Sohn San Francisco Notes 2019: Kacher, Yusko, Kawaja & More

The Sohn San Francisco Investment Conference just concluded and featured hedge fund managers sharing their latest investment ideas to benefit charity.  The event benefits the Excellence in Investing for Children's Causes Foundation and a portion of the proceeds also go to The Sohn Conference Foundation.

We've already posted up notes from Next Wave Sohn San Francisco which featured emerging managers.  Now below are notes from the main event.


Sohn San Francisco 2019 Notes


Kevin Oram, Praesidium Investment Management Company, LLC

Idea: Instructure (INST)

•    Hidden value that can be unlocked
•    2 key products:
o    Canvas is a leader in education learning software which is ~90% of revenue
o    Bridge is corporate learning software
•    Canvas is student and educator collaboration software
•    Biggest competitor is Blackboard – which has a legacy on premise software and has had trouble transitioning to a cloud model
• Software is a great business but vertical software is even better as it serves a very specific market
•    Believe there is a significant margin expansion opportunity from 24% in 2019 to 40%+ by 2022
•    Has an opportunity to roll up software in other adjacencies given a lot of fragmentation of players in education software
•    Believe it is worth $2.5bn versus current valuation of $1.5bn
•    Undervalued due to large losses in Bridge – corporate learning
•    Bridge software is good but significant competition in the corporate market with entrenched players
•    Bridge has very little synergy with Canvas given different source code and dedicated sales team
•    Opportunity to unlock value by divesting from Bridge via sale, shutdown and focus on Canvas
•    Engaging actively with management over last several months to present case on value destruction of Bridge
•    Dec 3rd – Will have an analyst day to describe company’s new strategy and operating model – could be the catalyst market has been looking for



Gil Simon, SoMa Equity Partners

Idea: Sailpoint (SAIL)

•    Believe that there is 100% upside to $35-40 per share
•    Best of breed software trading at a reasonable valuation (<3x 2022e="" p="" sales="">•    Identity is central to enterprise security but this is difficult because the modern large enterprise is running hundreds of applications
•    Identity and access management is the #1 priority within security
•    Identity Governance and Administration (IGA): Ensure employees access only what they need to access
•    2 key products: Identity IQ and IdentityNow
•    ~1,300 customers
•    Extending the lead over legacy competition like IBM and Oracle
•    8,500 customers market opportunity from legacy competitors
•    CA and Oracle not likely to focus on this space
•    Buying opportunity on missed execution; have recently strengthened the management team
•    Expect revenue growth to re-accelerate which should drive a snap back in the share price



Adam Fisher, Commonwealth Asset Management

Idea: China Interest Rate Convergence

•    Japanese working population peaked in 1995
•    China is a good analog for Japan – working age population peaked in 2015 – projected to fall by 125 million through 2040
•    China’s 4 megacities are already as rich as the rest of East Asia
•    Ne net: Believes that interest rates in China are coming down and going to zero



Glen Kacher, Light Street Capital

Idea: Talend (TLND)

•    $6.5bn data integration market growing >10%
•    Most robust platform across on-premise and cloud environments
•    $218mm of ARR, growing 29% yoy with mix shift towards cloud
•    87% recurring revenue
•    Founded in 2005 and went public in 2016
•    Focused on ETL products: Extract, Transform, Load
•    Talend is the growth leader in the data integration market
•    Hadoop hit a wall but Talend benefits from the cloud database wave
•    Revenue model is based on seat based subscription software revenue, seat and consumption based saas revenue, 3) project based revenue
•    Cloud mix shift should increase over time
•    Believes value could be +86% in the base case



Debbie McCoy, Blackrock

Pitch on theme of sustainable investing and ESG (environmental, social, government)

•    Increasing sustainable investing adoption across large money managers
•    Built an internal model to evaluate companies rather than using third party ESG scores
o    Look at employee happiness as a factor in the model
o    Incorporate other unique factors that third party scores don’t take into account



Myron Scholes, Janus Henderson Investors

The Advantages of Time Diversification: Risks from Option Prices that Inform Investment Decisions.  Tails are important to investors – if you remove the extreme tail gains, realized return falls to almost zero and take out extreme tail losses, realized return nearly doubles over the very long term



Connor Browne, Thornburg Investment Management

Idea: Alkermes plc

•    Biopharma company focused on patient inspired solutions
•    A unique focus on hard to treat patients  - 2 key drugs for opioids addiction and schizophrenia
•    Vivitrol – treatment for opioid misuse disorder; blocks the opioid receptor in the brain
o    Competes with methadone and suboxone and aimed on getting you off the drug
•    Aristada
o    Long acting injectable for schizophrenia
o    Strong revenue growth
o    Expect market share to grow from 5.8% to 9.9%
•    Some optionality in other drugs under development
o    Vumerity – novel oral fumerate for the treatment of multiple sclerosis
o    ALKS 3831- efficacy of olanzapine (Zyprexa) without the associate weight gain
o    ALKS 4230 – novel selective IL-2 fusion protein; more early stage
•    Valuation
o     4 different scenarios of value: currently approved drugs, +Vumerity, +3831, +Vumerity and 3831



Mike Wilkins, Kingsford Capital Management (short-only firm)

Idea: Shorts and frauds

•    Focused on shorting pump and dump schemes
•    Large flows into passive investing creates opportunity
•    Russell 2000 inclusion is very rules based and rebalances in May– if you can get to $150million market cap, index will include you with no regard to if it is a legitimate company
•    Russell 2000 stock promotions – get into index in May and then get ETFs to buy in June and then dump the stock after
•    Several fraudsters have taken advantage of the Russell 2000 fraud including Jason Galanis, Benjamin Wey, Howard Appel
•    Class of 2019 potential frauds – gained admission to Russell 2000 in June but have not gone to zero yet
o    YCBD – merged with Level Branding to get listed on NYSE
o    Pareteum: telecom
o    Wrap Technologies: next gen solution for non lethal law enforcement



Mark Yusko, Morgan Creek Capital Management

Macro Idea: Don’t Cry, It’s Me Argentina

•    Argentina – very low % of their GDP is equitized versus the US which is very high; bullish on long term prospects for Argentina
•    Investors fled Argentina when they should have been buying
•    Argentina Stock Picks
o    Pampa Energy is top stock pick to play this thesis
o    Argentinian banks
o    YPF is a double play on Argentinian shale



Carl Kawaja, Capital World Investors

Idea: D. R. Horton (DHI)

•    Largest homebuilder by volume in the US with over 55k homes sold in 2018
•    Housing market has room for growth
•    Best in class operator
•    Changing their business model that will make it more valuable
•    Limits on credit have driven slower but steady growth in housing
•    Home ownership will continue to become more attractive as mortgage rates fall alongside interest rate
•    Much better deal to buy versus rent in many of DR Horton’s markets
•    Industry leading ROE
•    DR Horton wants to be more like NVR
•    DHI made a strategic shift to focus on lower priced homes with Express Homes and tilts more to the lower end of the market versus competition
•    Trying to transition to a business model that is less capital intensive by using land options
•    Asset light model yields much higher NPV and IRR
•    Should trade closer to other asset light home builders like NVR


Be sure to also check out notes from Next Wave Sohn San Francisco featuring emerging managers and their ideas.

Notes From Sohn Conference New York 2016: Druckenmiller, Robbins, Einhorn & More

The 2016 Sohn Conference New York just concluded and featured top hedge fund managers sharing investment ideas in order to benefit the Sohn Conference Foundation which is dedicated to the treatment and cure of pediatric cancer and childhood diseases.  Here's the takeaways:


Notes From Sohn Conference New York 2016


Larry Robbins (Glenview Capital): “Get a Grip.” Theme was stocks can be a bumpy ride for investors, and hedge funds have taken a lot of hits in the press, but if you expect them to not be short-term traders, then don’t judge them by their short-term records.   He talked his book; claiming that fundamental investing is not dead.   He is long: VCA (WOOF) – Veternarian hospital, multiple has compressed as earnings have grown and “There is no Obamacare for Veternarian hospitals.” Also pitched his longstanding holding of Thermo Fisher Scientific (TMO).  Yes, it has FX issues, but it has EPS growth.  Pitched Lab Corp (LH) as well: hit by fears of new technology, but Theranos story shows that it’s not that easy to come up with new technology. On CBS (CBS): the viewing model is changing, with over-the-top (OTT), but content still has value.   Flextronics (FLEX): they got out of the low value business, but still grew revenue 3% and EPS 15% yet their P/E is only 8.5x.  The stock fell in February 19% and nobody knows why. Abbvie (ABBV): has a pipeline, Humira has IP protection, and biosimilars will take time to develop. Brookdale Senior Living (BKD): earning less, but still, oversold. Talked about Anthem (ANTM): 1.     Managed care is still a good business  2.     Cigna (CI) merger could lead to 20% accretion  3.     ANTM vs ESRX contract repricing spat could lead to more earnings  4.     Market pricing says deal breaks, he doesn’t think it will.


Carson Block (Muddy Waters):  Famed short seller says, “No such thing as alchemy in banking” and touts Bank of the Ozarks (OZRK) as a short because they’ve done a lot of aggressive construction loans and acquisitions. Best case stock re-rates due to unsustainable EPS growth rate, worst case, balance sheet pressure.


John Khoury (Long Pond Capital):  Value oriented, private equity approach. Hyatt (H) long. Says 65% upside, and low leverage gives a floor to valuation.  Admits Pritzker family controls company but says they make good capital allocation decisions. Low end, leisure hotels most vulnerable to AirBnB threat.  Hyatt has more corporate, higher end, which is relatively insulated. Not making a bullish call on all hotel stocks.  Saying Hyatt since 2010 IPO, EBITDA is up 66%, shares up only 14% while they have bought back 20% of shares outstanding.    Uses SOTP to get $79 PT, 65% upside.


Chamath Palihapitiya (Social Capital):  Silicon Valley investor. Says Amazon (AMZN) is a multi-trillion monopoly in plain sight. Walked through e-Commerce, Amazon Web Services (AWS), says this is just the beginning, that Jeff Bezos will make good investment decisions. Says AWS is not understood by the Street and could be worth a lot more. (Seems like the AWS bull case is already widely touted by AMZN bulls?) Lots of potential losers as AWS scales.


Jeff Smith (Starboard Value): Activists. In 12 years they have replaced 162 board members at 50 companies. Likes Depomed (DEPO) long, pain medication, like Oxycontin, less abuse potential. Not taking price increases. Horizon Pharma (HZNP) tried to buy them, they refused to deal. Starboard has nominated a new board- sounds like a proxy battle is brewing.   Also like Westrock (WRK), merger of Mead WestVaco and Rock Tenn.  Sounds like a commodity business, but he says it is not, and it’s still cheap, at 4.9x 2017E EBITDA. Has $71 PT, almost a double from here.


Richard Deitz (VR Capital):  They do a lot of emerging markets stuff. He says long Greek banks and Greek treasury bonds.  Went through the sordid history of bailouts, and says now things are better, the banks are finally strong, may need one more round of recapitalizations.  141% upside, 34% IRR over next 3 years.


Stanley Druckenmiller (Duquesne Family Office): In a sentence: we have low rates, high multiples on stocks, high leverage, sell stocks and everything, buy gold.  Fed is out of control, encouraging borrowing, reckless behavior. China is out of control, just buy gold.


Jeff Gundlach (DoubleLine Capital): Comedy show, with art talk in the beginning.  In other words, his usual type of presentation. Says short XLU (utilities) long REM (mortgage REITs.)  REITS are priced at 0.88x p/book, with 11% dividend, Utilities are 1.9x p/book with 3% dividend, you earn 8% net and you can lever it up 100% and earn 15%, plus the two should converge. He mocked the “low volatility” equities and showed that even utilities have had 56% drawdowns in the past. His most incendiary statement was that Donald Trump would be President, and “he’s comfortable with debt.”


Zach Schreiber (PointState Capital): He is the man that pitched oil short 2 years ago, when it was $100 per barrel.   Long USD, short the Saudi currency, he says.  He made a compelling case for why Saudi is in an “unsustainable equilibria” with lavish unfunded entitlements, unsustainable debt, and not enough currency reserves to protect their peg. Other oil producers’ currencies are down 25- 45% vs the dollar- Mexico, Norway, Russia, for example, yet the Saudi currency is unchanged.  Only costs 1.5% to put this trade on and very asymmetric pay off.


Sohn Investment Contest Winner (Mark Grow, Columbia Business School):   DXCM, Dexcom short was the pitch. Insulin device maker (continuous glucose monitoring ~ CGM) which is facing impending competition and is unable to increase price as revenue per user declines. Says stock can drop in half.


Adam Fisher (Commonwealth Opportunity Capital):  Real estate background, now a Macro guy. Says short Japanese rates, long European rates. Very compelling case for how long JGBs that yield only 30 bps have nowhere to go but up. Even a move to 40 bps yield wipes out 10 years of return.  Says maximum return for bondholders is 9% return over 30 years - that is not a CAGR of 9%, that is a TOTAL of 9%!  Huge convexity in the trade.


David Einhorn (Greenlight Capital): He pitched Caterpillar (CAT) short, says company is NOT at trough earnings yet and the mining sector will never recover to the heights of the China boom.  No catalyst on the short, other than EPS growth expected to take longer than expected.  Then he pitched General Motors (GM) as a long, admitting that US business would drop off almost 20% but the currently money losing segments in Europe and Mexico could make up for the shortfall.  Long deck with lots of charts and cartoons as usual.  GM pitch rested on low P/E of 5.6x to increase despite US EBITDA to decline.


Jim Chanos (Kynikos Associates): Got a dig in on Tesla (TSLA), which he had said he was short earlier that day on TV.  He said Elon Musk had not enough production, not enough batteries, and now not enough executives, but he pulls production forward 2 years.  “What a showman,” he said. His pitch was a complicated one, talking about weakness in South Africa, and Nigeria, which led to a short of MTN group, a wireless carrier which is also struggling with subscriber growth and declining average revenue per user (ARPU).  At $20B EV, this is a big company that he says is not cheap.