Building an Antifragile Investment Firm with Soo Chuen Tan, President at Discerene Group
Feb 7, 2024
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Soo Chuen Tan, Founder and President of Discerene Group, shares insights on building a successful investment firm managing over $2 billion. He discusses the unique drawdown structure designed for limited partners, emphasizing the importance of contrarian thinking. Soo Chuen highlights the delicate balance between valuing traditional profitability versus emerging disruptors. Additionally, he elaborates on navigating investment risks in diverse jurisdictions, especially in China, while fostering strong, long-term partnerships within the investment landscape.
Soo Chuen Tan emphasizes the value of a 50-year investment horizon, promoting intrinsic business fundamentals over short-term market perceptions.
Discerene Capital's global strategy enables the identification of lucrative opportunities in emerging markets by leveraging multicultural insights and broad market conditions.
The firm's transparent relationship with LPs, built on trust and open communication, cultivates long-term focus and disciplined investment practices.
Deep dives
Long-Term Investing Philosophy
The founder of Disarine Capital emphasizes the significance of a long-term investment horizon, proposing a 50-year outlook as it fundamentally alters the approach to investing. This perspective encourages investors to focus more on the intrinsic value of businesses and their underlying fundamentals rather than short-term earnings and market perceptions. By adopting this philosophy, investors can bypass the noise of market fluctuations, fostering a mindset that values sustainable growth factors such as company culture, leadership, and competitive advantages. This approach also challenges the prevailing narrative that associates value investing with short-term gains, arguing that true value investing is inherently about patience and conviction.
Global Mandate and Market Opportunities
Disarine Capital's global investment strategy is critical to recognizing opportunities in diverse markets, particularly emerging economies, where inefficiencies can lead to attractive valuations. The founder recalls his multicultural experiences, allowing him to analyze businesses through various contextual lenses, enhancing the firm's ability to identify value. By avoiding over-specialization and focusing on broader market conditions, Disarine is positioned to capitalize on changing environments and shifts in investment sentiment. This methodology reinforces the belief that significant wealth creation isn't confined to established markets, as innovative prospects often emerge in less explored areas.
Contrarian Investment Strategy
The podcast highlights the unique brand of contrarianism practiced at Disarine, which focuses on independent reasoning and thorough analysis rather than simply reacting against popular sentiment. This philosophical stance emphasizes the importance of discerning intrinsic value in investments, often diverging from prevailing trends that may misprice stocks. The founder discusses how many investors often capitulate to market narratives that favor emerging disruptors over established firms, stressing the need for courage in upholding long-term investment principles. This disciplined approach enables Disarine to leverage market inefficiencies that arise during investor panic or misplaced optimism.
Drawing Capital and Strategic Discipline
Disarine’s drawdown capital structure allows the firm to maintain a longer-term investment strategy without the pressure of needing to deploy capital immediately. This flexible structure encourages patience, allowing the firm to wait for favorable investment opportunities rather than feeling compelled to engage in transactions for the sake of activity. The founder explains that exercising this type of discipline is vital, especially during periods when virtually all opportunities appear overvalued. Consistently adhering to high absolute hurdle rates for investments further solidifies their commitment to only pursue the most compelling options.
Building a Strong Relationship with Limited Partners
The relationship between Disarine and its limited partners (LPs) is grounded in transparency, trust, and aligned long-term objectives. The founder asserts that cultivating a partnership mindset and being brutally honest about investment strategies and challenges fosters deeper, more productive relationships with investors. Instead of adopting a secretive or mystical persona, Disarine values open communication during both successes and failures, which helps in building credibility and trust. This philosophy not only attracts like-minded, long-term focused LPs but also allows the firm to remain disciplined in its investment approach, avoiding the pitfalls of short-term pressures.
My guest on the show today is Soo Chuen Tan, the Founder and President at Discerene Group. Soo Chuen started the firm over 13 years ago with less than $100mm in assets. Since then, the firm has grown to manage over $2 billion in for clients. Discerene has one of the most compelling structures and relationships with its LPs of any public investing firm I know. I have had the privilege of listening to Soo Chuen speak on other podcasts and I was excited to chat with him on Compounders about:
How he managed to convince his LPs to provide him with a drawdown structure;
The hurdle rate for calling capital from LPs;
Avoiding conformity and the kind of contrarianism that works for Discerene;
The characteristics of a business that deserves to exist; and
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of SNN or its affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
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