[Full Transcript] Keith Rosenbloom Short Idea – 2018 Kase Learning Shorting Conference

Full transcript of Keith Rosenbloom, Managing Partner of Cruiser Capital Advisors, from the from the 2018 Kase Learning Shortselling Conference.

Please note this transcript may contain mistakes – this was done by a human but its impossible to get every word correct and the audio was a bit unclear at times – enjoy

Q3 hedge fund letters, conference, scoops etc

I’m pleased to welcome Keith Rosenbloom, a very old friend, founder of Cruiser Capital, a 300-million-dollar long/short fund. One of the few long-short funds out there that’s been meeting markets in the last few years. An activist on both the long and the short side. One of those activists campaigned last year – what was the name?

Sholeman.

Sholeman was up 72 percent from when they got involved. Currently involved in [inaudible 00:20:40], he’ll be happy to tell you about that on the long side, they’re running a proxy contest right now. They do great work on the short side, as well. Please join me in welcoming Keith Rosenbloom.

Okay. Let’s see, following Ben Axler, what a nice thing. Great research there with him. When I first presented an idea with these forums I think in May, I came up half-represented and he put on the screen, that is a cheap stock. That’s a cheap stock. That was 30 percent ago. What we do at Cruiser, we try to differentiate between value plays and value traps. What we’re about to show you we think is the epitome of a value trap. One of the things that really resonated with me today is how a lot of people have said, “Follow the money. Watch for the insiders who are selling.” You’ll see that in this story here, which we think is a company with a very talented team that has been dealt a dead-man’s hand. To get on my soapbox here, because I have an opportunity to do so.

I think that Dodd Frank for all of us created a lot of negative unintended consequences. One of those was at the same time that passive investing overtook the investing community is, it deprived the minority shareholders of a real voice in the boardroom. I think what you see across the landscape across all the landscape of all the companies that we look at, is that insiders and directors own very little stock. They very rarely actually bought any stock. At the end of the day, there are more net sellers. I think it’s a problem. I think that Dodd Frank created paradigm where directors could be excused from being concerned about the capital markets. Hopefully we can all address that. All right, so a dead-man’s hand. When you deal with Cruiser, by the way, you don’t get one disclaimer, you get three. Okay? As what we mentioned, we are running a proxy campaign on Ashland Global ASH and because of that, we need to put some extra stuff in there. We are a long/short fund. We are primarily long. We’re very concentrated. Rarely do we have more than ten longs or ten shorts. We like to spend a lot of time with management teams and thinking about what motivates management teams.

The last nine years I think has been an incredible opportunity to objectively evaluate managers. Capital has been available to everyone. All you needed was a good idea and you could raise money. The question is, how did it work out? We’re all capable now of really putting together the pieces to see which managers did well and which didn’t? I think that objective scorecard is really important. It’s really interesting to see how the last presentation, the compensation committee, gave max comp to underperforming management team. We look at that stuff a lot. As I said, value plays versus value traps is our motto. Cash and patience are our allies. Then very importantly, we try to look at the exit strategy. Who’s going to buy the company from us? Particularly on the short side.

If we’re going to get heavy on the short, this next one we’re heavy in. We want to just make sure that there isn’t a buyer, right? Waking up in the morning and seeing that someone bought you out could be a disaster. We spend a lot of time mapping out corporate structures on both the long and the short side. Where are we? There we go, dead-man’s hand.