Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: My guest today is Martín Escobari. Martín is co-president and head of Global Growth Equity at General Atlantic. We talk about General Atlantic's unique founding story and how its long-term structure including permanent capital. A single P and L and partnership culture, allows it to invest differently than other growth equity firms. We discussed the firm's global perspective and particularly why the premium on US equities is creating compelling opportunities across international and emerging markets. Martín has spent his career investing through bubbles, market cycles, and technological shifts. He shares his investing framework for balancing intuition with analysis, his approach to spearfishing for once-in-a-decade opportunities, and why he believes this is the best window for growth equity since 2009. Martín also reflects on his incredible personal story. He talks about growing up in turbulent Bolivia and the role of curiosity and optimism, and sustaining a long investing career. Martín's infectious energy and genuine love for investing made this conversation both insightful and a lot of fun. Please enjoy my great conversation with Martín Escobari. Alex, who introduced us from 3G, told me this incredible story about you getting a job after him telling you no and what you did to get it. Can you tell that whole story? I loved when he told it.
· Martín Escobari, Patrick O'Shaughnessy
[00:00:00] S1: Coming out of business school, I needed to decide where to live because I'm from Bolivia. Bolivia was too small. I was finishing eight years in the US. US felt too competitive, so I had to think somewhere else that had to be big, not too competitive and have beautiful people because I was single at the time. So that was the criteria. [00:00:00] S0: So Brazil.
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: So Brazil. [00:00:00] S1: Brazil, N of 1, Brazil. So I look at the most exciting jobs in Brazil and at the time the 3G founders had a private equity shop, which at the time, was the largest private equity shop in the emerging markets. This is 1997, and one of the partners has recently graduated from the same school, was coming to town to interview Brazilians to hire one person. So I was like, this is destiny. This isn't for me. So I reached out to Alex Behring, who is now running 3G and has become a great friend, and I introduced myself, it's Bolivia and super smart. I really want to make it in Brazil. I hear what you're doing at dinner. I'd love to come by if you'll have me. And Alex was super smart and tough. He's like, "Martin, we're only hiring one person and it's not going to be a guy from Bolivia that doesn't speak Portuguese. So no, you can't come to my dinner." I was like, bummer. So that night I show up to the dinner, I introduced myself as Martin, and I say, "Don't worry, I'm not even going to eat. I just want to listen to you because I find you interesting." And I think he was taken back by my boldness. They did interview me and they did hire me, but they made one condition. I had to take some Portuguese lessons before I showed up three months later and I said, I'm happy to do it as long as you pay for them. [00:00:00] S0: Yeah. [00:00:00] S1: And that's how I met my wife. [00:00:00] S0: She was your teacher?
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: She was your teacher? [00:00:00] S1: She was my teacher. I mean she was technically a teacher. The way it really worked is I called my Brazilian friends and I said, "Can you find a very smart, very attractive Brazilian PhD master somewhere in the Boston area? And I have someone that will pay her to talk to me." So I'm still married 25 years later. [00:00:00] S0: What an amazing origin story. What have you learned from Alex and from his team?
· Martín Escobari
[00:00:00] S1: The founders of 3G, the original three founders are incredible people through my work with in the beginning of my career. I once wrote a book. This is 2003, the company I have co-founded was going through trouble. I took some time off and I wanted to answer the question of how does one make money in countries with so much turbulence? Brazil in the 90s and in the first decade of the century was incredibly turbulent, crisis after crisis after crisis, very hard to make, to create wealth, to build companies with ... so it's like navigating through the fog. You move very slowly and there's things that can come at you from different ways. I partnered with this professor, this mentor of mine from Harvard College and he was teaching at Harvard Business School down in Seoul. And what we did was a paired company analysis. Look at 10 very successful companies in Brazil that had made tremendous wealth creation in the crazy 90s, but look at their actions in contrast to 10 much less successful companies during the same period of time. And the test was, these were pairs of companies that looked similar in size and value at the beginning of the 90s, but by the end of the 90s, one was at least 5X more valuable than the other. So that was the control group and that's how we studied and when one of the companies is the beer company, Brahma, Jorge Paulo Lemann and Marcel Telles and Beto Sicupira had bought in 1989, that was competing against the other beer company called Antarctica that was owned by the Germans and a foundation, who in 1989 was a better, more profitable, more valuable company. But by a decade later when these two merged, the Brahma shareholders kept 95% of the equity value. So it was 10X by the creation relative to the comparison twin. How do they do it? They're great spear fishermen. You don't chase the fish, you wait. You decide where you're going to anchor. You drop down with no equipment other than the spear and you hold your breath for one minute, for two minutes. You let little fish go by because you're not there to hunt little fish. You're waiting for the big fish. And then when you're almost running out of oxygen, you got two or three seconds to get the big fish and then go up as you're both feeding this sort of lack of oxygen, he feeling a spear through his chest, but it's an exercise of waiting.
· Martín Escobari, Patrick O'Shaughnessy
Why do they say these are great spear fishermen? The step number one of spear fishing is deciding whether you're going to anchor. In looking to buy their beer company, they started to think about it five years before. They were owners of the number one investment bank in Brazil, Banco Garantia. They were making tons of money out of volatility and inflation because in high inflation period, you can make a lot of money if you are smart with math and finance, but they knew inflation would end one day and they said, "We want to buy a company that will benefit from a low inflation rising consumption." Beer is one such company, but they waited five years for this company to come for sale and it came for sale two weeks before an election when the Swiss owners got scared that a socialist was going to become president, build a first time government, and it was from the workers' party. And they called them and they said, "Can you do a deal in a week? We'd like to get out of town. We don't want to take the risk of a socialist president." And Jorge had been waiting for that big fish- [00:00:00] S0: Five years.