In Good Company with Nicolai Tangen - HIGHLIGHTS: Mala Gaonkar - Founder of SurgoCap Partners

Starting point is 00:00:00 Hi everybody, tune in to this short version of the podcast, which we do every Friday for the long version. Tune in on Wednesdays. Hi everybody, I'm Nicola Tangen, the CEO of the Norwegian Soan Wealth Fund. And today I'm really happy because I'm here with Mala Gaonkar, who I've known for a long time, actually. Mala founded Sergo Cap with $1.8 billion, and now it's at $6 billion. And before that, she spent 23 years as a founding partner of Lone Pine, capital, one of the most successful hedge funds of all times. Great to have you here.

Starting point is 00:00:34 Great to be here, Nikolai. Thank you. Tell me about Sergio Cap partners, you know, your company. Yeah, Sergo Cap tries to do what many investment firms try to do. It tries to beat the market over a three to five-year cycle with less risk than the market, a risk defined as loss of capital, not volatility. And the way we try to achieve that is by identifying this very small handful of truly great businesses that exist. businesses that exist in the world. And we do that through a, our product is really our process, a very transparent process, of looking

Starting point is 00:01:10 for very specific factors that really our distillation, as you pointed out earlier, of my lessons I've learned, the many mistakes and lessons I've learned, from investing over 23 years with some of the best people in the business, my former colleagues at Lompine. And so that distillation has led to Sergo. There are many different factors that lead to identification of a truly brilliant business. But the way I define a great business is a business with very long duration modes. And duration really is our true differentiation. So mode being that is difficult to compete with them, it's difficult to compete them out.

Starting point is 00:01:41 How many great companies are there in the world? As I said, a small handful. I don't think there are that many. We focus on really four verticals where I think there is a bit of an edge from one very specific factor. is every business is a technology business. So if you're an aerospace company or a med tech business

Starting point is 00:02:01 or a financial data business, you are a technology company in your backbone. If you want to deliver at scale and with quality, you have to be a tech business. And I think understanding the tech stack map of businesses is something we spend a lot of time on, especially in non-tech businesses. I think that's one.

Starting point is 00:02:15 The second is how old technologies can disrupt in very new ways. So if you think about something like, we've talked about this, but the auto industry, which employs far more people in the tech industry, But it's being disrupted right now by, you know, technology that was invented in 1976, you know, the lithium ion batteries.

Starting point is 00:02:32 So I think that is, that's always interesting to me. Or, you know, when, you know, we started investing career, we were buying GPUs to, you know, make our video games look a little, little more fun. And then fast forward to now, they're actually driving what's probably one of the more tectonic plate shifts in terms of, you know, social and demographic and technology shifts of our time, which is AI. So I think how old technologies are disrupt in new ways and looking for that in non-tech businesses is something we spend a lot of time on as well. What are some of the most counterintuitive benefits of AI that you are seeing in your companies? I think what is happening within medical technologies is not perhaps as well or broadly understood as it should. So to give you a very specific instance, if you look at the imaging space, so, you know, MRIs, CT scans and so on, The accuracy and the speed at which these images can be conducted are now improving at a pace of almost 70%

Starting point is 00:03:29 versus what we would have even a few years ago. That in an aging demographic globally has been incredibly helpful for not just therapeutic care, but preventive care in a way that makes obviously overall care much more cost effective. So I think that is one big area around imaging and really understanding earlier how some of these chronic diseases are evolving. And I think obviously nipping these in the butt earlier has been one big one. The other big area has been around how surgery is conducted. So I think the intersection, people talk about AI and robotics in the manufacturing space. What I think people don't realize sometimes is there are about 300 million surgeries conducted globally.

Starting point is 00:04:09 And they're just beginning to be penetrated by what's happening with robotic surgery, specifically companies like intuitive surgical. So I think that is another big category. where you're being to see real innovation happening, where the combination of haptic feedback, mapping software, better technologies around surgical conduct itself are really leading to a lower error, easier training for medical students and a overall better context for how these therapeutic cares can be conducted.

Starting point is 00:04:42 And as you know, there's a big discussion, obviously, around how health care costs can be contained. And I have some hopes that AI applied intelligently can help with this. So, yeah, I think broadly this idea of how technology is intersecting with non-technology businesses and how you can use data to analyze that and debias, the very human decision-making process, something we spend a lot of time on. Now, you believe in concentration you have quite big. When you go for something, you go pretty big, right? Correct.

Starting point is 00:05:14 Tell me how you think about concentration. I very intentionally set on these four verticals that happened to be enterprise data, so tech broadly, financial services and healthcare services as well as industrial technologies, because I felt those were the areas where these themes of emerging technology disruption were most relevant and where you could see market leaders with very durable modes where incremental returns and the capital you could put to work at those incremental returns had a clearer path given all the technology trends. we're seeing today. So we purely just focus on those four areas. We also think about thematic exposure as well. And the reason for that, I think, is very simple. One, I think that allows you to play offense when at some point or the other due to, you know, the passive nature of the market structure now increasingly. The odd factor rotation here or there could disrupt a portfolio that allows us to play offense during those periods. And we believe there is actually sufficiently interesting set of investment ideas across each of these four sectors where we're not compromising. And we have

Starting point is 00:06:15 very different drivers of the long thesis of each of these names. You can also invest in private companies. Yes. Why did you choose to be able to do that? I think some of the, we obviously know about the very large market caps that exist, the very large businesses exist in the private realm. And we know about the fact that there are fewer businesses that are out there in the public markets than have been for a while.

Starting point is 00:06:42 So those trends aside, I think another reason, to look at the private markets is because they're often the most disruptive. Change always happens at the edges, not at the core, right? And that's my fundamental view. And the edges is really the small company, the private company, the unsung founder who's just emerging. That's really where change at the margin will happen. So making sure that we have our networks and thought processes out there, not just in the U.S., but globally, within these four areas that we focus on, these four big industry categories, we focus on is something that I think is incumbent upon us and talking to private companies as part of that process.

Starting point is 00:07:14 It's as simple as that. How does shorting compare with long investing? Can the same person do both? It's a great question because it's really the opposite muscle of the long side, as you know. It's really thinking about, so sometimes you will see clear the shorts that are the broken mirror images of the longs. X is winning, Y is losing. I find those are very rare and few and far between, and that's not enough usually. I think in addition to that, you have to have the timing correct as to when exactly those

Starting point is 00:07:48 winner-loser dynamics will play out. Usually, if it plays out through some combination of clear price competitive pressures, clear share competitive pressures leading to those pricing pressures, and then that combined with, you know, other factors such as just mis-execution by management, you have a pretty good short. The problem, though, is that combination of factors occurring within the time frame, you need is a tricky one. And then add to that all of the sort of factor rotations and the passive nature of the markets today,

Starting point is 00:08:22 often driven by quant and ETF and other funds, you have other dynamics that are driving trading you need to think about. Do you short? We do short. It's just so, so stressful. To be sure, I enjoy it. Because you are wrong for such a long period of time.

Starting point is 00:08:38 And when you're right, it's just like in these bursts, you know, and they don't last for that long. You're maybe like super right for one week and then you're kind of wrong again for two years. You are a role model for many women. And I think when you when you launched your fund, it was the biggest launch, biggest hedge fund launch of any woman ever, right? That's it's pretty amazing. Any reflections around being a woman in the investment world?

Starting point is 00:09:05 I would say, look, first of all, I hope that's a record that's broken very quickly. And I'm sure it will be. There's some really amazing, talented woman out there. Look, I hope I'm not just a role model for women, but, you know, the broader investment community and hopefully over time, the philanthropic community as well. That's a very important part of my work and my ethos and my identity. I would say I'm a little – I really think the investment business broadly, whether you're – whether you're an outsider in any way, shape, or form is a great one. It's about as meritocratic a business as I can think of. I mean, I could be a green Martian with two horns in my head.

Starting point is 00:09:43 But if I produce investment returns, there'll be a line out the door, you know, wanting to get my product, right? So I think it's a very meritocratic industry. And I just hope that places like Sergo, places like, you know, the platform you're running here, are just ways for more people to add value in this industry. Because I'd really think it's a terrific one for people who are intellectually curious of all stripes and shapes and sizes to come in and be of use to the world. world and large.

In Good Company with Nicolai Tangen - HIGHLIGHTS: Mala Gaonkar - Founder of SurgoCap Partners

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