Aston River Road Long Short call highlights and mp3 link

David_Snowball

Here's the link to a recording of the ARLSX call. We'll host it (and several neat new features) on-site in January.

Quick highlights:

1. they believe they can outperform the stock market by 200 bps/year over a full market cycle. Measuring peak to peak or trough to trough, both profit and stock market cycles average 5.3 years, so they think that's a reasonable time-frame for judging them.

2. they believe they can keep beta at 0.3 to 0.5. They have a discipline for reducing market exposure when their long portfolio exceeds 80% of fair value. The alarms rang in September, they reduce expose and so their beta is now at 0.34, near their low.

3. risk management is more important than return management, so all three of their disciplines are risk-tuned. The long portfolio, 15-30 industry leaders selling at a discount of at least 20% to fair value, tend to be low-beta stocks. Even so their longs have outperformed the market by 9%.

4. River Road is committed to keeping the fund open for at least 8 years. It's got $8 million in asset, the e.r. is capped at 1.7% but it costs around 8% to run. The president of River Road said that they anticipated slow asset growth and budgeted for it in their planning with Aston.

5. The fund might be considered an equity substitute. Their research suggests that a 30/30/40 allocation (long, long/short, bonds) has much higher alpha than a 60/40 portfolio.

An interesting contrast with RiverPark, where Mitch Rubin wants to "play offense" with both parts of the portfolio. Here the strategy seems to hinge on capital preservation: money that you don't lose in a downturn is available to compound for you during the up-cycle.

Negotiating now with Matthews about talking with Teresa Kong (MAINX) in January. They've agreed and we need to arrange date and time. The good folks at Seafarer are on-board to celebrate their first birthday with us in February. Still thinking about ultra-focused folks (RiverPark Wedgewood, Bretton, maybe Cook & Bynum) thereafter.

For what interest it holds,

David

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David_Snowball

Reply to @Maurice: Ooops. Matthews. Just corrected my note, above. I've had Wasatch on my mind since reading the board's concerns about whether they're over-extending.

Thanks for the close reading! David

AndyJ

Good, informative conference call; the explanation of the "drawdown plan" and reversal answered the main question I had about it.

I'll be really interested in the T. Kong call if that comes about; been thinking about ramping up investment in MAINX. Thanks for setting up and running these, David.

David_Snowball

Reply to @AndyJ: Hi, Andy. I'm still trying to process the style of Matt's answers. When we've talked in the past, he's been witty, self-effacing and sharp. I think he got a touch of nerves and might have talked a bit longer than I'd hoped. What was your sense of it?

And I've gotten agreement from Matthews (their marketing team is based in Hong Kong, so this takes a bit) to interview Ms. Kong in January. We just need to work out a time and date.

More soon,

David

AndyJ

Reply to @David_Snowball: Yeah, he did have a bit of bluster going on that could have struck people as a little offputting, but I guess I didn't read too much into it; he was probably trying really hard to sound on top of it, authoritative, etc. selling their approach. Like you say, there might have been some nerves involved. Having been there before myself, I'd be inclined to give him the benefit of the doubt on that.

Charles

I loved the call. Thank you David for setting it up.