Investment Thesis

Overview

• Definition: An investment thesis is your argument for why someone should invest with you.
  • Explains why your fund can outperform the market or is safer.
  • Important for attracting investors.

Key Components

• Fund Launch Formula: Consists of four steps:
  1. Find an amazing deal.
  2. Frame that deal.
  3. Pitch investors.
  4. Prepare legal documents.
• Iteration: If investors are not interested, go back to step 1 and find a new deal.

Developing an Investment Thesis

• Experience-Driven:
  • Leverage your own or team’s experience.
  • Example: If experienced in gyms, consider a fund focused on them.
  • Use experience to make informed investment decisions and add value.
• Partnering:
  • Partner with experts in fields you're interested in but not experienced.
  • Example: Partner with an AI expert if interested in AI investments.
  • Utilize the expert's knowledge while managing fund logistics.

Case Study: Long-Term Capital Management

• Thesis: Short the 30-year bond and buy the 29.75-year bond due to pricing differences.
• Outcome: Initially successful, but collapsed due to unforeseen events (e.g., Russian bond default).

Practical Steps

• Ghosting:
  • Test your thesis by simulating deals or ghost trading.
  • Avoid legal document preparation until the thesis is validated.
• Market Research:
  • Engage with private equity funds to understand their needs.
  • Check with banks for distressed assets they are looking to offload.

Examples of Investment Theses

• Simple but Effective:
  • Focus on undervalued assets or sectors you understand well.
  • Example: Buying and packaging funeral homes for resale.
• Risk Assessment:
  • Consider potential market disruptions as part of the thesis development.

Scaling and Execution

• Fund vs. Syndication:
  • Start with syndication to test the waters before scaling into a full fund.
• Confidence and Validation:
  • Use ghost models to build confidence and prove the thesis viability.

Final Thoughts

• Inspiration from Various Sources:
  • Experiment and learn from existing fund models and strategies.
• Flexibility and Adaptability:
  • Be ready to pivot or adjust your thesis based on market feedback.

Future Topics

• Investment Thesis Examples: Explore detailed examples from private equity, venture capital, and hedge funds.