value and opportunity

Full Disclosure:
This is not investment advice or advertisement. Do your own research. The fund manager did not ask me to write this post, it was the sole decision of the author. The author is personally and with real money invested in the fund and knows the fund manager for many years. The author will get a symbolic “liquid commission” for any new investors coming through the blog which will be disclosed at the end of the post.

In March I already wrote a “prequel” to a potential new fund investment, listing the requirements I see for giving money to another investment manager. Now I have done it.

The fund is called “TGV Partners Fund” managed/ sub-advised by “MSA Capital”. The website of the fund and more information can be found here, the website of the sub-advisor can be found here: MSA Capital.

Back then I listed the following criteria which were important to me in order to trust part of my money to someone else::

1. The manager has to be trust worthy
2. The manager should have most of or even better all his money in the fund
3. the manager has a different skill set than oneself or just better skills or access to different assets
4. The manager should still be “hungry”
5. The fund manager is not only in for the money
6. The investment vehicle should be a “fair” structure

So let’s check the TGV Partners fund against it:

1. The manager has to be trust worthy
Well, I have an unfair advantage here as I have done “due diligence” on Mathias Saggau the fund advisor/manager for the last 8 years or so, constantly exchanging ideas and talking about everything (and drinking some cold beers together…). Mathias himself has a very good “credo” to ultimately decide if he invests into a company. He asks himself the question: “Would I trust my wallet for safekeeping to the CEO ?”. If there is the slightest doubt, he will not invest. Period. Would I trust my Mathias with my wallet ? Yes, absolutely.

2. The manager should have most of or even better all his money in the fund
That’s the case, Mathias invests all of his money in the fund alongside his clients.

3. the manager has a different skill set than oneself or just better skills or access to different assets
The thing I admire most is his ability to really dig really deeply into to companies and industries. I think he is very good in judging if there are competitive advantages in the long run. His deep research combined with a long time horizon allows him to have very high convictions and run a concentrated portfolio. Personally, I think I can pretty well identify what doesn’t work, but I am less able to identify what actually works, so I do think it makes sense to “outsource” some money to someone who has this skill. We do have some overlaps but I can live with this …..

He is also connected to other great investors via the “Investmentgesellschaft für Langfristige Investoren TGV” which contains an enormous amount of investment wisdom. I know all the people there personally as well and had the privilege to attend some of their events such as the 2 day conference in Omaha before the annual meeting of Berkshire.Rob Vinal from RV Capital works under the same “roof” and with a similar structure.

4. The manager should still be “hungry”
He is just starting the fund and will “work his but off” to succeed. I know that he is thinking about stocks most of the time, including weekends…..

5. The fund manager is not only in for the money
I know that Mathias has transformed his hobby into his job. He is an absolute “stock maniac” in the most positive sense.

6. The investment vehicle should be a “fair” structure
The TGV structure is a rarely used structure, sometimes it is called the “German Hedge Fund structure” even though it is open for public investors and similar to a Sicav. One of the key features is that the fund’s interesting share class is open only on a quarterly basis. Many investors might feel uncomfortable with this. But if you run a concentrated portfolio with potential illiquid stocks, you definitely don’t want someone to call and ask for his money back the next day, especially in bad market environment. Also as an long term investor, investor you want to make sure that the manager doesn’t have to dump his shares cheaply just because another investor gets nervous because this hurts all investors. I also know the main seed investor personally and he is in for the long-term. It also helps enormously NOT to see daily movements in the value of investments.

The TGV structure allows more flexibility than normal funds, especially with regard to instruments (shorts, derivatives) and more importantly, more concentrated portfolios. One of the major disadvantages for the fund manager is the fact that this structure is much harder to sell to investors such as fund-of-funds because of the unfamiliarity and lack of instant liquidity. As an investor I find this positive because you can be pretty sure that if someone choses this structure, he will not be in for pure “asset gathering” but for performance.

Portfolio & Investment style

The portfolio composition as of 30.06.2015 can be found here. The largest position is Google with a 15% weight followed by National Oilwell Varco (11%) Distribution NOW (9%) and Verisign (7%). As one can easily see by looking at some of the stocks (Amazon, Morning Star etc,) this is clearly no Graham style “deep value” portfolio. I would describe his investment style as “Munger meets the 21st century with a contrarian angle” kind of investing which means using the underlying framework of competitive advantages (“Moat”) and good management but transporting it into relatively new sectors such as software or internet related companies. As Mathias is still in a relatively early stage of his carreer I expect that his investment style and “circle of competence” will further evolve and he will become even better than he is now.

For any further information I can only recommend the freshly published shareholder letter (Englisch, German). He discusses his philosophy and three specific stocks: Admiral, Amazon and TGS Nopec.

Let’s talk about “commissions”
Normally I don’t take any kick backs etc. for recommending something on my blog. But in this case and based on my special relationship with Mathias, I had to make an exception. The deal is the following: For every new investor who mentions my blog before (or after) investing with him, I will receive one “Kölsch” (0,2l) at a bar of my choice in Mathias hometown, independent of the amount invested.

Just to be clear: Mathias has to pay this out of his own pockets (not from the fund) and neither Mathias nor I will receive or pay any other “commissions”.

Portfolio transaction:

For the portfolio, I assume I have bought a 4% position at the price of 30.06.2015. As this is a “special” position, it does not count towards my 1 transaction per month limit.