GuruFocus had the pleasure of hosting a presentation with Shree Viswanathan, the founder of SVN Capital.
After growing up in Chennai (then called Madras) in South India, Viswanathan came to the U.S. to pursue graduate studies in 1989.
After graduating from The University of Chicago with an MBA, Viswanathan spent time in the corporate finance world as an investment banker with Alex. Brown, a member of the mergers and acquisitions team at Thomas Weisel Partner and as a corporate development executive at Union Bank of California. From 2005 to 2018, he honed his craft as a portfolio manager and analyst at Discovery Financial Partners, Advisory Research Inc. and Keeley Asset Management in Chicago.
Viswanathan founded SVN Capital in 2018, where he manages a concentrated, global equity portfolio in both a private partnership and separately managed accounts.
Watch the full presentation here:
Key takeaways
Viswanathan kicked off his presentation with some background on how he found himself starting up his own company. He explained that after a period of several years working at other firms, he found his passion for investment management, but still took some time before starting his own firm.
He then looked at what he calls the “bane of investing” and why he believes that his firm offers something unique that is not often seen in the industry. Viswanathan started by explaining that the average annual turnaround has exceeded 100% for many firms, with their average holding period sinking below eight months. He seeks to alleviate many of these issues by taking a long-only approach and heavily investing his own money back into the funds to maintain an alignment of interests.
The presentation then transitioned to dive into SVN’s investment criteria, which are focused around four key questions. Right up front, Viswanathan asks himself if the business he is looking at is something that he can actually understand. He explained there are several different industries that can provide good returns, but because they are complex, he refuses to deploy capital into them.
The second question asks about the quality of the business and whether or not it has a long-term competitive advantage. Viswanathan explained that many of the companies he invests in are monopolies or oligopolies in their industries. This allows these types of companies to reinvest their capital and further value creation.
Viswanathan spends the most time on his third question that looks at management. He explained in his presentation that shorter holding periods rely on metrics, while a longer investment increasingly relies upon finding a competent management team. Overall, he feels that ownership interest leads to effective capital management and, eventually, a profitable business.
Finally, once Viswanathan has answered these questions, he looks at valuation. Once the live stream concluded, he reflected that early in his career he was overly focused on valuation and was only looking for cheap stocks. By shifting his mindset and taking a qualitative approach, he has been able to drastically improve his process to support long-term profitability.
Stocks
The first company Viswanathan used as an example was Evolution AB (OSTO:EVO, Financial). The company operates in the online gaming industry and supports live-dealer online gambling. He explained that the company’s large roster of innovative games and a growing addressable market has positioned them ideally for dominance in the U.S.
The company has also generated exceptional growth numbers over the last several years, which has led to high returns. Viswanathan continued that the company has maintained a strong focus on innovating new games, which have garnered success in the industry and that acquisitions have allowed the company to deploy new technologies.
Viswanathan’s second stock example took a look at Copart Inc. (CPRT, Financial). The company is a provider of online auctions and vehicle remarketing services targeted primarily at insurance companies, car dealerships, fleet operators and vehicle rental companies. He explained that the company has maintained profits through the pandemic and several long-term drivers of value will allow it to make money well into the future.
He continued to highlight the management’s ability to manage capital effectively. Instead of leasing, Copart has purchased all of the land that it operates on, which allows it to avoid any unnecessary costs. At the same time, the management team utilizes a unique compensation program rather than taking large cash salaries.
Questions
The first question Viswanathan answered after his presentation asked him if he could justify his holdings in Evolution and Copart as they appear to be significantly overvalued based upon several metrics. Right off the bat he said that he stands by his statements that the companies are trading at attractive prices.
Viswanathan immediately compared Evolution to the tech giants like Apple Inc. (AAPL, Financial), Amazon.com Inc. (AMZN, Financial) and Alphabet Inc. (GOOGL, Financial). He explained that many of these companies have seen wild growth and are, therefore, trading at high prices. He believes Evolution is growing similarly, but it is unique because it is operating as a monopoly in its industry. Thanks to the company’s high-quality offerings, it should continue to grow and, therefore, increase value over the long-term, which will easily justify the price it is trading at currently.
Copart, on the other side of things, has an owner-operator culture that is unmatched in Viswanathan’s opinion. The management team is innovative with how it deploys capital, allowing it to easily outpace competitors. In the short term it may seem expensive, but with a long investment horizon, these qualitative features make a much larger impact.
Another question asked Viswanathan about markets outside of the U.S. where he is finding value. His initial explanation led the audience towards Poland, which he explained is an interesting country that would not usually jump out for investors. Increasing education for its citizens alongside control over its own currency have opened up some unique opportunities.
Several other questions quickly followed, asking Viswanathan about his opinion on tech companies in both India and China. He spoke of his belief that these countries are becoming increasingly attractive and that opportunities are abundant for those able to go and find them. Within the next several years he would not be surprised to find companies from those countries in his portfolio.
