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Investing in private companies has become increasingly important as companies tend to stay private longer and technology growth drives value creation. By investing in private companies during their growth phase, investors can capture significant value. The trend of companies staying private is likely to continue for the foreseeable future. Additionally, private investing offers synergies with public investing, such as sourcing and diligence of private companies, as well as gaining insights into the competition and market dynamics of public companies.
Venture capital is an attractive area but also highly competitive. One of the main challenges is overcoming negative selection bias in sourcing deals, as access to high-quality deals often requires being invited due to fierce competition. To address this, a strategic approach was taken by personally investing in early-stage venture funds, thus building relationships and gaining access to deal flow. Developing strong relationships and networks in the venture capital space is vital for success in this competitive landscape.
Having the right management team and a solid economic foundation have been critical to the success of the firm. Early on, investments were made in building a strong management team that values long-term business growth and the development of talent. Investing in the development and mentorship of team members has helped retain top talent. Additionally, establishing a reliable economic structure and differentiating from other funds in terms of culture and collaboration have been essential in attracting and retaining talented risk takers.
In volatile market environments, it is crucial to set up defensive measures to protect portfolios and ensure stability. The ability to play offense is enhanced when defensive measures are in place. During times of market dislocations, such as the global financial crisis, preparing for systemic risks, managing volatility, and reviewing capital allocation are key. Communication and collaboration across teams become vital in these turbulent periods to navigate the challenges effectively.
Having a dedicated team is crucial for successful investing. This includes a private team that specializes in specific niches of the market and a public team that conducts due diligence and valuation. By combining the expertise of both teams, it becomes possible to thoroughly assess companies and make informed investment decisions. Without a dedicated team, it becomes challenging to compete in the market, especially without access to insider information and experienced professionals.
Complex models and manual updating processes can be time-consuming and prone to errors. Using a platform like Canalist, which offers simplified and accurate models, significantly reduces friction in the investment process. Canalist's models provide a single source of truth, offering detailed and precise information on companies. It replaces the need for manual updating and maintenance, allowing analysts to focus on screening for new investment ideas, speaking with management teams, and attending conferences. Canalist also facilitates cross-comparisons of companies on a qualitative basis, providing a valuable tool for investment analysis.
My guest today is Dmitry Balyasny. Dmitry is the Managing Partner and CIO of Balyasny Asset Management, otherwise known as BAM. BAM runs a multi-strategy, multi-PM model that aims to produce consistent absolute returns. Since its founding in 2001, it has produced only one negative year and become one of the largest firms of its kind. Please enjoy my conversation with Dmitry Balyasny.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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This episode is brought to you by Canalyst. Canalyst is the leading destination for public company data and analysis. If you're a professional equity investor and haven't talked to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalyst.com/Patrick.
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This episode is brought to you by Vanta. Vanta has built software that makes it easier to get and maintain your SOC 2, HIPAA or ISO 27001 reports at a fraction of the typical cost. Listeners can redeem a $1k off coupon at vanta.com/patrick.
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Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.
Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.
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Follow us on Twitter: @patrick_oshag | @JoinColossus
Show Notes
[00:02:53] - [First question] - The origin story of his firm and the key stages of evolution
[00:06:43] - Describing the difference between good and great in platform hedge funds
[00:10:25] - How a multi-strategy, multi-investor group works and managing capital allocation
[00:13:58] - What he’s trying to solve at the end of the day as their CIO
[00:16:21] - How close they are to their idealized end-state
[00:18:26] - Typical amounts of leverage associated with these types of models
[00:20:22] - Lessons learned about incentivizing talented investors
[00:22:39] - Ways he tends to attract risk takers and their levels of variance
[00:28:15] - Other characteristics that are common amongst great PMs
[00:30:42] - The nature and source of edge and how it’s changed most over time
[00:33:19] - Some of the hardest portfolio and business decisions he’s had to make
[00:37:59] - One of his most important business decisions on the firm side
[00:40:09] - How they’ve thought about shorting as a firm in general and more recently
[00:43:52] - How interest rates affect this style of investing
[00:45:29] - His view on the opportunity set in private markets and what does and doesn’t excite him about it
[00:49:42] - How reading Ayn Rand most shaped his thinking
[00:50:36] - Things Ayn most got right and most got wrong in his mind
[00:51:24] - What the war in Ukraine has felt like for him as a Ukrainian-American
[00:52:08] - Ways the future still has him excited as he continues to build his firm
[00:53:53] - Where his trading instincts draw him today and areas of interest
[00:55:11] - His most memorable trade of all time
[00:56:37] - In which order the major asset classes will be affected by digital innovation
[00:58:13] - The kindest thing anyone has ever done for him
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