Investing Notes: Brady Dougan 9/24/2020

Hi, All:

These are my personal notes from a talk I attended from the Investment Institute: Investing Notes: Brady Dougan 9/24/2020. I decided to attend this one because SPACs (Special Purpose Acquisition Companies) are all the rage right now and VERY INTERESTING as a vehicle for cash preservation (with some upside), and also for fundraising (as a company who's ready to scale and interested in doing an IPO (Initial Public Offering - when a company goes from being private to public), with a lot more support). SPACs remind me of the ICO (Initial Coin Offering) world, from which I got my first taste of this. They are sometimes called "Blank Check Companies". Some people will criticize and ridicule it. I am a believer and think this is a trend that'll be sticking around. 

Hope these notes are helpful to someone out there. Feedback always welcome.

--Arry 

Here are the bios of the folks that were in the presentation:
​
Brady Dougan (Interviewee)
Brady Dougan is an American banker and CEO of Exos. From 2007 to 2015, he was the Chief Executive Officer of Credit Suisse. Before this, Dougan was CEO of Investment Banking and acting CEO of Credit Suisse Americas.   After starting his career in the derivatives group at Bankers Trust, Dougan was hired by Allen Wheat to join Credit Suisse Financial Products in 1990. In 1996 he was named Head of the Equities division, a position he held for five years before being appointed Global Head of the Securities division in 2001. From 2002 to July 2004, he was Co-President, Institutional Services at Credit Suisse First Boston, and from 2004 until the merger with Credit Suisse in May 2005, he was Chief Executive Officer of Credit Suisse First Boston. Dougan received a BA in Economics in 1981 from the University of Chicago and an MBA in Finance in 1982 from the University of Chicago Booth School of Business. 
 
Ted Seides (Interviewer)
Ted Seides, CFA is the Founder of Capital Allocators LLC, which he created in 2016 to explore best practices in the asset management industry from the perspective of asset owners, asset managers, and other relevant players. He hosts the Capital Allocators podcast and serves as an advisor to allocators and asset managers. Previously, Ted was a founder and served as President and Co-Chief Investment Officer of Protégé Partners, LLC, where he spent 14 years at a leading multi-billion-dollar alternative investment firm that invested in and seeded hedge funds. Ted began his career in 1992 under the tutelage of David Swensen at the Yale University Investments Office. During his five years at Yale, Ted focused on external public equity managers and internal fixed income portfolio management. Following business school, he spent two years investing directly at two of Yale’s managers.

Investing Notes: Brady Dougan 9/24/2020 Interview

Brady Dougan Talk notes:

What is the functionality of financial institutions? What are the aspects of a bank that you took to Exos? Answer: The basic function is to intermediate the financial flows, and to do so in a productive way. This can be done a lot more efficiently through modern technology:

• Can do it all faster and more efficiently.
• Can do new things too.
• Platform play was important. 
• Lots of experience on the structuring side.
• Example - construction finance is an area of focus, has technology to track payments/data and allows business at scale. 
• Has algorithmic training business too.

SPAC investing opportunity. How to approach framework for investment fund in SPACs.

Then he talks about a special fund that Exos and Morgan Creek are doing together. It's called the "SPAC Plus Fund":

• Focus on short term relatively liquid cash safe vehicle. 
• SPACs are very interesting. They’re listed equities and trade on exchanges. 
  • First part of their life is very much like a fixed income.
  • Do an IPO, take the money and put it into a trust
  • When then do the acquisition, then they announce the acquisition.
    • If fail to do an acquisition, then investors get money back.
    • Fixed income protection on the downside.
  • If successful acquisition, then sell the stock at a profit.
  • Downside is the treasury with upside.
• Monthly liquidity.
• Is it a vehicle/type of asset? 
  • Instrument that optimizes for all the players involved.
  • Good return for investors.
  • Great vehicle for sponsors (management team of SPACs) gives them capital to deploy.
  • Good for the acquired companies. 
  • Very efficient and positive way to take companies public, good way to deploy the cash, manage cash.
• The market has graduated
  • We have high flyer companies - Virgin Galactic, etc… are using it as a vehicle. 
  • There are not many big losers.
  • People who take the biggest risk are the management team that create the SPACs. They’re 100% at risk. They’re the most knowledgable, etc…
  • They get great returns when they are successful.
    • They pay all the fees to take the company public - underwriting for IPO, the legal fees, etc…. All the costs of pursuing the acquisition 12-24 months. Fees on SPACs are 2% typically.
  • Promote or 20% that the sponsors own in the continuing business after the acquisition. There’s substantial dilution still. There’s fees. 
  • Opportunity to be a part of the initial private equity pool into SPACs too.
• Diversification is important
• Is this a fad?
  • No - likely be very durable. Serves everyone well.
  • It is a very interesting category of assets to have some exposure to
• SPAC to buy Bitcoin???
  • It’s a definitely a newer market.
  • It’s one of the reasons as an asset category it’s really important. 
  • Professionally managed asset is a good way to do that.
  • Access to mining as well.
• What’s the catch to SPAC+?
  • There isn’t it….
  • It’s an area you have to entertain any possibility 

What about crypto/stablecoins/etc?

• Regulatory side will develop and is slowing things down a little.
• The regulatory world is getting a lot of it right.

How do you allocate your time across all these different things?

• As CEO of Credit Suisse, my calendar was set for the next 2 years.
• With Exos, that’s not the case. Allows me to be very nimble and flexible. I have to be very responsive and flexible with my time. How to build new businesses or expand businesses. Lot is working with the team here. 

What’s the biggest unexpected challenge of being a CEO of Exos versus Credit Suisse?

• Brady has been surprised at how slow moving large organizations are.