RAOUL PAL: I'm really excited about this next interview. Not only is the interviewer new to Real Vision, he's been on once before as an interviewee. Christian Alexander is an old friend of mine. We used to work together at Goldman Sachs many years ago. Chris is a really special guy. He intimately knows the world's most famous hedge fund managers. He's friends with them all. He's very well respected for his slightly off the wall non-consensus take on the world around him. He writes a brilliant, brilliant weekly newsletter called Macro Link, which is something that I read religiously, and it's not always about markets, it's about life in general.
Chris now is also a headhunter to many of these very famous hedge funds, and he's really well respected. Chris suggested that we interview Beeneet Kothari and Beeneet is the managing partner of Tekne. He's a tech investor. He used to work with Stan Druckenmiller, and he may not be on everybody's radar screens, but he is incredible. This interview really is going to be a masterclass in understanding how somebody runs portfolios, their investment careers, how they look at the world and how they invest. I really hope you enjoy it.
CHRIS ALEXANDER: Beeneet, I thought it'd be interesting to begin the interview exploring how you got into the business, what was your experience with Stan because almost all people who have worked from him have taken away valuable life's lessons in their experience working there, and I don't-- even in my own interactions with him, if I've had maybe the sum of 30 minutes of interaction with him, 10 of those 30 minutes are the most memorable that I've had financial markets for the things that he said that were interesting or informative and for his ability to cut through things pretty quickly and come to sharp observations. They're almost undeniable, even with respect to parenting, one of the slogans he uses with parenting, quantity is quality. That's the most simple summary of parenting I've ever heard and the most accurate.
You studied undergrad, both biochem and economics. Was that by design to move into a fund management type position, or did you want to keep an option open to go into biochemistry or some type of medical field?
BEENEET KOTHARI: Thank you for having me, Christian. I don't come from a family of investors. I was born and raised in India. My dad's an engineer, and I thought I would be an engineer. I went to University of Pennsylvania for my undergraduate degree and the only reason I went there is because they allowed me to do a joint degree program between the engineering school and finance. I love the engineering bit so much that I stuck around to do a master's in engineering. All my summer jobs were in engineering. When I needed the money, I went to go program. When I didn't need the money, I programmed.
That was what got me excited. I was gravitated always towards the math and the science and the technology bit. The thing about the University of Pennsylvania if you go to Wharton is it's an incredibly gravitating force on the campus. It almost doesn't matter what else you do. If you did Wharton, you somehow ended up in finance after college. I ended up at Morgan Stanley here in New York, in banking. If I could choose a sector, which I was able to, I chose to focus on technology.
CHRIS ALEXANDER: How much timeframe did it take you from entering as an undergrad to graduate to a master's degree?
BEENEET KOTHARI: Four years,
CHRIS ALEXANDER: Four years. You're coming out of university as though same age to your peers, but with a master's degree also?
BEENEET KOTHARI: Yeah, I did two undergrads and a master's in that four years and still what got me excited in the morning was technology. I went into banking. I stayed there for about a year and started interviewing for other jobs. Banking, I think it's an unnecessarily bad reputation. That year that I worked there, it was really my first job. It was the first time I got to learn how to be an employee. Pay attention to detail, do the job you're asked to. At some point, you start wondering if there's more you can do and through a headhunter, I got an interview with Duquesne and I still remember to this day getting that phone call. The recruiter calls me and says, Beeneet, you'll never believe this. Duquesne Capital is looking for a technology analyst.
There was an awkward silence because I was expected to know what Duquesne was. To my embarrassment, I had no idea and she says, I'll say it again. Stan Druckenmiller wants to hire a technology analyst. She finally says, I'm going to hang up the phone. I want you to go to the computer, do a little bit of research, call me back, and at least act excited. I went through the interview process and during the entire interview process up to, and including the interview, the final interview with Stan and for the next six years, I felt like I got really lucky. I still remember getting that job and looking around, and you nailed it with Stan, the guy's a legend but even the 20 other people that work there were some of the best people I've ever worked with.
There was so much to learn. Technology was back then a small enough sector where I could do a lot. The people I directly reported to allowed me to do a lot and it ended up being the most incredible experience. I started there in '05, I was 23 years old. In a few years, I was made a portfolio manager. As one of the youngest managing directors in the history of Duquesne, I started managing a portfolio which grew over time.
CHRIS ALEXANDER: What size did that start?
BEENEET KOTHARI: It started at either $100 million or $150 million and slowly grew over the next three or four years. That whole time working with Stan, you're spot on, you would have tiny little interactions with him. Sometimes they were direct, sometimes they were indirect. You would overhear him say something and those five or 10 or 15 words he spoke would stay with you. They would be stuck in your head for the next day, the next week, the next month. You look back at the summation of all the things he said and they start forming. If you're into investment management, a set of risk philosophies, if you're interested in how to lead a more of an ethical life, which I think in the investment management business, he's among the best. It has an enormous influence on you, particularly if you're young and particularly if you're lucky enough like I was to be in such close proximity to him.
CHRIS ALEXANDER: There was a famous moment where at Tudor, they do every year a fire-- or they had in the past, done every year a fireside chat where Paul Jones would bring one of his peers on board and interview the person and Tudor's philosophy has always been steadfastly that portfolio managers should have stops. What's your target price out? What would be the target price where at which you're going to have to be invalidated and know you're wrong and dump it?
Paul had Stan come in for one of these, gets him up on stage, the entire partnership of Tudor there and he says, how do you think about stops? Stan said, I don't. I changed my mind, I sell it. It would have been as though somebody said to the audience, God doesn't exist. It was a shocking moment for the people who work there. In your experience working at Duquesne, what did you take on board about risk management and how did that influence your process now?
BEENEET KOTHARI: It's amazing. The way we run Tekne is very different than Duquesne. Duquesne was a macro fund, one of the greatest macro funds in history. Duquesne did everything under the sun, stocks, bonds, currencies, rates, commodities, we do only stocks and within stocks, we only do tech. Duquesne was sometimes directional in nature, we are if anything, more concentrated, we own 10 companies, we own it for long periods of time. We don't really--
CHRIS ALEXANDER: What's your average holding period?
BEENEET KOTHARI: It tends to be measured in years, about three years. As an example, during the month of March, we had hardly any trades and I believe March in 2020 was one of the most volatile months in 25 or maybe 50 years. Duquesne was very different. This isn't a good or bad thing because that track record is nothing but the best but it was very different. Yet, the way we have structured Tekne and the way we invest comes out of that what I thought was the single most important lesson from Stan. That lesson was you make 80% of your returns in a given year from a handful of things. What are you doing with everything else? Pick a few things and bet big and that's exactly what we decided to do. There is no merit in your 16th best ideas.
CHRIS ALEXANDER: It's like Occam's razor philosophy to investing almost.
BEENEET KOTHARI: The second big thing I learned from him was focus on the big things and if you get the big things right, the little things won't really matter. We've talked about this a lot, I think about this a lot. You're often wondering, am I sized correctly in this position? Should it be an 8% position or a 9% or 10% position? To me, those have become the small things, the little things. The big thing is, should I be in this position or not? Should I own this company? Should I be short this stock? That's the big thing, you get that right, everything else will matter a whole lot less.
When a stock goes against you, you can't be small enough. 8%, 10%, 12%. All of those are the wrong answers. When a stock works, you can't be big enough. Those two big ideas, which is focused on a few things, and get the big thing right, the big picture, that the yes or no question right, over the long term, everything else will become much less important..
CHRIS ALEXANDER: What were the two minutes at Duquesne when there's a minute when you'll have decided, okay, I'm sticking with this career track. I'm going to be a fund manager. I enjoy what I'm doing. That's it for my career. Then the second one is when did you decide, okay, now having made that decision, Duquesne has been amazing. I'm going to set out on my own and put out a shingle that says Beeneet at Tekne, doing my thing.
BEENEET KOTHARI: It's really funny, and people only have the experience they've lived. I don't think I ever had a moment where I decided this was it. I had about a dozen moments where I wondered if this was it, where I wondered if it was more likely that this wasn't it. There's no day you wake up knowing you got to a stock right but there are many days you wake up knowing that you might have gotten a stock wrong. When you get enough stocks wrong in a short period of time, you start wondering, maybe I should have stuck with engineering. The next thing you know, five, six, seven years go by and you realize that you're probably not as bad as you thought and probably not as good as you think. You're somewhere in the middle but you really Like it, and there's a ton of room for improvement.
You looked at everybody around you, I was, unfortunately, or maybe luckily one of the younger people there. There was a ton of experience walking around you. All of those people still came to work learning hundreds of more things. The other thing I got lucky with is I chose tech or tech chose me, that's what I was excited about and it's hard to be a tech investor and I, in my opinion, never get bored, because there's always something new. I think enough time goes by and you realize you're not as bad as you were on your worst days and you realize you can get better and you decide, I'm going to keep going. I think a lot of good careers are made when you just pick a thing and stick with it for as long as possible. 2020 will be your 15th of doing this and I might as well keep going because I like it.
The second question of when did you decide to leave, even though these narratives are never as clean as you might want them to be in your own head, I was approached by a wealthy family to manage money for them. Again, there was never a day when I knew it was the right thing. There were many days when I wondered if it was the wrong thing. The best advice I got during that period was also from Stan where he said some version of, look, I was 29 years old when I started Tekne in 2012. He was about the same age. To be clear, no way am I comparing myself to him or anybody else.
He said for about the first five years, I wondered if this was really for me, and I think part of what he was saying is you never feel ready. It's never the perfect time. Your partners are never the permanent partners. You do it, you take the risk. In a way, it's like investing where you get trained at making decisions based on imperfect information and the decision to stick with investing, the decision to join Tekne, the decision to leave and start Tekne, excuse me, Duquesne. Those are all decisions where there are more days you wondered if you've done the right thing but you do it and you course correct and the next thing you know, 15 years have gone by.
CHRIS ALEXANDER: What's been the evolution of your investment process since you've left? If you were studying under a master chef, and you were the sous chef, and you learned a lot from Stan, and in time, you open your own restaurant and it becomes Beeneet's Place. What has been the evolution of your process since you left Duquesne to this point now and how would you describe what you do now as a process?
BEENEET KOTHARI: We have become over the last eight or nine years much more concentrated. We used to own maybe 20, 25 companies. The typical fund will own 50 or 60. We were above the median, we were top quarter concentration. We've taken that to the next level. We're at about 10 companies today. We were always long term investors, never really focused on the day to day or week to week or month to month. We're now measuring ourselves in years, and I think that has even a longer runway to go.
The other big transition that's happened to us and this is maybe peculiar to technology, is we have effectively decided that out of all the things you need to do to make money on investment, you can only choose a few of them and for us, it was going to be paramount of business quality, and focus less and less on all the other things, because it's back to that big lesson from my first job at Duquesne which is get the big thing right. We decided in technology investing-- and this might be true for other industries, the big thing is, is this a good business? Is this business sustainable? Are the profits expected to grow? All the other things, if you get that right, end up mattering a lot less. Differently, you get that wrong, and nothing else will really save you. Those have been probably the biggest changes.
CHRIS ALEXANDER: If I look at my own process for doing headhunting, one of the approaches that I use is to spin counterclockwise and that will either catch people off guard or enable me to situations where I wouldn't normally belong and also it enables me to do things that I think are outside of my own capabilities. If you're a personal fingerprint on Tekne, how do you see that as opposed to the process which is more rigid thing? What's the part of it that's something that is part of your personality you've embedded into the organization and its thought process?
BEENEET KOTHARI: You realize that-- and I think this is something you're very good at and I've seen you experience this-- confirms my perspective, which is you realize that even investing, which is a very numbers focused game really comes down to relationships. You start realizing that the network you've got is really important. Because that network, when you've got question, points you in the right direction. The network doesn't give you the answer, but the people within that network will tell you which way you're heading. If you're heading the wrong way, they'll tell you to turn around. I think if you had to ask the people I work with at Tekne, what is it about their process that's changed or evolved due to my fingerprints, it would be to maybe step outside of the Excel every once in a while and lift your head up and ask people in your network questions.
When people say network, in their mind, they think I need to ask CEOs or founders or hedge fund managers or billionaires, you just need to talk to a lot of people. That was something that I think Duquesne was really good at. I saw all these people that were, over time, they became experts. They didn't go to school for this. They didn't have a necessarily a particular knack for an industry. They developed a network. They got good at asking questions. They got really good at knowing people's biases. I think this is another thing I've watched you and other people get very, very good at.
The same question and the same answer could have different consequences based on who's asking and who's answering. It's like that old lawyer advice that you're given in law school, which is you never ask a question you don't know the answer to.
CHRIS ALEXANDER: One of my favorite sayings by the way.
BEENEET KOTHARI: My version or the investment management version of that would be you never ask a question without baselining that person's answer. This bit, I think, is just as challenging as modeling a company or trying to forecast the future but just like those other two things, it requires a lot of practice and experience and to get good at it, but that's something that, I think is a very, very important part of how Tekne invest.
CHRIS ALEXANDER: What's in the history-- since you started Tekne, what's the investment that worked well and taught you a lot in the course of its success, and what's one that kicked you in the teeth, but if you can give specific names that kicked you in the teeth that you thought, I'm not making that mistake of going down that hill again without the brakes on?
BEENEET KOTHARI: Our investment process has evolved. The requirements that we've got of the kinds of companies we'll buy, the kinds of stocks we'll buy--
CHRIS ALEXANDER: What are those, for example?
BEENEET KOTHARI: Yeah. Today, we'll only buy businesses that are growing, businesses that are profitable and unlevered. Our perspective is if you own a portfolio, so we own about 10 companies, of businesses that grow, make money, and there's no debt ahead of you as a stockholder, as an