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Published Sep 14, 2023

Adam Karr – Extreme Alignment at Orbis (EP.338)

Adam Karr reveals the transformative investment philosophy at Orbis, detailing their pioneering research methodologies, shadow portfolios, and unique ownership models that promote long-term alignment and enhance client relationships.
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Episode Highlights

  • Ownership

    Orbis's unique ownership structure, privately held by a charitable foundation, plays a crucial role in aligning incentives and fostering independent decision-making. highlights the importance of this setup, allowing Orbis to take contrarian decisions without the pressure of public market expectations 1. This structure also ensures continuity and sustainability, as the firm's profits are tied to long-term investment success, benefiting both the foundation and the firm's employees 2.

    We are privately owned by a charitable foundation in perpetuity. And so that's really powerful in the lining incentives.

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    This alignment is further reinforced by the compensation structure, which rewards employees based on performance and contribution to the firm's goals.

       

    Fee Model

    Orbis's refundable performance fee model is designed to stabilize business operations while aligning with client interests. explains that fees are only collected after reaching certain thresholds, and are refunded during periods of underperformance 3. This approach shifts volatility to Orbis, requiring a robust reserve strategy to absorb fluctuations, which has proven effective even during financial crises like the 2008 GFC 4.

    We refund that fee back to clients during periods when we underperform. And that's the really important part.

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    This model encourages long-term client relationships and supports Orbis's commitment to generating alpha.

       

    Long-Term

    Long-term thinking is central to Orbis's investment philosophy, emphasizing alignment with clients who share this horizon. notes that this approach requires patience and resilience, as it often involves periods of underperformance 5. The firm's commitment to this strategy is evident in its reserve-building practices, ensuring stability even without immediate cash flow 1.

    You really do have to think longer term. I think that's a big part of the reason it's difficult to do.

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    This focus on long-term alignment attracts clients and employees who are committed to enduring market fluctuations for potential greater rewards.

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