COPAL CAPITAL INSIGHTS

Whales move slow but birds are free as air. Many institutional funds with billions under management like to advertise that they retain "the spirit and flair of investment boutique [firms]." They may think that they are retaining the flair, but they cannot match our agility or returns. For a firm to manage an investment that is nine figures or larger it is limited to ideas that work with big numbers. As a result, most of these firms focus on macroeconomic trends or spread their investments over thousands of companies. Investing in small companies or limited time opportunities is simply not a possibility for large firms. 

Large firms have a daily battle with slippage which is as a result of orders being too large for the market. This results in the settlement price being unfavorable for these large firms specially in volatile markets. For an investment firm to be nimble and reactive to new developments in the market, it needs to keep its size manageable. We believe that managing an eight-figure investment demonstrably has given us an edge that has helped us to outperform firms with larger asset size. Afterall investors do not care for the size of the assets under management, they rightfully and exclusively care about the return on equity. 

Patience is bitter, but its fruit is sweet. One of the down falls of big companies and investment firms without visionary founders is their succumbence to short-term pressures. Each quarter the teams have metrics to satisfy. This short-term pressure forces the companies to forego strategic investments that bear fruits in medium to long-term. The same pressure forces fund managers to avoid high alpha investments simply because they may have a high beta. Coerced by fear, many fund managers excessively invest in put options or short their positions when they very well know this is not in the interest of their investors. This is the unfortunate reality of current investment firms where short-term survival is rewarded at the expanse of long-term growth. 

At Copal Capital, we seek risk adjusted growth. As a boutique, family firm we are invested in the firm and its success. We take the bird’s eye view to market developments and refrain from sacrificing long-term success for short-term security. 

Apollo syndrome is attributed to teams of bright individuals not being able to perform better than average. This phenomenon has been demonstrated consistently and invariably in various industries including investment management. Majority of funds with more than 25 team members are unable to outperform index funds; and there are none that we are aware of who have outperformed our firm in long-term. Big teams spend too much time debating, proposing and opposing. They get hampered trying to find flaws and advancing individual agendas. The best ideas get thrown out because these teams are only able to implement ideas popular with in the team. 

As the size of the team grows, with each new hire, the harder it is to keep average intelligence and skill incrementally as high as the outset. With each new team member added the costs increase, the incremental performance decreases, and conflicts increase. This is reason boutique and family investment firms are able to outperform big and credentialed funds.