This Best Ideas 2019 preview is authored by MOI Global instructor Artem Fokin, Portfolio Manager at Caro-Kann Capital, based in the San Francisco Bay Area.
Artem will speak at Best Ideas 2019, LIVE on January 11 at 12:00 PM ET.
Imagine that you have a time machine that enabled you to return to 1995 where you met a 48-year old Stephen Schwarzman who co-founded Blackstone ten years earlier. Mr. Schwarzman offered you the opportunity to buy shares in Blackstone at 15x LTM earnings. Imagine further that you had your checkbook with you on this imaginary journey, you liked Mr. Schwarzman, and invested money into privately-held Blackstone (i.e., the management company, not the private equity fund).
How well would have you done on this investment? While we do not know for sure because Blackstone was a privately-held enterprise back then, we do have a few useful tidbits of information.
First, in 1998, AIG bought a 7% stake in Blackstone for $150 million. Thus, the implied valuation was $2.14 billion[1]. We do not know what this valuation meant in terms of multiple of earnings or free cash flow but I suspect that it was more than 15x which is the multiple Mr. Schwarzman offered you.
Given that you traveled back to 1995, you would have probably got a lower valuation than AIG got. Let’s call it $1.75 billion.
Second, Blackstone had a market cap of ~$35.9 billion as of December 14, 2018.
That would mean that your investment has returned more than twenty times your money and compounded at ~14% during a 23-year period[2].
* * *
If you are feeling sad because you do not have a time machine and just missed out on a potentially life-changing meeting with Mr. Schwarzman and a great investment, please do not.
At Best Ideas 2019, I will present a company led by two extraordinary founders, which appears destined to dominate the industry that reminds me of private equity 25 or 30 years ago. The company can compound intrinsic value at a 25%+ rate for many years to come.
Members, log in below to access the restricted content.
Not a member?
Thank you for your interest. Please note that MOI Global is closed to new members at this time. If you would like to join the waiting list, complete the following form:
[1] A.I.G. Will Put $1.35 Billion Into Blackstone. New York Times, July 31, 1998.
[2] Please note that this exercise is inherently imprecise, and I am ignoring any dilution that has most likely occurred during this 23-year period. While imprecise, the exercise still illustrates the key point well.
About The Author: Artem Fokin
Artem Fokin is the founder and portfolio manager of Caro-Kann Capital LLC, a hedge fund based in San Francisco. Prior to founding Caro-Kann, he was a principal at Outrider Management LLC. Before entering the investing industry, Artem was an attorney with Greenberg Traurig LLP in New York City. Artem earned an MBA from the Stanford GSB (Arjay Miller Scholar), a Master of Laws degree from NYU School of Law (Newman Scholar) and a bachelor of law from the Higher School of Economics (Presidential Scholar) in Russia. Artem is admitted to the practice of law in the State of New York and is a dual citizen of the United States and Russia. Caro-Kann Capital LLC is the general partner of an investment partnership based on the principles of value investing that focuses primarily on special situations and compounders. Caro-Kann Capital is named after a chess defense that emphasizes building safety and defensible position before contemplating an offensive strategy. The Founder’s substantial legal experience brings a greater ability to analyze complex corporate documentation accompanying extraordinary corporate events. The Fund’s core investment principles include: (1) concentration when properly compensated, (2) risk is not equivalent to volatility, (3) non-economic selling can lead to attractive opportunities; (4) capital allocation is often underappreciated by the market, and (5) incentives and insider ownership are paramount.
More posts by Artem Fokin