Harris Kupperman — Creating Ways to Invest in Unique Trends

SPECIAL VALUE INVESTING CONGRESS NOTES FOR THE IRREGULARS

Harris Kupperman is an international growth hedge fund manager who basically launched Mongolia Growth Group (YAK.V MNGGF) because he was looking for a way to invest in a trend that wasn’t really available. His talk wasn’t really so much about the company they’ve been building (and which I bought a few weeks ago), but about the reason he started the company: Because there weren’t easier ways to invest in this trend.

In a world where smart people are chasing the same kinds of assets, but the real opportunities are no longer in the public markets — you have to make the opportunities on your own in assets that aren’t yet “financialized”.

“Financialized” assets are those that have been turned into tradable assets, stocks. Non-fianncialized assets are the little companies in places where no one else is looking.

Missed opportunity: Farmland. A trend that many have found but that hasn’t been easy to profit from.

Agriculture was an obvious and compelling trend in 2004 — do you play it with fertilizer, seed, irrigation, pesticides, equipment, trading commodities, how do you get leverage to ag prices and keep that leverage for a long term. Buying futures eats up profits and there’s no operating leverage. The way to play it was the actual farmland.

There were no publicly traded vehicles to own farmland in 2004, now there are a bunch of them that are going to become “financialized” as they enter the public markets and the easy money is now gone.

If you know what the answer is and the investment doesn’t exist, build it yourself.

Mongolia was an opportunity that came along, like farmland, and he decided not to miss it. Isaac Schwartz, who presented yesterday, was the person who brought him out there. What made Mongolia interesting was the huge CAPEX of Oyu Tolgoi that will double the GDP.

There is $30-50 billion of “stuff” being built in Mongolia and the exports will go up 10X at a bare minimum over the next eight years.

So how does all this money fit into such a small economy? It doesn’t the economy has to growly more than ten times in ten years, a unique situation because of the small base and the huge change.

He couldn’t get good exposure to Mongolia after trying for two years — companies are small and opaque and mostly private, so he ...

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