Christopher Tsai, president and chief investment officer, Tsai Capital Corporation, New York City
Contrary to popular belief, not everyone in the financial services world behaves like the character played by Leonardo DiCaprio in the film The Wolf of Wall Street. For example, consider the highly professional example offered by Christopher Tsai, who founded Tsai Capital Corporation in 1997.
Tsai began his career in finance at the young age of 11, working for his father Gerald Tsai, a distinguished financier and fund manager. The younger Tsai was tasked with analyzing investment opportunities for the Tsai family and family foundation. Today, Tsai’s company is notable as one of the most successful and respected investment adviser firms.
We spoke to Tsai about his distinctive approach to the financial services world.
Q: What makes your company different from other financial services firms?
Christopher Tsai: We are a long/short global equity fund manager and are unique for several reasons. First, while most market participants (and hedge funds, in particular) frequently trade in and out of shares, we view each one of our investments as a business interest and not as a tradable piece of paper. We therefore take a long-term approach to our core holdings. In a perfect world, we would prefer to hold our business interests indefinitely. There is also a significant benefit to compounding wealth in a tax deferred manner. Of course, the world is not perfect. Deteriorating fundamentals, for example, might be a reason for us to sell and reinvest elsewhere.
Secondly, if we believe the risk/reward is clearly in our favor, we are willing to take a larger, and more aggressive, position than most funds would. Consequently, our portfolios are comprised of fewer names than the industry average. But we believe that by focusing on a core group of companies – on concentration instead of diversification – we gain a due diligence advantage and are better able to outperform over time.
Last but not least, when it comes to shorting, we use a combination of individual equity shorts and, more importantly, broad-based index shorts. Most funds have not made index shorting an integral part of their short strategy because it appears mundane. However, at Tsai Capital, we prefer the simple and think index shorting is a highly effective risk mitigation strategy.
Q: Tell us about your long/short hedge fund. What is your philosophy in operating it?
Christopher Tsai: We launched our long/short fund in June of 2011. Our philosophy is to manage our partners’ capital as if it were our own. With every investment, we look to minimize risk and maximize return. We define risk as the potential for permanent capital loss as opposed to the more academic definition, volatility. In order to minimize risk and maximize return, we focus on a limited number of high-quality, growth companies that have significant upside potential and a margin of safety at the time of purchase. We are more concerned with the longevity of earnings growth than the rate of that growth. We want visibility and sustainability of future profits.
Q: What professional advice would you give to people that may be interested in starting their own hedge fund?
Christopher Tsai: I would advise them to always put clients’ interests first and to make sure that everybody involved with the enterprise is on the same page.
Q: What is your opinion of the state of the U.S. economy?
Christopher Tsai: At Tsai Capital, we pay little attention to short-term forecasts and economic projections. We prefer to focus on the fundamentals of the businesses in which we have invested. With that said, I believe that America is a strong nation and it will continue to prosper. Despite the ongoing issues in Washington, D.C., America offers a system of rules and laws that work. And our entrepreneurial spirit is very much alive. We are therefore bullish on the long-term growth of the U.S. economy and the U.S. stock market.
Q: Where do you see yourself and your company in the next 10 years?
Christopher Tsai: I began my career in finance at the age of 11, working with my father, distinguished financier, fund manager and philanthropist Gerald Tsai, Jr. He gave me a strong foundation in finance from which I continue to build upon today. Part of that foundation is a relentless focus on capital preservation and how to outperform overtime. Tsai Capital has a strategy that works well and is appreciated by our high net worth clients. Ten years from now, I expect our strategy will be largely unchanged and our clients very satisfied with what we have accomplished for them.
Christopher Tsai's Tsai Capital Corporation is online at www.tsaicapital.com.