Quantitative Investing With Verdad Capital’s Dan Rasmussen, Nick Schmitz And Brian Chingono Talk Private Equity Style Investing In Small Caps [Full Podcast And transcript

A Q&A session with Dan Rasmussen, Portfolio Manager of the famed Verdad Capital as well as, Nick Schmitz, Japan Portfolio Manager, and Brian Chingono, Director of Quantitative Research. The full podcast is available for all readers, the full 10,000 plus word transcript is available below for Hedge Fund Alpha subscribers and our profile on HiddenValueStocks with Verdad from summer 2017 is avaible for HVS subscribers – enjoy!

Q4 hedge fund letters, conference, scoops etc

Quantitative Investing With Dan Rasmussen, Nick Schmitz And Brian Chingono

Transcript

Good morning podcast listeners, today’s very special episode, I am joined with Dan Rasmussen, the Founder and Portfolio Manager of Verdad, Nick Schmitz, Japan Portfolio Manager and Brian Chingono, Director of Quantitative Research.  Prior to starting Verdad, Dan worked at Bain Capital and Bridgewater Associates, he graduated [inaudible] from Harvard, and received his MBA from Stanford Graduate School of Business.  Nick served as a Captain in the Marine Core in Afghanistan and has taught Political Science at the US Naval Academy, in addition he [inaudible] in Japanese at the US Naval Academy and has lived in Japan completing a language emersion in Tokyo.  He received his MBA from the Stanford Graduate School of Business and a Master of Philosophy from Oxford University as a Rhodes Scholar.  Prior to joining Verdad, Nick worked at Goldman Sachs, prior to joining Verdad also Brian worked at Dimensional Fund Advisors and Credit Suisse. He received his MBA with Honors from the University of Chicago School of Business where he concentrated in finance, statistics, econometrics, he’s a graduate of Harvard University where he concentrated in government with economics as a secondary field.  Brian and Dan authored two research papers related to Verdad’s investment strategy, leverage small value equities and forecasting debt paydown among leverage equities.  In today’s episode we will discuss what they found works in investing.  I want to welcome Dan, Brian and Nick to the show and I want to welcome our listeners to a very, very special episode.

Welcome to ValueTalks with Raul.

Alright,  welcome  to a very special episode.  I have Dan, Brian and Nick from Verdad Advisors.  And Dan, Brian and Nick welcome to the show.

Dan:  Thanks so much, Raul.

Nick:  Thank you.

If you can tell me about your background and what led you to finance and investing?

Dan:  Sure.  I’ll start and then hand it off to Nick, and then Brian.  So I’m Dan, I started out really in investing because my dad was a lawyer and my junior year of college dad said that I shouldn’t take a job that billed by the hour, but rather a job that paid based on the quality of decisions.  So I applied for internships in investing and was lucky enough to get one at Bridgewater and I fell in love with really some of the ideas that Ray Dalio and Bridgewater espoused about searching for truth and betting on laws that govern markets and Ray Dalio used to say that investing is the Olympics of the mind, that it’s the most intellectual business pursuit because you’re simply betting on ideas.  And I sort of fell in love with that idea, went to Bain Capital afterwards and then started Verdad in 2014.

Nick:  Thanks, and you have Nick here, I came to investing by way of meeting Dan at Stanford Business School, about day one there he recommended that I read Andrei Schleifer, Robert Shiller and Excess Volatility and kind of fell in love with the topic.  Prior to that I was on a teaching faculty with the Political Science Department in the US, and before that I was a Marine Infantry Officer since 2009 and Afghanistan before that.  So I came to it via Dan at Business School and his philosophy on investing and the academic literature on it I found fascinating.  And worked at Goldman Sachs for a while right after Business School and then following that I run the dedicated Japan version of our strategy as my minor was Japanese in undergraduate.  So sort of a circuitous route but found my way into hedge funds at the end state of it through Dan.

Dan:  Yeah, Nick might be the most interesting man in the world.  I mean the only Rhodes Scholar, Marine Core, Japanese speaking Hedge Fund Manager out there, so.

Nick:  Thanks, Dan.

Brian:  And so I’m Brian Chingono, I grew up in Zimbabwe and I came over to the US for college and that’s where I met Dan in our first year of college.  I started my career at Credit Suisse’s Private Equity and Fund Investment Group.  And I spent four years there right after college with the mandate of we’re investing in small to medium size private equity funds, with and to the approach of expecting slighter higher returns amongst the smaller fund managers.  Then I went to Business School at the University of Chicago, mainly with the thought of learning more about the academic and empirical approach to finance.  I’d read about Fama-French and other professors who had pioneered in the field of concentrated finance at the University of Chicago.  So I was really interested in studying under them.  And it was during that time in Business School that Dan and I partnered together to test this idea of whether you could replicate the drivers of private equity in public markets.  So the simple idea being that if you were to invest in small cheap levered companies that are publicly listed, how would those have performed.  So then did our first study on that during Business School and we published that paper online which is on levered small value equities.  And then also developed a machine learning model that would help us to focus which companies are most likely to pay down debt.  After Business School I spent a year and a half at Dimensional Fund Advisors, and then joined Dan and Nick full-time in January of 2018.  And at Verdad I primarily work on qualitative research, including our machine learning models and then also overseeing the Europe portion of our portfolio.