Recently, Nicholas Kapur of SumZero interviewed James Haddaway of Satori Capital about institutional investing and hedge funds. Haddaway oversees more than $1 billion in firm assets including money in a program, Satori XL, that offers acceleration capital to investment managers getting established.
Haddaway explained, during the interview, that his mangers often have a nontraditional background and aren’t your typical financial investors. One example he gave is Crawford Lake Capital Management, their first acceleration investment. As Haddaway explained,
“Our first acceleration investment, Crawford Lake, was with two guys with very non-traditional backgrounds. They went to rabbinical school, they were in Lakewood, New Jersey, of all places, they were more technical traders versus bottoms-up investors – they just did not have the traditional pedigree at all. But we thought they were amazing investors and risk managers, and they had an exceptional track record. They were at $12 million in AUM when we invested, and now they’re at $900 million, and they’ve built an institutional-quality business. So all stakeholders have done incredibly well on that one, and we never would have found them if we’d only been looking for the traditional background and only looking in New York.”
Two other examples he gave with nontraditional acceleration partnerships include with Atlas in Charlotte, North Carolina and Payise in Mayway, New Jersey. Neither company had Ivy League workers or investors, just “great people and fantastic long-term track records.”
Haddaway and his team have been willing to take a risk on managers that others may have overlooked. As he explained, “Our Crawford Lake investment is a perfect example. They were completely off the radar. Others in our industry definitely questioned our decision. But they had a seven-year track record that we thought was exceptional: Mid-teens net returns. Made money in ‘08. Made money in ‘11. Worst drawdown: 5.8 percent. Low volatility. Great risk managers, very disciplined. And when we looked at the stocks they were trading, we could see that they could scale. They just needed help. It was a no-brainer to us.”
Haddaway and his team have invested a great deal of time creating specific criteria for what they seek – this includes behavioral indicator questions and other attributes. Interestingly, he explained that the major red flag for them is a company that is arrogant. And of course, compliance problems and poor references are disqualifies as well.