Tony Yoseloff – Forty Years of Davidson Kempner (Capital Allocators, EP.313)

Risk Management

Davidson Kempner employs distinct risk management strategies tailored to both private and public market investments. Tony Yoseloff explains that private equity strategies involve concentrated portfolios with 30 to 35 positions, where risk management focuses on ensuring no single position can significantly harm the fund 1. Public market strategies, however, use traditional risk management tools like long-short credit and convertible arbitrage, with a focus on daily risk assessments 1. Yoseloff highlights the importance of proactive management, stating,

We do actively manage that, but it's a little bit less cut and dry.

--- Tony Yoseloff

In risk arbitrage, quick decision-making is crucial due to the potential for rapid, unexpected changes, while opportunistic credit requires a more qualitative approach due to its longer time frames and varying outcomes 2.

   

Downside Protection

Downside protection is a key focus for Tony Yoseloff at Davidson Kempner, particularly in private investments where leverage is minimized. He emphasizes buying assets at lower multiples due to perceived issues, allowing for potential recovery even if the business faces cyclical challenges 3. Yoseloff describes their approach to investment decision-making as open-minded, with a process called "scream if you hate it" to evaluate new opportunities 4. This method allows the team to assess potential investments' viability and downside protection, ensuring they can recover their capital even in unfavorable scenarios.

Part of the downside protection is that even if it is cyclical and not secular, we want to make sure we get our money back.

--- Tony Yoseloff

This strategy has led to successful investments in areas like alternative energy, where they were initially cautious but ultimately found opportunities with strong downside protection 4.