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Published Jun 5, 2023

Adam Shapiro – Post-Breeding Grounds for Rising Stars and Families (Capital Allocators, EP.319)

Adam Shapiro of East Rock Capital delves into their innovative risk management strategies, criteria for identifying and fostering investment talent, and managing family office dynamics to achieve strong returns and strategic asset allocation.
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Episode Highlights

  • Diversification

    , Managing Partner of East Rock Capital, emphasizes the importance of diversification to mitigate risks in investment portfolios. He explains that East Rock Capital employs a multi-faceted approach to ensure uncorrelated return streams, using statistical analysis and judgment to assess potential correlations among investments 1. Adam highlights their strategy of investing in businesses expected to shrink, which insulates them from market fluctuations 1.

    We really like investing in things that are just so clearly non correlated with other things.

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    This approach allows them to maintain a diverse portfolio that behaves differently from traditional endowment models, focusing on low-risk, high-reward opportunities 2.

       

    Downside Protection

    East Rock Capital employs various methods to protect investments against market downturns. Adam describes their focus on downside protection through specific hedges, structural protection, and investing in shrinking businesses 1. This strategy reduces dependency on market conditions and capital markets, providing a buffer against economic fluctuations.

    You can protect your downside several different ways.

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    Additionally, managing liquidity is crucial, with sensitivity scenarios and client dialogues ensuring they meet liquidity needs without leverage 3.

       

    Risk Examples

    Adam shares real-world examples of East Rock Capital's risk management strategies. He recounts acquiring a loan portfolio with undervalued assets, which turned profitable due to strategic valuation and resource utilization 4. Another strategy, termed "time machine investing," involves capitalizing on past pricing and terms, often leading to successful investments 5.

    Once in a while there's an opportunity to invest in a way that we call time machine investing.

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    These examples illustrate East Rock's ability to identify and manage investment risks effectively, ensuring long-term success.

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