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.

Mike Wilkins on Short Selling at Sohn London Conference 2015

We're posting up notes from the Sohn London Investment Conference 2015.  Next up is Mike Wilkins of Kingsford Capital who talked about short selling.


Mike Wilkins' Sohn London Presentation

Kingsford Capital is a short only hedge fund.

Mike Wilkins did not pitch a specific name but talked generally about how his firm finds short ideas by searching for business people who get involved in fraud and law breaking. They look for senior managers that behave badly as they tend to keep going.

Once they have identified a rule breaker, Kingsford Capital follow their progress and build-up histories of their companies. They also track the business networks of people that infringe the law. Fraudsters often interact with one another. For example, they sometimes share the same auditors.


Be sure to check out the rest of the Sohn London Conference presentations.

Mike Wilkins on Short Selling: Invest For Kids Chicago

We're posting up notes from Invest For Kids Chicago 2014.  Next up is Mike Wilkins of Kingsford Capital who talked about short selling.


Mike Wilkins' Invest For Kids Chicago Presentation

•    Short focused firm with $250MM in AUM
•    Focused on small and micro-cap US listed equities, Founded in FY01.
•    Topic is “benefitting from persistent fraud”
•    Fraud is persistent because fraudsters are persistent. Fraud is a people business.
•    Find a stock promotion and build a network form there.
•    To find a promotion, look for a tell.
 •    Step 1: Look for a tell. Look for money losing companies in south Florida/Nevada. Sometimes the CEO looks like a crook!
•    David Brooks – DHB Industries – sold defective body armor to the army. Ended up going to prison.
•    Sometimes the tell is in the SEC filings. The OCZ filings had suspect filings. IPO is a lawyer document. CEO was convicted in a felony (wrote as youthful discretions in the IPO prospectus).
•    Focus on the investor relation firms, transfer agents, lawyers, accountants, etc. Some of them similar.
•    Interoil (IOC): No production but has over a $2B market cap – look at the networks once again (not a short selling recommendation but a potential stock promotion he saw).
•    Look for the stock promoters.
•    Persistent fraud lets them create a history of the company. Sell-side or money managers never really look into the history of managers and companies.
•    Star Scientific is one short than played out. Formed in 98. Burned through $290MM in multiple offerings. Promoted multiple times over the years. Jonnie Williams was one of the people involved. Became chief ethics officer and on the board.
•    Pumped one of their products that was a chemical found in cigarettes that could supposedly cure inflation, a driver of Alzheimer’s.
•    Patrick Cox was one of the promoters. Called it the last stock you ever need, could cure Alzheimer’s. And makes a great face cream.
•    Came into light that Jonnie Williams gave $11MM in bribes to the former VA governor. Was investigated and Williams worked with authorities gaining a blanket immunity from stock pump and dumps.
•    John Stewart couldn’t believe that Jonnie Williams got away with it.
•    John Isner was sponsored by the company
•    John Isner was also sponsored by Ebix another potential promote.
•    Paid promoters: Red Chip, Dave Gentry – involved with L&L Energy. Talks about many of the Chinese frauds. L&L claimed to have coal mines, but did not.
•    Dave Gentry went on CNBC to talk about the company. In FY13, went back up to 5 after new promoters where hired.
•    This March LLEN was charged with fraud and the CEO plead guilty.
•    Tobin Smith was a former Fox contributor on business. Fox fired him for a pump and dump scam. Must be bad if Fox fires you.
•    The DreamTeam Group is another stock promoter group that pays writers to write positive investments. Galena Biopharma was one company that was pumped by the DreamTeam.
•    Lightdingo is one promote.
•    GALT is one idea. Who is GALT?
•    Galectin Therapeutics – went from $2 to $19 since FY13. Zero revenue and more board members than employees. Working for a cure for liver disease.
•    History goes back to another name and founded in FY98. Sold an orange derived product and a home cleaning product. No miracle ingredients – used the same chemicals of that everyone else had, just used more water. Pumped as a safe cleaner, while all it had was watered down chemicals.
•    Then went to pitch a cancer cure. Didn’t work. Brought in new money and directors in FY09. Brought in John Mauldin to the board.
•    Added Dave Gentry, John Fugler, Tobin Smith, and other promoters.
•    Liver drug flopped – was safe (just pectin) but didn’t work (not a surprise). 


Be sure to check out the rest of the hedge fund presentations from Invest For Kids Chicago here.