family office that has a deep network in a
different industry, etcetera, etcetera.
And so they know what Cordillerais looking for and they send us
deals usually that are curated that they know is something we
might be interested in. And so we're just incredibly
lucky to have just a phenomenal group of investors that are like
(33:43):
minded from this perspective that are looking for these types
of deals. And when they find it, you know,
they're willing to send it our way.
Hopefully we get multiple bites at the apple.
And so, you know, we work with an operator in a certain
industry or a certain type of asset that gets crowded, they
might come back to us and say, hey, I know we don't want to do
this anymore because now everyone else has found it.
(34:06):
But we know this thing that's adjacent to it, but still kind
of white space. Let's go after that.
And so they bring us a deal. They're like, we've worked with
you before, we've done this, we know you.
How about we go do kind of the wash, rinse and repeat, but just
in something that's a little bit, you know, off to the side.
So those are really kind of the four ways, you know that we we
(34:27):
source deals at Cordillera. Yeah, I think your point on the
inbound side is really important.
I was talking to another PE firmyesterday and just this idea
that even though PE firms are investing in companies and those
companies themselves need help with, let's say, branding,
positioning, messaging type of work.
A lot of PE firms look and soundthe same.
But in your case, you've kind ofcrafted this unique position for
(34:49):
yourself for these alternative assets.
And so when they look around andthey're like, OK, I potentially
need some institutional capital here.
In a way, a lot of other PE firms don't seem like a fit.
And you are one of the few firmsthat are speaking their
language. So you get the inbound volume,
whereas those other PE firms arecompeting with hundreds of other
companies or firms that are trying to pass capital on to the
(35:11):
same company. So it's a it's almost a
positioning exercise as well, which increases your deal flow.
And, and that's exactly how we try to position ourselves.
And again, it takes a while to build that network.
What I would say, you know, there is the other side of that
ship, as you can imagine, which is you can get a lot of inbound.
That's not that interesting, right?
People may have some idea that'sthat's quirky or non
(35:32):
institutional. And there's a really, really
good reason why probably an institutional investors are
never going to go down that route or they might think it's
non correlated, but you, you peel back the onion and you
immediately say, wow, no, that this is really correlated.
So I the, the, the corollary to,you know, getting that inbound
and building that network is building a really good filter.
(35:55):
So that to your point earlier, you know, we, we don't want to
waste a lot of time. We, we, we could suffer from
inefficiencies. And so getting quickly to things
that we recognize, there's really a lot of pattern
recognition so that we can kind of take that open door kind of
front of the funnel and quickly get our team to focus on things
that ultimately hopefully end upbeing being actionable.
(36:17):
Yeah, Yeah. I think, I think that's
fantastic. Just last question, we'll talk
about the vetting of these investments because they're in
different types of assets. The the books would be
different. The the assets on the balance
sheet will look different. Like talk about the diligence
side of the how long does it take you to kind of vet these
companies and figure out if it'sworthwhile for you to be
(36:37):
investing your capital here? Yeah, it takes it takes a while.
And that is the benefit and the opportunity of being more off
the beaten path again in a more kind of middle of the fairway
private equity industry. You know, again, you're
competing for deals. The deal's going to close.
You know, it's a competitive process.
(36:57):
You've got so many days or weeksto get there.
When we go and find something new again, think of the music
asset back in 2015 or whiskey aging opportunity in 2018.
There's no gun to the head. You're not competing.
And so it is really important for us to have time because if
we don't have time, we're probably in the wrong place or
(37:19):
more likely to make a mistake. Then there's that, you know,
having some skill set to start that process within Cordillera.
And this is again, where we're fortunate to have kind of a
multidisciplinary approach. So if you, if you look at the
backgrounds of of my partners like Ashley and Chris and Taylor
and myself, we all spent decadesinvesting in different types of
(37:43):
alternatives. And so that's really useful
skill set shift because all of the businesses that we're
describing are a little bit different, but they all have
something, you know, both Marinahas a lot to do with real
estate. I mean, there's just some
element. If you've underwritten a real
estate deal before, you can understand quickly some things
about that. If you underwritten some type of
(38:06):
asset that is a copyright, you can understand another type of
intangible asset. And So what I would say is the
starting point has to be that the team that we purposely try
to build that Cordillera has some kind of domain expertise
that is very broad that allows us to get started.
We combine that with time. And then doing a lot of, you
(38:27):
know, primary research, guess what, you go visit a lot of boat
marinas, you go visit a lot of distilleries, you go visit a lot
of music executives, you go talkto a lot of law firms in the
case of litigation finance or professors that teach law back
in the day. And so again, there is kind of
this research element and we call it a growth mindset, which
(38:49):
is we don't know everything, butwe believe we have the ability
to go and learn and then bring in the right operators.
So we have kind of a fairly clear view about what to what
level can we learn independentlyto verify some of those true
north that I described around risk and return and
(39:10):
diversification. But we get to a point where we
say, wow, this looks interesting.
Now we need to go a mile deep. And that's where getting the
operator is a part of that, meaning we go and say, OK, do we
want to partner with these folksin this strategy and they help
us together. We do it in a true kind of
(39:30):
partnership model, go down the rest of the learning curve and
we may have a lot of input into that's a really good idea.
But you you're, you're not thinking about the right
structure. The best way to optimize this
asset is to do it in this other business or do it in this way or
that way. So there is very much a research
element that we do in partnership with our operators
(39:53):
that creates a lot of trust, a lot of learning.
It's very collegial and ultimately when you know, we are
our investment committee are arevoting on a deal, it's something
that you know is is not a rubberstamp is something that the
whole firm has gone through thatkind of learning process
together. And we know that operator and we
(40:15):
just get a lot of conviction, but we need time.
I think ultimately Shiv is it can't be something where we have
a gun to the head and need a fewweeks to make a decision.
We need our time to go through that process.
Yeah, I think that's fantastic. I think just kind of
holistically this way that you, the types of assets you have
focused on effects all aspects of running your firm.
(40:37):
It affects how you create value,how you actually source the
deals, how you diligence the deals and even your positioning
in the marketplace and how you're able to win deals.
So I think that's fantastic. As we're coming up on time here,
you guys just if people are listening and they want to get
in touch with you, what's the best way that they can get ahold
of you? Yeah, you know, please visit us
at cordillera-ip.com. I, there's a, a link there for
(41:02):
an e-mail. I promise you it is not a black
box that actually goes to the, the senior members of of the
Cordillera team. And we'd love to hear about
interesting investment ideas andopportunities.
So please reach out. And like I said, you know, we've
we've got an open door policy and and want to hear what what
people are doing out there that is interesting and
differentiated. Awesome.
(41:23):
Yeah. And we'll be sure to include all
of that in the show notes. And Gus, with that said, thanks
a lot for coming on and sharing your wisdom.
I think the audience will learn a lot from it and I appreciate
you coming on and sharing all ofit.
Chad, thank you for having me. It's been a pleasure.
Likewise, thanks for listening to today's episode.
Before you take off just a few requests from our side #1 if you
(41:46):
haven't done so already, please subscribe to the podcast on
iTunes or Spotify or YouTube or wherever you go to listen to
your podcasts #2 If you are in the market for due diligence
services, strategy consulting, or fractional CMO services,
please get in touch with us at www.hassas.com.
(42:06):
And 3rd, please buy a copy of mynew book, Exit Ready Marketing.
It covers a ton of concepts thatwe take our customers through
private equity investors, B companies, CEO's, operating
partners and marketers. And there's a ton of great value
in there that expands on my previous book Post Acquisition
Marketing as well. So with that said, I hope you
(42:26):
enjoyed today's content and we'll see you on the next
episode.
Often your guests should talk about they have some really good
strategies about winning deals, right?
Because they're usually sitting alongside 345 other firms
looking to acquire a business inour world where, you know, very
explicitly trying to avoid that and saying, hey, what are some
areas that are truly alternativetoday where we're not competing
(00:22):
with a lot of institutional capital and where we can go and
kind of take our time underwriting and where we can
quote, UN quote, do a deal without have to when it when it
on, on valuation or or one of the those typical metrics.
Welcome to the Private Equity Value Creation Podcast where we
interview leading investors, operators, bankers, and advisors
(00:44):
to help you answer one question.How do we increase the
enterprise value of our companies?
My name is Shiva Narayanan, and each episode I will dive deep
with a guest to help you become a better value creator and
capital allocator. So with that said, let's jump
right in and let's get started today's episode.
(01:04):
My guest today is Gus Ariah of Cordillera Investment Partners.
And what I really enjoyed about this conversation with Gus is
that we often meet private equity firms that are investing
in very similar types of businesses.
And what really distinguishes Gus and his firm is that they
look at alternative assets to invest in, in all kinds of
industries and verticals that are offline.
(01:27):
In agriculture, the the investedin the Marina, they invest in
spirits companies. And so it's very different in
terms of asset classes that theylook at and gush sheds light
into their process for finding these investments, how they get
deal flow, how they diligence these investments and also how
they create enterprise value inside all kinds of different
(01:47):
companies, which is quite different from a lot of the
investors that have been on the show.
And one of the things that I feel is that technology
companies and software companiesand lately I companies have been
getting so much capital from investors.
Meanwhile, you have this long tail of solid businesses that
are high growth or high revenue or high EBITDA or margin
(02:07):
businesses that don't get that level of attention, even though
they're solid business models tobe invested in.
And one of the reasons is that it's how PE firms have
positioned themselves to LP's and how they raise capital.
And they're almost kind of handcuffed to the thesis that
they're kind of operating within.
And meanwhile, there's all theseassets out there for the taking,
but people are kind of competingfor a limited set of assets that
(02:31):
all the other PE firms are also trying, trying to land.
So I found Gus's perspective to be quite refreshing and I think
the private equity industry in general needs to be thinking
about some of these creative avenues to deploy capital as a
way to generate alpha for their LP's and investors.
So I hope you learn from it as much as I did and I'll leave you
(02:51):
to it. Enjoy the house.
All right, Gus, welcome to the show.
How's it going? Very well, Shiv.
Thanks for having me on. Yeah, excited to have you.
So why don't we start with your background and your firm, and
then let's take it from there. Sounds great.
Well, I actually started out by studying mechanical engineering.
(03:14):
And as I was getting that degree, I ended up working in
the IT department of an institutional brokerage firm.
And just through serendipity, ended up pivoting out of the IT
department into working for someof the research analysts and
building financial models for some public companies based in
(03:34):
Latin America. And I fell in love with modeling
businesses. This is back in the day when we
were using Lotus 123. And it's where I caught the bug
and realized, hey, I actually want to be an investor, not not
an engineer. I then spent a few years at
Horsley Bridge Partners, both inSan Francisco and in London.
(03:56):
And that's where I got my first exposure to private equity and
venture capital. This were in the kind of booming
days in the late 90s where here in the Silicon Valley there was
there was a lot going on as partof the ofthe.com bubble, if you
will. But I learned a lot about
innovation. I learned a lot about how
(04:17):
investors and owners and privatecompanies look to add value.
And that's probably where I first realized that the idea
that, hey, you know, that's whatI actually want to do when, when
I grow up. I then spent a couple years
getting my MBA and then with theadvice of one of my mentors,
actually spent a few years inside an operating business, a
(04:38):
software company, where I was a product manager.
And that was a really interesting experience in terms
of getting to work with the realproduct, thinking about
marketing, about AP and L working with different types of
people throughout a larger organization.
And something that has really been useful kind of through the
rest of of my career, as I've gotten more involved in, in
(04:59):
working with, with portfolio companies.
I then was really lucky to be able to kind of pivot back to
investing. And I joined the Hewlett
Foundation here on Sandhill Road, got to work with some
amazing people and there got to continue investing in, in
private equity and also learned quite a bit about some other
asset classes, including real estate and natural resources.
(05:22):
And had the good fortune to workfor the late Lori Hoagland and
learn about asset allocation, which is this idea of how do you
take these different asset classes, these different types
of investments and put them together to create a portfolio
that has a good kind of risk andreturn and diversified
diversification profile. After a few years there, I
(05:46):
joined McKenna Capital in 2006. It was a spin out from the
Stanford University endowment, also investing in the endowment
style. Very fortunate to work with a
lot of great people there. And again, kind of continue my
focus both on private equity as well as as natural resources.
And most importantly, that's where I met Ashley Marks and
(06:08):
Chris Heller, MY2 cofounders. And in 2014, after working
together for 8-9 years, the three of us decided to spin out
and start Cordier. And the idea behind Cordiero is
actually really straightforward,which is just that we believe
alternative investments can playa really important role in
(06:29):
helping improve kind of the riskand return profile of
alternative investment portfolios.
Our kind of differentiated view was really around the idea that
a lot of these asset classes that ship we grew up calling
quote, UN quote alternative aren't really that alternative
anymore. They've attracted a lot more
(06:50):
capital, they're bigger, they'remore efficient, they're return
streams are are more correlated.So for example, today private
equity as an asset class is a, you know, multi trillion dollar
global asset class with thousands of managers very, you
know, smart people working hard,very sophisticated, which just
makes the whole asset class morecompetitive.
(07:11):
It doesn't make it a bad asset class, but just simply it's not
quote, UN quote quite as alternative as as it used to be.
And so our view is, hey, why don't we focus on just finding
these areas that are, we call them niche, less correlated,
where we can get 2 main benefits.
(07:33):
One is around the idea that if we spend our time in fishing
ponds that are less overcrowded with institutional capital, we
have a better chance at, you know, generating more return per
unit of risk. We're not competing with a lot
of people. Often your guests should talk
about they have some really goodstrategies about winning deals,
(07:57):
right? Because they're usually sitting
alongside 345 other firms looking to acquire a business in
our world where, you know, very explicitly trying to avoid that
and saying, hey, what are some areas that are truly alternative
today where we're not competing with a lot of institutional
capital and where we can go and kind of take our time
(08:17):
underwriting and where we can quote, UN quote, do a deal
without have to when it when it on on valuation or, or one of
those typical metrics. That's yeah.
Expand on that a little bit morebecause just to bring it live
for the audience, what are some of these alternative asset
classes or types of businesses that you're deploying capital
(08:38):
into? Sure.
Why don't we go back a little bit in history because frankly,
she had. They change over time.
So when we got started back in 2014, one of the earliest areas
we got involved in was music royalties.
This is where you can own songs or catalogs of songs that you
know have been around for a longtime and generate some very
steady Eddy cash flows. And if you go back to 2015, the
(09:02):
music industry was out of favor.People were not really looking
at that industry yet. We were able to see that you had
these cash flows that were very steady that you could buy at
fairly attractive multiples. And then also we're pretty
uncorrelated, meaning if you thought about what drove the
return stream of some of those copyrights or catalogs, they
(09:23):
didn't change a lot year to yearand certainly didn't have much
to do with what's happening withinterest rates or with the S&P
500. So for example, we were
fortunate to partner with some great operators and start buying
those those types of assets and what we thought were very
attractive multiples. And then Fast forward shift 5-10
years later, it's something thatthe the general market and
(09:47):
institutional investor certainlydiscovered today you have lots
of funds and lots of investors that owned or are looking to buy
those types of assets. What have you seen?
You've seen returns compressed and probably some of those
assets become more correlated. So what's typical for us is we
try to be 3 to five years early into finding those
(10:07):
opportunities. Once the rest of the world finds
them, we step away. Another example is around
litigation finance here. This is, you know, imagine two
companies in a legal dispute. One of those companies may need
some capital in order to kind ofsee that through.
And I think for most people you can kind of intuit that, you
(10:29):
know, this company A or B when that lawsuit has nothing to do
with is the S&P 500 gonna be up or down that year.
So there there's kind of a very important diversification, non
correlation element to that strategy.
And again, we were fortunate to get involved early on in
providing capital for those types of situations.
(10:49):
Again, Fast forward 5 to 10 years, the rest of the
institutional world founded today, you have lots of funds
that do that. And so we had Cordillera, you
know, just kind of step away. We're on this constant
treadmill, if you will, to go and find the next thing and I'll
mention one more ship and then I'll stop, which is our
investments in boat marinas. So also 10 years ago, we spent a
(11:14):
lot of time looking for kind of fragmented industries.
And for a variety of reasons, the institutional world had
defined real estate into some very particular buckets.
You have office buildings, multifamily, industrial and
hotels. And even though there's over
5000 boat marinas in the United States, it was just not an area
(11:35):
that institutional capital had focused on.
And so over 80% of all boat marinas in the US back then were
owned by mom and pops, unlike, you know, in office buildings
that are mostly owned by institutional investors.
And so that meant, you know, it was a really inefficient market.
And so we were able to find a great operator within a company
(11:58):
structure, go and acquire these assets and you know, put them
together into a growing businessin an area that was not
competitive and also fairly diversifying.
If you think about the Marina business, unlike other areas of
real estate, you don't have, youdon't get the boom and bust
cycles through over building. It's very, very difficult to
(12:18):
build any new boat marinas. And it's also like a storage
business where you're kind of steady Eddy kind of, if you
will, parking boats on water or on land for some period of time.
Fast forward again 10 years, andjust earlier this year, we had
one of the largest private equity firms in the world
acquire, you know, the largest boat Marina business in the US
(12:41):
And so that now is likely to become, again, a more
institutional asset class. So those are hopefully 3
examples that show you kind of how we try to find things ahead
of the crowd, find them when they're least competitive, and
eventually exit those opportunities when the rest of
the world finds it. Yeah, that's great.
Actually, one of the things thatI've noticed and it's kind of an
(13:03):
interesting pattern is that in alot of ways, P funds are captive
by the way they raise money fromtheir LP's that restricts them
from investing in some differenttypes of assets.
And I'm seeing obviously more PEfirms starting to like be more
creative because they have capital to deploy.
(13:24):
So they're going more into sports, they're going more into
music, they're going into different assets because you
need to find quality businesses to acquire.
But a lot of people firms are still stuck in, I got to find
that software business or recurring revenue business that
has a certain amount of net revenue attention and it they
all kind of look and sound the same.
And so everybody ends up competing for the same assets.
(13:47):
Meanwhile, like there is this huge group of businesses and
different industries that are profitable.
They just have different business models.
They have recurring revenue, quote UN quote in different
ways. But the underwriting of that is
not being done in the same way. And I feel like a lot of
opportunities are being missed. OK.
Can you talk a little bit about that?
And then the second part that I'd love to kind of hear on is
(14:10):
what about selling that into your LP's and helping them
understand that you're going after alternative asset classes?
Yeah. Well, look, very much agree with
your first point, Shiv. And there is a structural
element to this. If we go back to the idea of
asset allocation, you know, look, alternative investing has
been around now several decades and so it's become a little bit
(14:31):
more codified, you know what youmean by private equity.
And within private equity there's buy outs and there's
growth and there's venture capital.
And then within each of those, there is some further
segmentation. And so the industry has become a
little bit more calcified in that sense.
And frankly, it can be easier toraise capital if you fit very
(14:55):
neatly into an existing bucket that institutional investors
want to put capital into. So that's the easy part.
But you're absolutely right thatthe downside of that can often
be that you you have a little bit of a straightjacket.
You've been hired to invest in something that fits within some
very specific parameters. Might be an industry, it might
(15:18):
be a stage of a company, it might be a geography, it might
be a business model like SASID or recurring revenue of a
certain type. And that that like I said, has
some pros to it, which is you can become a specialist at it,
but you are really constrained and moving into other areas that
you think have more white space and are less competitive.
(15:42):
Also a lot of consultants that are out there recommending
funds, you know, they often think about these asset classes,
they think about benchmarks. And again, it's easiest if you
can kind of play into those buckets and benchmarks because
then you know, it's easier for them to kind of talk about you.
It's easy for them to recommend you.
(16:02):
But the downside again as you get in this kind of
straightjacket, very calcified investment approach, which may
leave you stock in very crowded areas.
And it's harder to generate alpha when everybody's chasing
the same deal. And that pushes the valuations
up, right? You kind of need to be in places
where you don't have as much competition and find assets and
(16:23):
places where people aren't looking.
That that's certainly our view. That's what we think the
original promise of alternative investing was, right?
Go to these areas that today arejust not overcrowded with
capital because otherwise it is very competitive.
And you know, private equity, you've got very smart people
with a lot of capital with, withbusiness models that that drive
(16:44):
a lot of efficiency around finding a certain type of deal.
So your second question, shit, because I think they're related,
which is, you know, there is. So it's, it's not easy to go and
then convince people around the idea of necessarily, well, we're
just gonna go and find things that are really different
because things that are different sound scary, You might
(17:06):
say, well, I, I've never heard of this before.
You don't know what asset class they belong in.
They're not easy to benchmark. So all of the things that kind
of push people toward those kindof very specific business models
are some of the challenges of kind of taking the approach that
we do, which is out there looking for these less crowded
(17:28):
kind of non institutionalized areas.
But the way that we have found most successful to to to talk to
investors about that is again, remind them about why this makes
sense. It it it is not about looking
for something different for the sake of being different.
You have to believe that being in a less competitive area is
going to help your returns. And if you overlay looking for
(17:50):
things that are really diversifying that kind of have a
return stream that big when everything else sags that that
can be very valuable to their portfolio to increasing their
sharp ratio. So that that is the starting
point as to why. And then it's really around the
idea that how do you do it? Do you have a repeatable process
(18:12):
to go and do this because it is a lot harder ship than it
sounds. And so just like any other firm,
we have a kind of wash, rinse and repeat model.
Ours just starts in a very different part of the equation
for most of your guests. Often time you know they, they,
they source a very typical type of business within a, within a
particular industry and they have a really clear plan about
(18:35):
their hundred day and one year etcetera.
For us, you know our process starts with how do we go and
find these areas that are not overcrowded and we have to talk
to her about to our investors about having a true north and
that true north is still about we're trying to generate a
certain level of return. We are you know we think a lot
(18:58):
about managing risk and about the downside.
We are looking for areas that webelieve can be diversifying that
aren't just going to go up and down with everything else in
their portfolio and where we canfind great operators.
So she have everything that we do ultimately, whether it's it's
running about Marina or buying amusic asset, you know, we
(19:20):
partner with with great operators in those businesses or
assets or platforms. And so it's being able to kind
of explain to investors why we have a repeatable model across
all of that, which really has taken us years to really develop
and perfect is why we ultimatelyget people across the line say,
(19:41):
OK, this makes a lot of sense. Last thing I would add there,
Shiv, is many of our investors were already trying to do this
themselves. They had said, you know what, if
we're going to outperform our peer in some way, we need to be
a little bit more innovative. We need to be out there finding
these things. And, and maybe they did and they
(20:03):
realized it was really, really hard.
You, you have to do a lot of primary research.
Things don't come nicely packaged.
You don't have a 10 year track record of institutional
investing in these areas. You know, something that that is
a lot of work. And so ultimately, you know, why
they would come to a Cordillera is basically to say, wow, you
(20:26):
guys only spend your time doing that.
You have those expertise, you can be our team extension, our
eyes and ears into kind of, you know, bringing those deals in
house and also education. A big part of our value add is
not just doing the deals, but helping to explain to investors
why does it have these interesting characteristics.
(20:48):
Right. Yeah, I understand that.
But help me understand the valuecreation side because you
touched on that a little bit earlier.
Buying, let's say, a piece of a music business is very different
than buying a boat Marina, whichis very different.
And let's say investing in a triathlon league and some of
these other assets that you haveand value creation would look
very different inside each of these assets.
Yeah. So how do you explain that to
(21:10):
LP's? And then what does your process
look like for creating enterprise value beyond just
bringing capital to these types of investments?
Yeah. It's a, it's a great question.
You know, the starting point forus often is if we're doing our
jobs well by being in these morekind of off the beaten path
areas, we are often can add value in almost the kind of
(21:37):
investing in private equity 101 type way.
Meaning we're going to end industries where we even have to
explain how does private capitalwork.
Why is it that we can add value in some of the simplest ways of
helping you professionalize partof your team, getting your
financials to be transparent andclear, setting KPI's for your
(22:01):
business and your sales team. All of the things that in call
it the more middle of the fairway, traditional private
equity, it's almost already doneby a company by the by the time
it's been sold 3 or 4 times to to a private equity firm.
All of that stuff is really, really dialed in when we're
going into some of these new areas that can be really
(22:23):
transformative to a business. Just bringing that capital and
bringing what we call the Cordillera in a box, helping put
all of the key pieces to institutionalized
professionalize in area that hadnever really seen that type of
capital before. Another value add component is
helping kind of educate and evangelize.
(22:45):
So for many of our businesses, ultimately, if we want to to
grow them or or kind of really create the most amount of value,
we want to bring in more capitalover time.
And we've developed a little bitof the, the muscle and know how
of how do we go and take an areathat most investors haven't
heard it out, it doesn't really fit a typical asset class.
(23:09):
And how do we explain to them, you know, what are the drivers
of returns? Why is it uncorrelated?
How we can create value and almost like lower the bar for
these businesses or assets or platforms to grow by bringing in
that institutional capital. And so that can really be value
added from from our perspective shift, which is to to almost
(23:32):
help institutionalized some of these areas by bringing in the
right, the right operating partners.
We also, as you mentioned, don'thave A1 size fits all approach.
You know, sometimes we're investing just in assets,
sometimes we're investing in a company, sometimes we're
creating a platform and we have to have different toolkits.
(23:53):
We work with different law firmsthat specialize in one type of
structure versus another. We work with different valuation
firms. Some might be really good at,
let's say, valuing a music assetthat might be a very different
valuation firm that helps us do appraisals on boat marinas, for
example. We work with different
(24:15):
accounting firms and so really kind of being able to have a
full toolkit where we can, to your point, look at each
different beast bespoke investment and say we're not
going to make everything fit into, you know, every square peg
fit into this one round hole that we've defined.
We actually go and say we'll bring the right toolkit to add
(24:36):
value to that business in whatever way it makes sense.
Yeah. Does that change kind of your
own operating model as a firm, because there's so many
different types of businesses and you might need different
resources, different types of operating partners or advisors?
Like how do you manage that on the cost side as a firm?
(24:57):
Because I can totally see how, let's say a PE firm just focused
on fintech or health tech can find economies of scale.
But for a firm like yours, you almost need different resources
for different companies. So how do you structurally
manage that? Yeah, I think it really starts
merged with the team and the culture at Cordillera.
So we do not sell set ourselves up to have asset classes or
(25:22):
specialists where, you know, someone's a hammer looking for a
nail. Meaning we don't hire someone
and say shave. You're hired to be, you know,
the whiskey aging expert at Cordillera and that's what
you're going to go do for the rest of your life.
Here we take a break, a broader approach around working in
teams, growth mindset, working together, learning together so
(25:48):
that we can make first of all the best decisions.
If you're going to compare a music opportunity with a whiskey
aging opportunity with a spectrum license investment,
first of all, you need a team that can really understand what
are the trade-offs that we're making across the whole
portfolio and across these different types of investments.
(26:08):
And so that is a very important element of how we have organized
ourselves that allows us to really kind of attack, you know,
the broadest field as possible. So we can find things that that
that are more off the beaten path.
Second is to get to get that that scale or that institutional
knowledge. Operators are really important
(26:30):
to us, Shiv, and we do get some scale here because in our
perfect world, and unfortunatelythis happens often is we get
more than one bite at the apple.So, you know, first we invested
in music and then as that got more crowded, we looked at other
areas related to film and video games and e-books and short form
video content, all things that, you know, we're kind of the
(26:52):
white spaces that remained as music got more crowded.
And we were able to work with some of the exact same
operators. So we didn't have to go and
start from scratch and, you know, find the new accounting
firm and find the new valuation firm and find the new operating
partner. That is a huge plus to us and
something that we have now call it 11-12 years into our business
(27:15):
that frankly was very, very difficult right when we get
right when we got started. So even though we have a broad
set of opportunities, we have, you know, call it an established
stable of operating partners that can already be or go to
people and many of the things wedo, and that's a huge efficiency
(27:36):
advantage. We know who they are.
We know how to work together. We're not reinventing the wheel
every time. We can kind of reuse certain
processes or legal documents or partners in different ways that
allow us to move those deals forward without without starting
from scratch. But you're right to point out
that, you know, if we go into somewhere that's totally a
(27:59):
blank, you know, a blank field of play for us, it does require
a lot of time. That is the bottleneck in our
business model, which is we needthe time and put in the
resources to go and learn and investigate and do the primary
research. And that's why we're
differentiated. That is the mode around our
(28:20):
business. If that were really easy, Shiv,
you know we probably wouldn't exist.
Yeah, I think, I think that right there, there is the secret
sauce in that because I think that would be hard for other
firms to duplicate in terms of being able to buy a lot of these
companies and even be competitive with you guys.
Because it's building that process, having the operators,
having the value creation plan and all and all the everything,
(28:43):
everything else that kind of goes along with that.
Talk about the sourcing side, because again, if you are
focused on a specific sector, there is kind of like a rinse
and repeat playbook that you cango after companies in that
space. But in a in a model like this,
you almost have to be looking inmultiple areas and source
multiple types of deals and havethe capacity to be able to meet
(29:06):
that many companies and underwrite deals like that.
So walk us through your sourcingapproach.
Yeah. This is probably the most
important area of focus for us given our our investment
strategy. And so there's a few different
elements that frankly, again, we, we, we didn't start out with
all of this. It took us, it took us years to
(29:27):
put them together and we do think it's a competitive
advantage today. So one of them is thematic and
it's the one we had day one. So for example, we back in 2014
thought, hey, there's a lot of interesting things going on with
different types of royalties. They seem to be able to meet our
return profile. We, we, we have a sense that
(29:49):
they may be uncorrelated. Let's pick that as a theme and
let's go proactively look for some things in that area.
And so that's how we found musicroyalties, you know, back in
2015 and a few other areas that we've invested in that are
related to those types of royalties.
Another thematic view for us wasaround environmental markets.
(30:10):
Back in 2014 and 15, you startedto hear about carbon markets,
cap and trade markets, differenttypes of allowances and offsets.
And we said, huh, that sounds interesting, let's go spend time
thematically understanding that area and what is that
opportunity. And we found several things in
(30:30):
environmental markets that we'vedone over the last decade.
So that thematic approach is really important because it
allows us to focus our energy proactively into an area that we
have some reason to believe is going to be productive.
And it starts with way of havinga true North.
So we do know against some return profile, some risk
(30:51):
profile, some diversification profile that we're aiming for.
And that helps us kind of filterthose themes because look,
there's lots of things out therethat might be uncorrelated, but
they have a really low return. And so we shouldn't be spending
a lot of time chasing those things down.
That's the beauty of that. The other approach that has
(31:11):
been, you know, really beneficial for us, you know,
over the last kind of five plus years is the inbound.
So when we got started, no one knew who Cordillera was.
In fact, people still can't really pronounce her name.
But you know what's happened nowthat we've been in the market
for a decade, we've done lots, lots of different deals in
different areas. People who are who are out there
(31:33):
with a different type of asset, with a different type of
strategy, with a different type of business will find their way
to Cordillera. So one example is in the whiskey
aging industry, you know, you had a couple of folks that
spotted this really interesting opportunity back in 2018, which
had to do with kind of a supply demand imbalance and the the
(31:57):
slope or the contango, the whiskey aging curve.
You can imagine these folks fromKentucky knocking on the door of
some institutional investor and saying, hey, I want to talk to
you about this really interesting whiskey opportunity.
And the first question they get asked is great.
What asset class is it? Should I connect you to the
private equity person, the real estate person, the hedge fund
(32:19):
person? And they say, I don't know, I'm
just here to talk about whiskey.Those folks will eventually find
their way to Cordillera. We put a lot of effort into
building those networks and that's really, really valuable
because they'll come to us. You know, we've got kind of this
open door policy where we say, wow, never heard of that before.
(32:39):
That sounds really interesting. And again, we have some filters
that say, OK, great, let's let'sdig into that.
And that is incredibly valuable for us.
Again, it took us a few years tobuild that pipeline, but you
know, that really means that things can come inside
Cordillera that weren't necessarily part of a very
(33:00):
explicit theme. Um, the other sourcing channels
really are investors. So again, most of the folks who
invest with us, you know, prior to even meeting Cordillera
thought it was a good idea to goand try to find truly
alternative investment areas. And so they themselves are
looking for these things. They have deal flow that maybe
(33:21):
we don't see because of where they're located.
Maybe it's a family office that has a deep network in a
different industry, etcetera, etcetera.
And so they know what Cordillerais looking for and they send us
deals usually that are curated that they know is something we
might be interested in. And so we're just incredibly
lucky to have just a phenomenal group of investors that are like
(33:43):
minded from this perspective that are looking for these types
of deals. And when they find it, you know,
they're willing to send it our way.
Hopefully we get multiple bites at the apple.
And so, you know, we work with an operator in a certain
industry or a certain type of asset that gets crowded, they
might come back to us and say, hey, I know we don't want to do
this anymore because now everyone else has found it.
(34:06):
But we know this thing that's adjacent to it, but still kind
of white space. Let's go after that.
And so they bring us a deal. They're like, we've worked with
you before, we've done this, we know you.
How about we go do kind of the wash, rinse and repeat, but just
in something that's a little bit, you know, off to the side.
So those are really kind of the four ways, you know that we we
(34:27):
source deals at Cordillera. Yeah, I think your point on the
inbound side is really important.
I was talking to another PE firmyesterday and just this idea
that even though PE firms are investing in companies and those
companies themselves need help with, let's say, branding,
positioning, messaging type of work.
A lot of PE firms look and soundthe same.
But in your case, you've kind ofcrafted this unique position for
(34:49):
yourself for these alternative assets.
And so when they look around andthey're like, OK, I potentially
need some institutional capital here.
In a way, a lot of other PE firms don't seem like a fit.
And you are one of the few firmsthat are speaking their
language. So you get the inbound volume,
whereas those other PE firms arecompeting with hundreds of other
companies or firms that are trying to pass capital on to the
(35:11):
same company. So it's a it's almost a
positioning exercise as well, which increases your deal flow.
And, and that's exactly how we try to position ourselves.
And again, it takes a while to build that network.
What I would say, you know, there is the other side of that
ship, as you can imagine, which is you can get a lot of inbound.
That's not that interesting, right?
People may have some idea that'sthat's quirky or non
(35:32):
institutional. And there's a really, really
good reason why probably an institutional investors are
never going to go down that route or they might think it's
non correlated, but you, you peel back the onion and you
immediately say, wow, no, that this is really correlated.
So I the, the, the corollary to,you know, getting that inbound
and building that network is building a really good filter.
(35:55):
So that to your point earlier, you know, we, we don't want to
waste a lot of time. We, we, we could suffer from
inefficiencies. And so getting quickly to things
that we recognize, there's really a lot of pattern
recognition so that we can kind of take that open door kind of
front of the funnel and quickly get our team to focus on things
that ultimately hopefully end upbeing being actionable.
(36:17):
Yeah, Yeah. I think, I think that's
fantastic. Just last question, we'll talk
about the vetting of these investments because they're in
different types of assets. The the books would be
different. The the assets on the balance
sheet will look different. Like talk about the diligence
side of the how long does it take you to kind of vet these
companies and figure out if it'sworthwhile for you to be
(36:37):
investing your capital here? Yeah, it takes it takes a while.
And that is the benefit and the opportunity of being more off
the beaten path again in a more kind of middle of the fairway
private equity industry. You know, again, you're
competing for deals. The deal's going to close.
You know, it's a competitive process.
(36:57):
You've got so many days or weeksto get there.
When we go and find something new again, think of the music
asset back in 2015 or whiskey aging opportunity in 2018.
There's no gun to the head. You're not competing.
And so it is really important for us to have time because if
we don't have time, we're probably in the wrong place or
(37:19):
more likely to make a mistake. Then there's that, you know,
having some skill set to start that process within Cordillera.
And this is again, where we're fortunate to have kind of a
multidisciplinary approach. So if you, if you look at the
backgrounds of of my partners like Ashley and Chris and Taylor
and myself, we all spent decadesinvesting in different types of
(37:43):
alternatives. And so that's really useful
skill set shift because all of the businesses that we're
describing are a little bit different, but they all have
something, you know, both Marinahas a lot to do with real
estate. I mean, there's just some
element. If you've underwritten a real
estate deal before, you can understand quickly some things
about that. If you underwritten some type of
(38:06):
asset that is a copyright, you can understand another type of
intangible asset. And So what I would say is the
starting point has to be that the team that we purposely try
to build that Cordillera has some kind of domain expertise
that is very broad that allows us to get started.
We combine that with time. And then doing a lot of, you
(38:27):
know, primary research, guess what, you go visit a lot of boat
marinas, you go visit a lot of distilleries, you go visit a lot
of music executives, you go talkto a lot of law firms in the
case of litigation finance or professors that teach law back
in the day. And so again, there is kind of
this research element and we call it a growth mindset, which
(38:49):
is we don't know everything, butwe believe we have the ability
to go and learn and then bring in the right operators.
So we have kind of a fairly clear view about what to what
level can we learn independentlyto verify some of those true
north that I described around risk and return and
(39:10):
diversification. But we get to a point where we
say, wow, this looks interesting.
Now we need to go a mile deep. And that's where getting the
operator is a part of that, meaning we go and say, OK, do we
want to partner with these folksin this strategy and they help
us together. We do it in a true kind of
(39:30):
partnership model, go down the rest of the learning curve and
we may have a lot of input into that's a really good idea.
But you you're, you're not thinking about the right
structure. The best way to optimize this
asset is to do it in this other business or do it in this way or
that way. So there is very much a research
element that we do in partnership with our operators
(39:53):
that creates a lot of trust, a lot of learning.
It's very collegial and ultimately when you know, we are
our investment committee are arevoting on a deal, it's something
that you know is is not a rubberstamp is something that the
whole firm has gone through thatkind of learning process
together. And we know that operator and we
(40:15):
just get a lot of conviction, but we need time.
I think ultimately Shiv is it can't be something where we have
a gun to the head and need a fewweeks to make a decision.
We need our time to go through that process.
Yeah, I think that's fantastic. I think just kind of
holistically this way that you, the types of assets you have
focused on effects all aspects of running your firm.
(40:37):
It affects how you create value,how you actually source the
deals, how you diligence the deals and even your positioning
in the marketplace and how you're able to win deals.
So I think that's fantastic. As we're coming up on time here,
you guys just if people are listening and they want to get
in touch with you, what's the best way that they can get ahold
of you? Yeah, you know, please visit us
at cordillera-ip.com. I, there's a, a link there for
(41:02):
an e-mail. I promise you it is not a black
box that actually goes to the, the senior members of of the
Cordillera team. And we'd love to hear about
interesting investment ideas andopportunities.
So please reach out. And like I said, you know, we've
we've got an open door policy and and want to hear what what
people are doing out there that is interesting and
differentiated. Awesome.
(41:23):
Yeah. And we'll be sure to include all
of that in the show notes. And Gus, with that said, thanks
a lot for coming on and sharing your wisdom.
I think the audience will learn a lot from it and I appreciate
you coming on and sharing all ofit.
Chad, thank you for having me. It's been a pleasure.
Likewise, thanks for listening to today's episode.
Before you take off just a few requests from our side #1 if you
(41:46):
haven't done so already, please subscribe to the podcast on
iTunes or Spotify or YouTube or wherever you go to listen to
your podcasts #2 If you are in the market for due diligence
services, strategy consulting, or fractional CMO services,
please get in touch with us at www.hassas.com.
(42:06):
And 3rd, please buy a copy of mynew book, Exit Ready Marketing.
It covers a ton of concepts thatwe take our customers through
private equity investors, B companies, CEO's, operating
partners and marketers. And there's a ton of great value
in there that expands on my previous book Post Acquisition
Marketing as well. So with that said, I hope you
(42:26):
enjoyed today's content and we'll see you on the next
episode.
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