Good Investing Talks - How much Fred Liu is in Hayden Capital? How do you select partners?

Episode Date: July 7, 2021

In our conversation, Fred Liu and I covered how he has built Hayden Capital. Enjoy the conversation with the founder of Hayden Capital!

Hello, Fred. It's great to have you back for an interview after our last year's interview. Let's start with the most important topic. How has your cooking skills evolved over the last year? Unfortunately, it hasn't gotten better in the last, you know, four months or so. I haven't had as much time to cook this year. So that's the unfortunate part of it. You were super busy with researching or what did keep you busy? a bit of research our business has gotten a little bit more complex we're looking at a private deal a little bit earlier so yeah just a lot of moving pieces inside of hayden at the moment and so have been busy with that yeah a private deal means you're going into non-listed equities or you're thinking about going into this space yeah we have a spiv set up at the moment and it's uh you know if we come across any interesting private investments uh it's an option that's open to us. What is this option of SPWE? Can you maybe describe it a bit to help our viewers to understand it? We got close on a deal earlier this year, but, you know, that one didn't come to fruition. So right now it's still on the shelf and we don't have anything identified just yet, but hopefully

over the next year or two, just through the natural course of our research as we're researching public companies. Occasionally we come across interesting private ones. So yeah, it just leaves our options open here. So there's a good point to follow up in the future on this topic. But maybe let's go back to a lot of questions I did get from the audience. One was about books that have influenced you as a human and an investor. We already talked about some. I already also bought one. You recommended this Loof investor, I think. And what are other books that have influenced you? I mean, honestly, I think that books are good for learning the basics and learning the philosophy and learning the foundations of this industry, right? They are basically good for

timeless wisdom. But the problem is that, you know, a lot of investing books just basically say the same things. And so to be honest, I haven't put very much focus on reading investing-based books over the last couple of years. So I still have to say that my biggest influences are really the classics, right? Phil Fisher's books, sleuth investor, you know, previously I've mentioned like the art of execution in some of my letters. And then, yeah, I think a lot of my learnings nowadays just come from kind of reading articles, following companies, you know, following the development inside a new firms. I learn a lot just from conversations with people, to be honest, probably more than written materials these days. And I listen to a lot of podcasts.

I love podcasts. What are your favorite podcast? You listen to you? There's a lot. You know, I'm not going to name any because I don't want to put anyone on the spot. But yeah, there's a lot just focused on, you know, different business models. There's some focused on like Indonesian tech that I listened to. Some on China tech. Yeah, different venture based type of podcasts are always interesting as well just to see how other investors are doing it kind of in the earlier stage in private markets.

So you moved a bit from at the beginning a book-based model. to your mentor or conversation-based model to inform yourself and get better? Yeah, because books, you know, they, a lot of them were written, say, five or ten years ago, right? They're good for information that have a long shelf life and are probably timeless and building the foundation of how you think as an investor, but they're not as helpful for, you know, the up-to-date newer business models or what's changing in the world or whatnot. You know, information just kind of happens so quickly nowadays that honestly the quickest way to iterate is through articles and through podcasts like real time information rather than books that take several years to go get published, right? Are there any non-investing aspects of your life like diet, sleep, daily habit, routines, rituals that you do to optimize your ability to do your job well?

I think the biggest change that I've made in the last six months is consciously putting in two like thinking days or reading days into my calendar. So no meetings, no calls, just able to, you know, whether it's working from home or in the office, just really able to sit quietly and kind of think and catch up on some of the reading that I've been meaning to do. I think that honestly has been the best from both the creativity aspect. And then also just a call, like being able to manage stress and being able to manage my own emotions too. And actually, hey, I have one book for you. You know, my wife recently recommended the book Power of Now. And it's a little bit, you know, when I first saw it, I was like, you know, this is a little bit hocus, focus, whatnot and a little bit cheesy. But, you know, you start reading it.

It's kind of like meditating through a book. And so that has really helped me kind of be more present and be more. I don't know, not think so much in the future in terms of my mindset, but be present and be aware of the current moment and how everything is kind of coming together. So that's a book that I've recently been reading very slowly. You have a pen in your hand or close to your hand and the keyboard on the left of you. What role does writing play for you in your process of research? Are there any secret S-curve journals to discover one day? Um, yeah, so I would say writing itself, uh, you know, I write our quarterly letters and I actually

really love it. And originally I wrote them really just for myself because it's a way to synthesize all the information that you have, right? Like I'm probably doing, I don't know, anywhere between one and three calls a day with people. And it's just a lot of information. Um, and through these conversations, you know, you'll have a conversation with someone for an hour and maybe you'll only get like one tidbit out of it, right? But it's still a great use of time because it's a data point or a piece of information that you honestly didn't know before. And so you do a lot of these over a quarter and kind of these data points are all jumbling around in your head and you need to form it into a picture, right? And that's basically what writing does to me.

It helps me tell myself almost like a story, right? Like how do all these different data points fit into a broader picture? And that's what I love it for. And I think a lot of people, you know, it's surprising that our letters have gotten relatively popular over the last couple of years. Because I feel like more people should be doing it. I'm surprised that it has gotten popular because I think there was a void in this market of investors actually explaining how they're thinking and their entire thought process and how this picture is forming. And it just felt like a natural extension of me as an investor to kind of formulate it and put

on paper. So that's what it really does for me. And I'm glad that other people are kind of getting value out of it as well. Games have an influence to form you as an investor. I was reading for your letters. And there was a mentioning of poker as one thing. Hey, Tillman here. I'm sure you're curious about the answer to this question.

But this answer is exclusive to the members of my community, Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investor today by day. If you are an ambitious long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to good minus investing.net slash plus. You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. If I would ask like 20 of your friends, how would they describe you, your personality? Um, good question. You know, I think what's amazing to me and probably my close friends only know this, you know,

acquaintances don't, is that I'm actually a really introverted person. You know, I have a lot of conversation as I like chatting to people, but it actually takes energy away from me. And so I think a lot of my friends would say that I'm actually, you know, pretty quiet and I don't really talk that much. And, you know, I am kind of more of a thinker than, yeah. So that's probably something that other people wouldn't be able to recognize from the outside. And are there any other traits your friends would describe you with that come to your mind? I would hope that they say that, you know, I'm genuine. Like when I like I don't try to put on a facade, right?

I don't try to do things to try to impress other people. And I think there's so many people in this world who make decisions based upon ego or status or trying to impress others. And I think my close friends would tell you that I'm probably the person to least do that. You know, I do things for myself and my own enjoyment because I believe it's the right thing to do rather than doing it for others. How much of your personality is reflected in Hayden Capital? All of it. I mean, absolutely all of it. I am running Hayden for myself and I hope that those who come along with us on this journey, you know, are almost or as close to 100% aligned with how I'm trying to build it. I think, you know, one of my biggest frustrations with this industry and it's why I think a lot of people in this industry aren't building their firms correctly is because they're building it really as a, as a businessman, if that makes sense. The difference between a businessman and a craftsman is that the businessman is creating a product

based upon the feedback from their customers, right? They're building a product that their customers are demanding versus a craftsman is building a product or a service that they truly want to build for themselves and that they're going to use for themselves, and then they go find customers who go, who are resonating with that, right and find value in it we're really trying to be craftsmen here um which means that you know the majority of you know potential partners for us probably aren't right for a partnership um and that also allows me to be true to myself right i get to build it the way that i want to build it i get to you know run our portfolio and invest in the companies that i find most interesting

um and hopefully our partners out there think similarly and are want to come along this journey with us. But if it's not a good fit for them, there's no hard feelings, right? There's plenty of other different strategies and other ways to make money in this world. But if you think about investing in investing business, it's a very quantitative world. Success is also managed besides performance and AUM. How do you keeping yourself sane in a way that you stay with your craftsmanship if you have this craftman focus? To be honest, I try to surround myself with people who don't necessarily give that pressure, right? I'm very cognizant of, for instance, our LP base, our partner base.

Because honestly, the partner base is the foundation of every investment management firm, right? And if your partners are not truly aligned with you in terms of how they think about investing, you know, how they treat their managers or their partners, I think it becomes a big distraction. And whether you realize it consciously or not, they will start to influence how you act as an investor and how you run your portfolio. And they may also take time away from time that should be dedicated to your other partners as well, right? Because they're asking for one idiosyncratic request. So we definitely are a lot more cognizant of that. We actually screen our partners really well.

And I think that has actually had the biggest influence in terms of maintaining my own sanity and building Hayden in the way that I, I truly think it should be built, right? I'll also say that going back to the point about Hayden not being right for everyone, you know, a couple of years ago when I was first starting Hayden, I was in China and meeting a bunch of potential investors. And one of them described it, you know, he was like, you know, the problem that I see with Hayden is that you are basically a pill manufacturer, your drug manufacturer, right? You have one product and one thing that does that job really well.

But what we are not is a general practitioner or a doctor or a family doctor, right, who offers that objective opinion on whether this pill is actually right for that client. So for us, we know our pill does one thing and it does one job really well, but it may not be right for everyone, right? It's probably not right for 99% of people out there. So that's what we have to be cogniz enough, too, just finding the. partners who that pill really is correct for. The world is a dynamic place and also a changing place. And the question is for me, how do you manage, besides being stubborn and following the

craftsmanship, not being unreflexive and unopened to or close to suggestion from the outside, how do you manage this tension? It's a, it's definitely a conflict. I would say, like, you know, you want to stay within your circle of competence, but you also want to constantly be pushing the boundaries, right? Because it's through that stress and through that, you know, constant pushing that you're going to be able to expand it. I think it's tough, right?

The world is changing. There's a bunch of interesting businesses out there. Some of it may not fall within our circle. So, yeah, it's a constant struggle, to be honest. You know, if our circle is here and there's an interesting business way out here and we recognize that we don't have the skills or the tools necessary to go evaluate that business and be the top 1% of knowledge holders on it, we're probably going to have to pass. But if our circle is here and then, you know, there's a business like right out here, maybe we can push it a little bit and, you know, test our skills and see if we have the data and the resources and whatnot necessary to go underwrite that. So, yeah, I think it's tough, right? But there's a lot of different businesses out there that can, you know, make our investors money.

And we don't have to go capture all of them, right? Some of the potential returns out there just aren't earmarked for us. So, yeah, it's just recognizing that. How do you decide to go out of your circle of competence and saying yes to evaluate in business that's closer to your circle of competence? besides like saying I want to use my resources to go deeper and to see or whatever other holding you hold? Yeah. I mean, that's a, that's basically a trade-off in terms of where you want to spend your time, right? Do you want to spend your time expanding into a business that is outside of your circle,

slightly outside of your circle of competence? Or do you want to go into one that is fit squarely within it? I think it just comes down to opportunity, right? you have to evaluate the two side by side and make a comparison and say, is the time that I spent with a greater risk that it doesn't actually fit what we're looking for, or the returns worth it? Or should we look for something that's squarely within our show of confidence? We have more confidence around it. Have more confidence around our process to go evaluate that. And maybe it's slightly lower returns, but maybe it's a better tradeoff, right? I think it's on a case-by-case basis,

to be honest. Yeah. And honestly, a lot of times, we're not making that many decisions, right? We're buying very, very few names per year, like one or two, right? Majority of the time is just spent understanding new businesses. And so if there's really no pressure to do anything, which we really haven't, especially in the last couple months, we can more willingly spend extra time kind of pushing the boundaries of our circle and learning about new business models here. How would you describe the LP relationship you are looking for? Yeah. I think a lot of people in this industry think of LP relationships as a transactional relationship.

You know, what they're saying is, you know, someone will give us $10 million. They may not be the right fit for us, but we can put, you know, legal restrictions, lock up skates, whatever on them to kind of force them into this box, even though we're shoving a pill down their throat that it's not right for, right? And when they have a bad reaction to that pill, because they're just not emotionally suited for it, it's not the type of strategy that they're looking for, they're locked up for, say, three years, five years. And when they do finally go out, we can go replace them with someone else. Honestly, I think that's the biggest problem with this industry, that type of mentality. We're looking for partners that hopefully we can partner with for the next 20, 30, 40 years, right? I really think of Hayden as a family. And I tell everyone, look, at some point, we're probably going to have to close for capacity reasons.

But once you're inside of this family, our goal is going to be to run your capital for the next several decades ahead, right? And all the information, all our models, any conversation that we have is open property of our partners. And we want to give value to our partners in that way. And hopefully our partners will also reciprocate, right, because it's a two-way street. Hopefully they introduce us to interesting entrepreneurs that they've met, other interesting managers that they're doing cool things that we can learn from, you know, managers in different geographies. You know, some of our partners will sit on the boards of some of our competitors. And so we'll kind of get to hear about interesting things that their competitors are doing or maybe, you know, similar businesses are doing a different geography. So we're all just trying to learn together.

And I honestly think the commonality among Hayden's partnership base is that, you know, the returns are. are great, right? That's kind of why you are an investor. But that's actually not the primary focus for a lot of our partners. The primary focus is that we're doing something interesting in a certain part of the world. And a lot of our partners are professional investors themselves

or former professional investors. And they recognize that what we're doing is valuable, but they don't have the skill set to go do it or don't have the time to go keep eyes on this segment of the world or this type of investment strategy. And so they hire us to do it to basically keep tabs on what's going on in this segment. And I think that's really cool.

That's a different relationship, right? Because it's about learning how this world evolves and functions together, rather than necessarily being a pure transactional type of relationship. Do you have a rough feeling about the percentage of the net worth of your LPs is invested in you? Yeah. Honestly, I tell all of our new partners, trust takes a long time to build, and it's different once you're inside of the Hayden family,

right, in terms of how we interact, you know, the type of data that all our partners can ask for or have access to. You get to see the portfolio on a real-time basis, right? We have full transparency into the portfolio tick by tick. You can literally watch our trades if you want in real-time. And so it's a different experience. And so I tell all our partners, number one, we never want more than, you know, five, 10% of your net worth, if it's a family, probably even less if it's more institutional. And at the same time, because trust takes a while to build, do not give us the full allocation all at once, right? Give us a fraction of that and size it up over a period of two years so that we can both build comfort with each other, right, and continue building

that partnership. And once we are both fully 100% have a good understanding of each other, And hopefully we are, you know, 100% allocated. And then, you know, we'll just run that money for the next couple of decades. But I think having that slow process really, really helps to build that trust and set the expectations with our partners. But generally, we don't want a large portion of our partners' capital. And the reason for that is, number one, from a selfish standpoint, we never want to be the source of liquidity, you know, if our partners need it for whatever reason. Because we have a longer duration investment strategy, right? If they need capital a year from the date when they invest, maybe we don't produce any returns for them.

Maybe it ends up being a bad experience. So we don't want that type of pressure. We want them to go find that liquidity elsewhere. And then number two, I think, again, having them invest a smaller amount up front, it helps make them more comfortable as well because it's a new strategy and something that they aren't as familiar with. So they get to have the freedom to build it up over time as they see. fit. How do you think about volatility and drawdowns? What role do they play for Hayden?

It depends the reason of the drawdown, right? Like we've hedged a couple times in our history and the reason we hedge is because we think that there could be the potential for impairment of the earning stream itself, right? But if the, so that's a fundamental reason and we're worried about what that earning stream looks like over the next couple of years.

but if the drawdown is for call it sentiment-based reasons or because of a market reaction in but it doesn't really affect the earning stream of our businesses or the fundamentals of that businesses then that's really you know the market correcting because you know say stocks have run too much and so people are trimming or selling or raising cash or whatever um that doesn't really play a part in our process to be honest most often if they get cheap enough, like, you know, we just suffered a drawdown a couple months ago of, you know, north of 30%. We're going to use that opportunity to invest more into our existing portfolio, given that the fundamentals themselves haven't changed and the valuations still

look attractive. So it really depends why. You started Hayden in 2014. What hasn't changed since then? Or did you change out of purpose? And where have you gotten better? No, yeah. I think Hayden has evolved a little bit since then. And it's just natural, right, to evolve as an investor. You know, 2014, 15, 16, I would say we were probably a lot more diversified, right? My background prior to starting Hayden was that I was in industrial Zenos for several years. And so you would have seen a bit more industrial-based companies within our portfolio. We were actually a bit more diversified as well. We had a lot of cash. that we basically needed to use. We started with over 60% cash in the portfolio. It took many years before it got down to where it is today, which is less than 1%, right? So it took a while to deploy that capital.

I would also say over the course of Hayden, I just started to recognize, number one, my own interests and my own skill sets, lie where we focus today, which is a lot of consumer tech and internet-based businesses in U.S. and Asia. And then number two, a big part of our edge is having these conversations, right, getting these data points from

these individuals that we chat to on a regular basis. And building that network is hard when you're spread so widely across many, many different geographies and industries. And so for me, I found the most interesting conversations just naturally coming from the tech sector. And that's where we've built our connections and it just kind of it or uh snowballs on top of itself right um so really that's where we've started leaning into over the last four years or so um and you know some of our partners have previously told me that they sense the tone and the change of our letters around mid 2017 as well uh which is really when we started narrowing our circle of competence with the whole side really being like e-commerce and then slowly expanding it outwards again

was there a certain aha moment for this post-industrial transformation no there's never really an aha moment with me to be honest um there's it's just a slow natural evolution yeah and what names would i have found in the portfolio in 2014 yeah for instance we used to own like PSX um we used to own a couple you know energy based names as well uh more on the call like tech sector of it or services sector if you want to call it that um i mean we own credit acceptance which is actually a really great investment for us um but you know a slightly different business than the type of businesses that we own today um so yeah i i'd say anyone who's interested can probably take a look at our older letters and and they can find them there are there are there areas where you want to improve further with hayden To be honest, I'm pretty happy with where we are right now. I always think that we can get better on the process side,

building more relationships with interesting entrepreneurs, building more connections in certain regions where we want more of a presence and where we think the most interesting business models are going to come out of. Learning from interesting investors who are the craftsmen that I really talked about, right? because I think these craftsmen are so rare in our industry, whether you're investing in private companies or public companies or, you know, P.E. or whatnot. I really want to learn from them and building connections with people who are, you know, maybe 10 years ahead of me or 20 years ahead of me and learning, you know, how they built such a successful and durable and resilient type of investment firm, right? And meeting these people in not just the U.S., which is probably like a very, diverse and deep pool of investors like this, but also abroad, where it's a little bit tougher. So, yeah, that's kind of my hope in terms of where I hope to build Hayden a little bit. Are there any names you want to disclose of these craftsmen's?

Probably not. Just, again, for fear of missing people and offending people that I may miss. But I would also say that what's unique about me is, like, you know, I know some people may be looking for like one source or one fun that I really admire and have learned a lot from. I would actually say my learnings and my development have come from just, again, taking one aspect from each person, right? And putting that together to form something a little bit different. Everyone is doing something that you can probably learn from. And if you can get that one tidbit out of them and kind of, you know, emulate them a little bit or consciously put

yourself in that direction. I think that just helps me become a better investor overall. It's not necessarily copying. It's more of just taking a piece and then putting all these different pieces together into something unique, right? That's what I'm trying to do. What this also fit your definition of creativity? Because in your latest, you started talking about creativity in certain CEOs and founders you're looking for. Is this what you think about creativity as well? It is a form of creativity, right? Because I would say, yeah, there isn't necessarily like a conscious end goal that I'm trying to end up with, right? When I put all these data points together, it's not like I know like I want to create a certain picture out of all these different

data points. It's more if I put them together and see what works for me. Some of them I toss away because it doesn't work for me. And then the natural picture that kind of evolves is it wasn't planned, right? I don't know if you want to call that creativity and creatively like formulating your own skill sets and development as a person and as an investor. But I mean, that's what I do. And I honestly think that it's hard to predict where the world is going. And so you kind of have to just constantly stay on top of things and then ditch old habits that no longer work and bring in new habits that maybe you're learning from whatever source. And yeah, I hope. our CEOs and entrepreneurs and other managers out there are doing the same, right?

Because I honestly think that's how you evolve as the world continuously changes. The next question is the perfect challenge for an introvert. How much of your time do you spend communicating with your investors and potential new investors compared to other tasks? Yeah, I would say maybe I spend, man, probably between 5% and 10% of my time. just in terms of communications. Really, what I'm trying to build is something a bit more scalable. So number one, our partners need to have the same sort of viewpoint or way of treating this

partnership, right, the way of thinking the partnership between us. And then number two, as long as that is aligned, you know, I also try to get them as close to a front row seat as possible into our portfolio to. to explain to them the why behind we're making, you know, what decisions we're making, not just the what we're doing. And a lot of that comes through our letters. It's a very scalable way to communicate with our partners, right?

And as long as we put the effort into it, to be very transparent and open with them and try to instill some sort of understanding. I think that helps a lot of the time that a lot of managers spent in terms of one-on-one conversations. We're able to do it in a more scalable way. And then on top of that, like I said,

a lot of our partners just want to kind of understand how the world is developing within our universe. And so we'll just have very informal chats, right? Like all of our partners have access to my cell phone number, my we chat, my WhatsApp, you know, whatever they want. Some partners choose, you know, not to engage one-on-one, even though I know they're reading our letters. And, you know, it might be a year, two years, three years before I hear from them.

But I know that, you know, they're actively reading. our stuff. Or we have some partners who, you know, will message me, you know, a couple times a week just to chat on different names and, you know, what they're seeing and how they can be helpful. And that's great too. So it really depends upon our partners. So the most important part of your communication are the letters or how do you see this? I'd say our letters are great for instilling kind of like a base layer of knowledge and getting everyone in our partnership based kind of on the same page in terms of what's going on inside of the portfolio and our strategy and where our head is at. But often, you know, sometimes there's questions on top of

there that we didn't cover, right? And so we will have those conversations offline on a one-to-one basis. But generally, our partners are fantastic. Like, I would rather have 10 or 20 more of our current partners rather than one single bad partner. And so we're really cognizant of that. you know, I recently had a potential partner say that this was the first time that they had ever got an interviewed by a manager. And, you know, it was like a, instead of, you know, them interviewing me, I was interviewing them in terms of their potential fit, right? And I, it's surprising that more managers don't do that. Because if you screen your partners really well up front, I think it just saves you a lot of headaches later on and allows you to build a more resilient and

durable business how do you make sure or how do you screen what is the process of screening your partner i can't give you the secret sauce right or else people are going to game it yeah some some ingredients or yeah i'll give you a couple of things that maybe i are like red flags right um sometimes people will reach out and you can tell through their communication that they have a mentality of, like, you are lucky to take this money or that they automatically assume that you're going to accept them as a partner. And I think that's wrong because that's a transactional type of relationship, right? And so those type of interactions make me a lot more wary

because if that is the first interaction you're having, it means that, you know, it's a good sign that maybe you weren't thinking about this partnership correctly. You know, other ones may be around the questions that people ask, right, around like, you know, your volatility or characteristics of the portfolio or, you know, certain drawdown metrics or whatnot. It really depends on the questions. I think when everyone is going to have a different criteria for like what makes a good partnership, right, because everyone's investment firm operates differently, has a different process, has a different, you know, thing that their partners need to be comfortable with. And so I think it just takes a lot of reps in terms of, you know, it's just basically pattern recognition. You recognize who your good partners are, who your bad partners are, and then you steer your questions and, you know, your criteria more towards the profile of what your good partners

look like. Interesting. I don't want to ask further questions here because it's your secret sauce. I think you put water in it, but I'm not sure. Hey, Tillman here. I hope you like my con. If so, I want to invite you to support me. Below, you can find the link to my thank you page.

There you can give me your support to allow me to further produce more videos and more great content like transcript. Thank you very much. Below you will find the link. And now back to the video. Coming back to your letters, what is the quality standard you put on your letters? Is there or what do you say? this letter is ripe or I can publish it. What is the prose that this goes before publishing a letter?

And what is the quality standard in EG? To be honest, I think most writers probably think this way. But every time I publish one of our letters when I hit send, I honestly think it's crap. I'm almost never happy with it. I feel you. Yeah. So I don't know. I don't really know the answer to that question because I feel like we're always

not hitting that quality. But really, I just write for myself. I write about something that through these conversations that I have during the quarter, I feel like people are missing. There's usually, you know, one or two topics that keep coming up. And I feel like, wow, these guys, just the entire community just really doesn't get it. And I have a different view on that topic. And so I'll write about that. Because it really like, it almost comes from like place of frustration or like anger it's like i want to help other people understand what i am seeing um and so that kind of fire within me helps me write our letters and gives me the motivation to to write the way that i do it's a good interesting motivation to do it this way and move the needle a bit with the letters what are

these topics that others didn't get over time what are examples for these topics i mean for instance i mean my last two letters right the two topics were like building an investment firm and kind of this mentality between being a businessman and craftsman. And then, you know, our most recent letter was around the Gen 2 companies that are starting to sprout out around Southeast Asia and how Gen 2 companies require an existing ecosystem in which to flourish, right, in a nurturing type of environment more so than Gen 1 type of companies. And I think there was, you know, a bit more confusion in terms of how these things happen. And I don't know, maybe I've just seen enough of these patterns to recognize like

these are the ingredients that are required. So yeah, those are our most recent too here. So you get the clarity you have in your letters, which is impressive. If I read your letters, they seem to be going very clear from the conversations you're doing all over and see this is the missing puzzle piece. I have to add to you. share knowledge on a scale so or is there any other strategy you're building clarity before you write to be honest no i think the best way to do it is just to write and put it onto paper because then it's visually in front of you and you can kind of see your train of thought and then just edit constantly right um there's a lot of times where i'll cut up cut out entire

sections or, you know, large pieces or completely change the topic of our letters because I realize it's something that I myself don't have a full grasp on. And so I'll just trash it and move on to something else, right? Yeah, honestly, I don't think there's a better way to synthesize your thoughts than just putting onto paper. How much time do you spend on a letter? On and off, probably on average, like two weeks. You know, it's not like full time every single day. Sometimes I'll just leave it and kind of step away for a couple of days and then, you know, clear my head and then come back to it, right? But yeah, I would generally say about like two weeks, you know, on and off to write one of the letters. You've grown your business or the number of the people working at Hayden.

You doubled them. You hired an analyst. What has changed since then for you? Doubling as in from one to two. so yeah um i mean our business has definitely look it was just me for a lot of years right and then we would hire these amazing interns from like n yu columbia or other schools um but yeah i recently brought on philip philip is philip is fantastic philip i know you're watching um yeah i i love philip yeah it's been absolutely fantastic i mean just being able to work

with him and kind of operate 24-7, right? He'll send us, he'll email me information or memos like overnight. I'll get to review it during the day, have feedback and we're constantly in communication on WhatsApp. And then, yeah, just being able to work kind of 24-7 and also having someone else sit in a different part of the world where they aren't talking the same people as me, not living the same life experiences, using different companies, have a completely different network than me. I think that really helps expand kind of the breadth of exposure that Hayden gets to different sources of information and different viewpoints. I think that's really valuable. So yeah, that has really been fantastic. Unfortunately or fortunately, I guess, you know,

as Hayden grows, there's definitely more operational type of headaches, more, you know, just more paperwork involved, right? So that is an aspect that I am a little bit more cognizant of and probably need to spend a little bit more time on. So having Philip on board also has been fantastic to help me scale. Can't you outsource the paperwork? Honestly, the way that we run, it's already pretty little for us in terms of running SMAs and running a very scalable format.

So it's definitely a lot less of a burden than other managers out there, I can say. And we have started outsourcing a lot of it. We just hired a compliance manager. I am potentially looking for a COO at the moment. So, yeah, these are just natural friction points that you kind of run into as you grow, right? So is there anybody out there? Should they reach out to you? Yeah, send me an email.

Yeah, absolutely. We're always looking for good people. How are you organizing this kind of long-distance work relationship with Philip? Is it a challenge to have him in Singapore and you in New York, or is it a surplus? No, absolutely not. I am always, I mean, especially nowadays with the Internet and how everything is kind of global. I'm surprised when people still insist on having their entire analyst team, like in the same office, in the same city, talking to the same people, living the same lives, living the same life experiences, going to the same restaurant, same places, everything.

That's just redundant, in my opinion, right? Your job as an investor is to have, in terms of your process, it's a funnel, right? And to have as wide of a funnel as possible, like up top, which means you need diversity of thought and diverse viewpoints. And so, yeah, having, look, Philip and I have known each other for a bit now. We've worked together for a number of years on and off. So I know how he functions. how he thinks he knows how I think.

And so it's actually a really great type of relationship right now because we fully trust each other, right? And I don't need to micromanage him or, you know, tell him how to do certain things. I think we're both on the same page by now and there's that level of trust. Let's try for the end of the first part of our interview because we have time constraints today and we will do a follow-up. Will we see taking board seats at a certain point of time? Only if it's valuable for the company.

I always think we need to earn the right to carry our own weight when we invest with a firm. So we don't want to be that dumb money, right? That money that the company doesn't even know our investors with their firm. to be able to add value in some way and earn that right to be invested alongside of them. So if there's some aspect that we can add value to, whether it's like knowledge of similar businesses in a different geography that has, you know, went down one strategic path and has found success with it. And maybe we can take those learnings and relay it back to whatever

company that, you know, we potentially have board seat on. Maybe it's something like that. Maybe we can make introductions to some of our partners who may have. expertise or have run similar businesses such as it. But yeah, it's going to depend on the situation. There's no conscious effort to, you know, become more activist or have to take a board seat. It's only when there's a good fit for us in the company as well. Are there any examples where you've added value to a company you invested in that you want to disclose?

I would just say more broadly as, you know, we've been very fortunate. that our letters and materials and write-ups have kind of gotten sent to various corners of this world. And it sometimes reaches, you know, the competitors of our company's hands in addition to the company itself. And I think, you know, some of our investment case studies have added value. And I have actually known for a fact have added value to some of our companies because they're, you know, corporate finance departments or strategy departments are kind of

of reading our work and understanding what their competitors are doing within different geographies or say how the demographics are changing in a certain geography and it helps them shape you know how they make decisions on a day-to-day basis as well and sometimes you know they'll reach out and engage also and then we'll share notes at that point but I do know there has been quite a few instances of that with the companies in our portfolio are you more cautious now with what you're writing in your letters if you know that this knowledge troubles so much much? Not really, to be honest. I mean, everything that we're publishing is pretty, you know, public. And like, if you put in the effort, you can probably find this data. So it's not necessarily

anything that's a secret that we shouldn't be sharing, right? My goal is to just help everyone kind of understand how this world is functioning and involving together. It's kind of shining a light on certain aspects of this world, right? That's really what I, what I view our letters as, you know, our great companies that we hope to partner with, they're going to embrace all this data and incorporate it into their own learnings as well, right? And hopefully we can make them better also in terms of how they think about the strategic decisions in their businesses. You already just closed the answer to my last question a bit. Like, will we see you going to the non-luster space was this question? Then I have to

we find it will we see you having a bigger non-liss of profile in the future? I don't know. I honestly don't know. I even don't know if this is like a strategic direction that we want to move down in the next five years, right? Because it is a different process. It's a completely different process in terms of getting the deal, winning the deal, building your network, getting that deal flow, what have you. I don't know if it's a good use of our time. To be honest, I don't know if it's skill set that we have. So we're still testing those waters. All I'm trying to do is find interesting entrepreneurs and interesting businesses that we can partner along and help them create value for their ecosystems where they're operating. And

whether that's public or private, it really doesn't matter to me at the end of the day. Definitely there's some more liquidity considerations and whatnot. They'd be more cognizant of on the private side. But I'm just looking for great people to partner with, right? At the end of the day, everyone is allocating capital in some sense, and we're just looking for the managers and founders who have great capital allocation opportunities within their own businesses. So, yeah, to answer that question is, I don't know. Can you maybe disclose some of the questions you have

when looking at the non-listed space, what you still want to understand? I think our skill set is really identifying businesses and business models and understanding kind of the macro trends that are propelling them and that type of tailwind that is behind them. But the actual deal process is very different, right? And sometimes these rounds are very, very competitive. And so you need to build relationships with these founders. You need them to understand what value you can bring to the table. That requires a lot of effort. And I don't know if that's necessarily a skill set I have.

And maybe we'll need to, if we decide to go down this path, we'll need to hire someone else who does have that skill set to go do that. But, yeah, I think it's more on the process side itself and the technicalities of it rather than the identifying great businesses aspect. Interesting. Thank you very much for your time. and I'm looking forward to catch up on our conversation soon. Thank you.

Sure. Thank you, Thomas. And bye-bye to the audience and bye-bye to Philip. Bye. As in every video, also here is the disclaimer. You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we're doing here is no recommendation and no advice.

So please always do your own work. Thank you very much.