We are pleased to share with you our interview with Barry Pasikov, managing member of value-oriented investment firm Hazelton Capital Partners.
While we have been aware of Barry for some time, one of our members recently sent us the following note: “I have been an avid reader of your Manual of Ideas publication over the last couple of years and have truly enjoyed the content, which is both professional and a source I have come to trust. I especially enjoy when you interview some of the less well known investment managers. Many of these managers provide an insight into their investment framework that I have found especially helpful. In that light, I have recently come across an investment manager whose quarterly letters I have found to be of the same caliber. His name is Barry Pasikov and he runs Hazelton Capital Partners.” We always welcome our members bringing talented investment managers to our attention, and we are glad to have had an opportunity to interview Barry Pasikov.
Barry Pasikov is the founder and Managing Member of Hazelton Capital Partners, a value-oriented investment fund. The Fund is a distillation of Mr. Pasikov’s 20-plus years of experience in equities, currencies, commodities, options, portfolio and risk management. Launched in 2009, Hazelton Capital Partners employs two investing strategies: The Core Strategy constructs a concentrated portfolio of equity holdings that are selected based on a number of metrics, including sustainable revenue growth, margin expansion, the company’s balance sheet, and its management. The Overlay Strategy, through its use of options, commodities, currencies and risk arbitrage, complements the Core Strategy by providing a hedge as well as short-term cash flows. Barry holds a Bachelor of Arts in Economics from the University of Michigan.
MOI Global: Please tell us about your background and the genesis of your firm. What motivated you to set up Hazelton Capital and what operating principles have guided you since then?
Pasikov: Hazelton Capital Partners was launched in August 2009. The fund’s investing process incorporates many of my experiences covering equities, options, fixed income, currencies, commodities, as well as a strong focus on portfolio management. I began my career on the floor of the CME (Chicago Mercantile Exchange) in both the Eurodollar and currency options. After four years, I left the floor to take a position with Bank of Montreal in the foreign exchange dealing room in Chicago. During the Asian currency crisis, I was asked to move to Singapore to manage Bank of Montreal’s foreign exchange dealing room. After two years in Singapore, I had a brief one-year stay in Toronto to head up the bank’s Canadian sales desk, before returning to Chicago. I then decided to move away from foreign exchange and took a position with Peak6 Investments, a firm that focuses on trading and managing equity and equity option volatility. After two years with Peak6, I started my own partnership that was focused on trading and managing option volatility. The strategy centered on creating a portfolio made up of “cheap” and “expensive” options trading below and above their intrinsic value. After nearly five years, I left the partnership, pursuing an investment process that I had refined from the experiences, strategies, disciplines and portfolio management I had utilized over the years. That investing process became the foundation of Hazelton Capital Partners.
Hazelton Capital Partners utilizes two investing strategies: The Core Strategy’s objective is to create a concentrated portfolio of 15–20 equities that are selected based on how cheap they are priced compared to their intrinsic value… The Overlay Strategy is used to complement the Core Strategy and its goal is to provide short-term cash flow, as well as hedge a position or a portion of the portfolio.
Hazelton Capital Partners utilizes two investing strategies: The Core Strategy and the Overlay Strategy. The Core Strategy’s objective is to create a concentrated portfolio of 15–20 equities that are selected based on how cheap they are priced compared to their intrinsic value. It focuses on a number of metrics including revenue, margin expansion, the company’s balance sheet, and the management. The Overlay Strategy is used to complement the Core Strategy and its goal is to provide short-term cash flow, as well as hedge a position or a portion of the portfolio. This strategy uses options, and from time-to-time will short indexes and individual stocks, use commodities and currencies, as well as risk arbitrage/M&A to achieve its objectives.
I created Hazelton Capital Partners because it turned out to be the easiest way to manage other people’s capital, as well as my own capital, all at the same time. From the beginning, the partnership was designed as an investment vehicle to allow people to invest alongside of me. As one of the fund’s largest investors, I truly manage the fund the same way as I manage my own capital.
MOI: When it comes to stock selection, your criteria include predictable revenue and growth, a solid balance sheet, and shareholder-friendly management. What types of businesses have you favored historically and why?
Pasikov: It truly varies. Currently, the fund’s top five holdings are companies that specialize in M2M [machine-to-machine] communications, technology, manufacturing, services, and engineering, and the companies range in size from under $100 million to $100 billion. Since the number of positions within the portfolio is limited to between 15 and 20, each position is selected not only on its competitive advantage, but also on how the addition of the company will impact the overall portfolio.
A company whose stock price is cheap in relation to its intrinsic value will definitely catch my eye. However, the decision on whether that company is added to the portfolio will also be based on the company’s competitive edge (what do they do better than their peers and why?), whether or not the company can maintain that competitive edge (does the company have a scarce resource?), and how adding this particular company to the fund’s current holdings will impact the overall portfolio. I would say that the one common theme within the portfolio is that a number of the companies operate in a niche business. A niche business is often its own barrier to entry simply because it limits the amount of outside competition, helping those that are on the inside maintain good market share and profit margins. Those companies wishing to enter into a niche market frequently find that even if they are willing to spend a significant amount of capital, it will not guarantee them a place at the table. These companies are left with two alternatives: Pack their bags and go home or open up their checkbooks to purchase an established company.
I need to understand why the company is cheap. Is it because of the company or that the industry is going through a dynamic change – and not for the better, or is it because the company is unloved by the investing public? Getting a clearer picture of why a stock is cheaply priced will mean the difference between investing in a value trap or a potential opportunity.
MOI: If a company is extremely cheap but has a less-than-attractive business, to what extent would you consider it for inclusion in your portfolio?
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