Scott Hendrickson - An Unmasking of Quality
Value Investing with Legends
Guitar Center
Guitar Center CEO: Whatever is going to happen with this company is a tangible aspect. We require in any sort of transformational acquisition that we're not paying for that acquisition, he says. "We need to have the base business cheap with pure optionality on the buy side and much higher multiples on the sell side"
When evaluating a company, getting a clear picture of all the relevant factors can be challenging. That’s why today’s guest, Scott Hendrickson, heavily emphasizes management quality and companies where diligence can provide a high level of conviction.
As a Columbia Business School graduate and adjunct professor, Scott is both a practitioner and a teacher. He has been an integral part of the investing program for almost a decade.
Scott Hendrickson is a Partner and the Co-Founder of Permian Investment Partners, a $1.2 billion management-focused global long/short investment fund. Before co-founding Permian, Scott worked as an Investment Analyst at Brahman Capital. Prior to Brahman, Scott worked as an Associate at Industrial Growth Partners, a middle-market-focused private equity fund. Scott started his career as an Analyst in Merrill Lynch’s Investment Banking Program. Scott graduated from Emory University with a BBA in Finance in 2000 and Columbia Business School with an MBA in 2007. Scott serves on the Columbia Business School adjunct faculty, teaching Applied Value Investing since 2014.
In this episode, Scott, Tano, and I discuss Scott’s journey to a career in investing, why Permian has management as their core focus, the three main business quality metrics they employ, risk management for short interests, characteristics of transformational acquisitions, how teaching has expanded Scott’s perspective, and so much more!
Key Topics:
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How Scott’s interest in investing evolved from his love for music (1:57)
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Scott’s learnings from his time at Brahman Capital (5:35)
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Criteria Permian seeks in longs and shorts (7:01)
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Why Permian has management as a core focus (8:08)
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How the quality of Permian’s LPs has become an advantage (10:53)
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Permian’s approach to screening (12:49)
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The three main business quality metrics employed (15:38)
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Permian’s portfolio construction and power rank system (17:20)
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Breaking down the four short frameworks (22:01)
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Risk management for short interests (24:46)
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Factoring in the macro view (26:31)
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How Permian applies value-added research (30:00)
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What it means to be “diligence-able” and why that matters (33:38)
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Characteristics of transformational acquisitions (37:22)
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Differentiating between structural and fixable costs (39:41)
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What’s behind the long-term underperformance of European stock markets (42:35)
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How teaching has expanded Scott’s perspective (44:54)
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Scott’s recommendations for investors to improve the odds that they will be successful over time (46:26)
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What keeps Scott up at night and excited about the future (47:23)
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Scott’s book recommendations (50:16)
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And much more!
Mentioned in this Episode:
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Jim Rogers’ Books
Thanks for Listening!
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