Invest Like the Best with Patrick O'Shaughnessy
01:04:05 · Alex Sacerdote
[01:04:05] S2: So the first fifteen years, it was a long short fund and we wanna be focused. And if you defocus, that can be hard. So we grew that and we got that to the scale that we wanted to. We're 20 years old. Maybe ten years in, people started to ask for a long only product. In 2020, we launched the long only fund. So we're six years on that. That's now larger than the long short. The bulk of the assets are in these two. Sometime in maybe 2015, we formalized that we might be doing privates, and so we gave investors the option to opt in or opt out. And you could do 15% or 25%. So we didn't break the seal on the privates until 2020. In 2021, we offered a hybrid fund that could be 80% into privates, sort of similar approach, but if you wanted more exposure to privates. Very recently, we launched the Whale Rock Mega Cap Tech Fund. We just think there's a huge structural underweight of the largest tech companies in the world. We also realized that a lot of our performance over the years was from some of the largest companies, whether it be Apple or Amazon or Tesla. And so a lot of our largest pools of capital endowments or what have you, they realized they've been massively underweight the largest tech companies in the world because they have a lot of privates, they don't have a ton of public, and then maybe half the public is international. And then of their public bucket, there's a belief that there's no alpha in large caps, so they underweight large cap and they have a lot of small and mid managers that are stock pickers because it's intuitive that large cap can't have alpha. And then in their hedge fund portfolio, even if it's long biased, they're not gonna have 15% in Nvidia and all these other things. We realized that people are worried that there's these big companies. This is just a product of the digital economy and that in tech, the leader usually grows bigger and wins and develops very high market share quickly and there's great competitive advantages. They're also selling around the globe. So this is gonna lead to massive profit pools and massive market caps. And it's just gonna happen in the future. Most endowments are betting against this because they're completely underweight this. Finally, somebody came to us and said, what should we do? I'm on the board of Hamilton college and on their investment committee, were trying to figure out this.
01:06:40 · Alex Sacerdote, Patrick O'Shaughnessy
And so we kept on hearing it. And finally, we said, we'll do this for you because there's a lot of alpha to be had. And the mag or the FANG or whatever, it's gonna be different. In 2022, they all rallied. Last year, they were very divergent. And this year they're down. And so we created the Whale Rock Mega Cap Tech Fund, which is the universe is the top 30 market caps globally. And then we pick the 12 or 13 that are the best. I think there's tremendous alpha in the largest cap because if you think about it, a small cap, it just takes one person to figure out it's good and move it up. But it takes a 100 people, a 100 diversified PMs to realize Google's not a loser, it's a winner. And can we figure that out before 95% of those generalist PMs? And we've been able to do it [01:07:31] S0: You like your odds in that. [01:07:32] S2: Yeah. We like your odds in that. And so there is alpha to be had there. And then as an asset category, it's great because these companies by definition have wonderful motes. And maybe they're not the super s curve, but sometimes they are. I mean, Nvidia sure is. And TSM is really levered to it. And Hynix is extremely levered to it. And ASML is levered to it. We're four months into that one.
01:07:32 · Alex Sacerdote, Patrick O'Shaughnessy
[01:07:32] S2: Yeah. We like your odds in that. And so there is alpha to be had there. And then as an asset category, it's great because these companies by definition have wonderful motes. And maybe they're not the super s curve, but sometimes they are. I mean, Nvidia sure is. And TSM is really levered to it. And Hynix is extremely levered to it. And ASML is levered to it. We're four months into that one. [01:07:59] S0: It sort of sounds like really what you've built is a research machine to understand the world through the lens of companies. The thing you're constantly trying to improve is that research machine and then the way that you would then express that through products is multiplied. But if I was to try to understand Whale Rock, it would be to investigate the research machine first and foremost.
01:07:59 · Patrick O'Shaughnessy, Alex Sacerdote
[01:07:59] S0: It sort of sounds like really what you've built is a research machine to understand the world through the lens of companies. The thing you're constantly trying to improve is that research machine and then the way that you would then express that through products is multiplied. But if I was to try to understand Whale Rock, it would be to investigate the research machine first and foremost. [01:08:17] S2: We call it the Whale Rock Learning Machine and it's a group of 10 highly experienced individuals. Warren Buffett reads books and we read books and we read blogs. In tech, you gotta go out and talk to people. So we do 2,500, 3,000 face to face meetings with management teams. Munger and Buffett talk about compounding knowledge. We've been compounding that knowledge for twenty years. There's changes to the team, but broadly there's a lot of consistency to it. Andrew and Michael have been with me for eighteen years and the average experience level on the team is ten or so years, and that includes some of the newer people. That research engine can support all these products. And it's the same people that do publics and the privates. So we're not gonna scour the world and turn over every a b. But when we see something that fits into our system, we're able to act on it. It's so much fun to [01:09:13] S0: do this with you. When I do this, I ask the same traditional closing question of everybody. What is the kindest thing that anyone's ever done for you?
01:09:13 · Patrick O'Shaughnessy, Alex Sacerdote
[01:09:13] S0: do this with you. When I do this, I ask the same traditional closing question of everybody. What is the kindest thing that anyone's ever done for you? [01:09:19] S2: It's definitely my father. I was super lucky. My father graduated Cornell, double E electrical engineering, pivoted to Wall Street and had a great career at Goldman Sachs. He ran corporate finance in the eighties and then ran private equity as chairman in the nineties. He was just whip smart, but he had such humility and was such a great gentleman. When I started Whale Rock, friends and family, he was the first call that he said, you know, I've been at Goldman for forty one years. How about I come and join you? I'll be the gray hair. I'll be the oversight. I'll be the chairman. You do what you do. You build the firm in Boston, build the team, run the money. I'll help raise some money. And we got to work together for six years until he passed away in 2011. But I just feel so lucky to have worked with him. It's not easy running a fund. We never raised our voice and he was just an amazing mentor to so many people. And when he passed away, I got so many letters from people who said, your father was just such an influence on me, he was such a gentleman, he was such a great mentor to me. I just feel so lucky to have worked with him and if I could be half the person that he is, I'd be completely winning. [01:10:42] S0: How did he do that? What was his method? Why did so many people say that?
01:10:42 · Patrick O'Shaughnessy, Alex Sacerdote
[01:10:42] S0: How did he do that? What was his method? Why did so many people say that? [01:10:46] S2: He was modest, he was whip smart, he was wise, he was also known as a great investor which isn't the most common thing at a lot of investment banks. He also was on their commitments committee and kept him out of a lot of tougher situations and he was very warm and people could go into his office with problems and he handled it with grace, whether it's a personal problem or a work issue or what have you and he just had this soft way and he also had a great sense of humor. What that so lucky. [01:11:17] S0: Alex, thanks so much for your time. [01:11:18] S2: Thanks so much.