June 2021
Vol 8 | Issue 592

Q&A with Shawn Badlani of Honest Capital

Founder & Chief Investment Officer

Principal Series:

Honest Capital is a concentrated, long-term, long-biased investor in high quality North American small and mid-cap equities. It seeks maximum long-term, after-tax compound returns while maintaining a transparent, liquid, and easy-to-value portfolio. The firm combines deep fundamental research, discipline, and selectivity to take advantage of inefficiencies in the small and mid-cap universe, and may opportunistically engage portfolio companies through shareholder activism to catalyze value creation. The firm typically owns 8-12 longs, with at least a 2-3 year investment horizon.

Join us for a private Family Office Insights Webinar featuring Honest Capital; a concentrated, liquid, transparent, tax-efficient public equity fund aiming to compound capital at high rates of return over a long-term horizon.

June 10, 2021 at 2:15pm-3:15pm EST
RSVP & Confirmation Required
INVESTORS ONLY PLEASE


Family Office Insights is a voluntary, “opt-in” collaborative peer-to-peer community of single family offices, qualified investors and institutional investors. Join the community here www.familyofficeinsights.com


What is different about your approach to investing in public markets?

We think we can achieve unique returns by adhering to the following tenets:

• Concentration – operating as a highly selective “best ideas” fund, only holding a small number of securities at a time, which allows in-depth fundamental private equity style diligence on each investment, and also increases transparency for fund investors
• North American small and mid-cap focus – looking at companies that are under the radar or may be too small to move the needle for larger funds provides a rich opportunity set and less competition
• Long-term horizon – underwriting horizon of at least 2 – 3 years allows the firm to capitalize on the short-termism of other market participants, and allows for very tax-efficient compounding for fund investors
• Value orientation – price sensitivity and a rigorous focus on downside protection, attempting to purchase high quality companies only when they are available at discounted valuations
• Shareholder activism – in a minority of investments, we may engage with the board or management in an attempt to turn a good investment into a great investment by accelerating or amplifying value creation, serving as our own catalyst to drive uncorrelated returns

The founder keeps the vast majority of his liquid net worth in the fund and views it as a vehicle to compound at a very high rate over a very long time horizon, in a tax efficient manner.

How have the returns been so far?

Early returns have been strong. The fund launched May of 2020, and returned +88% net of fees in 2020. The fund has returned an additional +20% net of fees so far in 2021.

What was your background before starting the Honest fund?

I spent almost a decade as a Partner and Portfolio Manager at Marcato Capital Management in San Francisco, a mid-cap, concentrated, value-focused activist hedge fund with $3 billion of assets under management at its peak. Before that, I was an investment analyst at Canyon Capital Advisors, a multi-strategy, credit-focused, value hedge fund based in Los Angeles, with ~$10 billion of assets under management at the time. I started my career as an investment banking analyst in the mergers & acquisitions advisory practice of The Blackstone Group. I received my MBA from Harvard Business School (2010) and an AB in economics, cum laude, from Harvard College (2004).


Shawn Badlani of Honest Capital

Shawn Badlani spent nine and a half years as a Partner and Co-Portfolio Manager at Marcato Capital Management, a mid-cap, concentrated, value-focused activist hedge fund based in San Francisco, with $3 billion of assets under management at its peak. At Marcato, Mr. Badlani was the first employee hired by the founder of the firm, and helped build the organization, including helping hire and manage a team of more than 20 employees. He identified and led many activist and passive investments for Marcato’s flagship fund. He was also the Co-Portfolio Manager of the Marcato Encore Fund (a dedicated small-cap fund). Prior to joining Marcato, he was an investment analyst at Canyon Capital Advisors, a multi-strategy, credit-focused, value hedge fund based in Los Angeles, with ~$10 billion of assets under management at the time. Prior to Canyon, he was an investment banking analyst in the mergers & acquisitions advisory practice of The Blackstone Group. Mr. Badlani received an MBA from Harvard Business School (2010) and an AB in economics, cum laude, from Harvard College (2004). Contact Shawn: badlani@honestcapllc.com