Capital Allocators – Inside the Institutional Investment Industry Episode: Chris Heller - Ten Years of Weird Alternatives (EP.420) Release Date: December 2, 2024

Introduction

In episode 420 of Capital Allocators – Inside the Institutional Investment Industry, host Ted Seides engages in a comprehensive dialogue with Chris Heller, the co-founder of Cordiera Investment Partners. With a decade-long focus on non-correlated niche investments, Chris delves into the evolution of Cordiera’s strategies, the challenges faced, and the unique opportunities within the realm of "weird" alternatives.

Cordiera Investment Partners Overview

[05:25] Chris Heller:
"For lack of a better word, we invest in weird off the beaten path what we call niche non-correlated assets. So we are trying to find the nooks and crannies of the capital markets, trying to look for assets and fish in a pond that other people aren't."

Cordiera Investment Partners, managing $1.6 billion, specializes in unconventional investments that offer compelling returns and significant diversification. Their approach targets assets that are typically overlooked by traditional investors, seeking opportunities that lie ahead of the crowd.

Evolution of Investment Strategy Over 10 Years

Reflecting on a decade in the investment industry, Chris discusses how Cordiera has stayed true to its foundational principles while adapting to changing market dynamics.

[06:05] Chris Heller:
"The original premise of us starting the firm was really that, and I'm going to put this in air quotes, that alternative assets are not alternative anymore."

Initially, alternatives like private equity and hedge funds were considered distinct from mainstream investments. However, as these sectors burgeoned into multi-trillion-dollar industries, Cordiera reaffirmed its commitment to discovering today's true alternatives—assets that remain unconventional and underexploited.

Competition and "Alternative Alternatives"

The firm navigates a landscape where certain alternative investments have gained popularity, leading to increased competition. Chris highlights how Cordiera identifies and maintains its niche amidst these shifts.

[10:15] Ted Seides:
"Some of those things that you mentioned we used to do and we did a long time ago, and certain things that we have done, let's call it starting 10 years ago, have been adopted very quickly."

Cordiera differentiates itself by focusing on opportunities before they become mainstream, leveraging their early-mover advantage to invest in assets that still lack widespread attention.

Sourcing Opportunities

A significant portion of Cordiera's growth is attributed to their expertise in sourcing unique investment opportunities. Over the years, their reputation has expanded, resulting in a wider funnel of potential deals.

[12:32] Chris Heller:
"10 years of just being here and plugging away and having our names get out there has been helpful."

Cordiera combines inbound deal flow with thematic searches, enhancing their ability to identify and evaluate promising investments.

Assessing Operators and Management Teams

The quality of management is paramount in Cordiera's investment decisions. Chris emphasizes the qualitative aspects of assessing potential partners.

[21:39] Chris Heller:
"The identification of people. When you're an allocator, the first thing you start with is a 30,000 foot view of where you want to allocate your capital and why."

Cordiera mirrors the allocator’s approach by evaluating top-down investment themes and then scrutinizing the individuals who can execute these strategies effectively. Traits such as audacity, humility, and the ability to collaborate are crucial in their assessments.

Deal Structuring and Enhancing Upside

Structuring deals to minimize downside risks while maximizing potential returns is a core competency for Cordiera. Over the past decade, their approach to deal structuring has evolved significantly.

[28:32] Chris Heller:
"There are some specific ways to enhance your downside because we're looking at deals where there's not other capital around, we can do a lot of things to our cash flows and make them more senior in the stack."

Cordiera leverages their unique position to negotiate favorable terms, ensuring they have seniority in cash flows and access to bespoke deal structures that align with their investment philosophy.

Risk Management

Managing risk in unconventional investments requires a nuanced approach. Cordiera employs enhanced asset management capabilities to navigate challenges.

[31:09] Ted Seides:
"I'm curious how you risk manage these situations. If something goes wrong, it's easy to see how it's self-liquidating or it's a platform and it's growing, but you're investing in something that other people aren't for whatever reason."

[31:25] Chris Heller:
"We have enhanced our asset management capabilities at the firm significantly over time... It's about being humble around, 'We really screwed that one up last time and we didn't do that right and we didn't motivate them in the right way.'"

By developing internal expertise and fostering humility, Cordiera proactively addresses operational challenges, ensuring they can pivot and rectify issues without compromising their investment theses.

Common Investment Themes and Examples

Cordiera's diverse portfolio includes investments in sectors like whiskey aging, boat marinas, wireless spectrum licenses, sports, and cheese. These investments are guided by their specialty inventory finance theme—utilizing their capital to warehouse assets that require specific handling before realization.

Examples Include:

• Whiskey: Financing the aging process of barrels, providing liquidity to craft brands.
• Wireless Spectrum Licenses: Acquiring and selling spectrum licenses to carriers as needed.
• Data Centers: Investing in land and infrastructure to support the expansion driven by AI advancements.
• Sports: Focusing on emerging leagues and innovative formats that cater to modern consumption trends.
• Cheese: Financing the aging process, similar to whiskey.

Lessons Learned and Changing Beliefs

Over ten years, Cordiera has gleaned invaluable insights that have reshaped their operational and strategic frameworks.

[44:35] Chris Heller:
"Humility. I think having the humility, Ashley, Gus and I all have totally different strengths and weaknesses."

Key takeaways include the paramount importance of having compatible and long-term partners, maintaining humility to recognize and learn from mistakes, and embracing the inherent struggles of navigating niche investment spaces.

Future Outlook

Looking ahead, Cordiera aims to capitalize on their decade-long experience and pattern recognition to continue identifying and leveraging unique investment opportunities.

[47:57] Chris Heller:
"We have to find the Right people. We have a little bit of a heuristic that we use to hire folks about capabilities, collaboration and creativity."

By focusing on hiring the right talent and fostering a collaborative and creative culture, Cordiera is poised to sustain its competitive edge and explore new "weird" alternatives in the years to come.

Personal Insights from Chris Heller

Towards the end of the episode, Chris shares personal anecdotes and reflections, offering a glimpse into his life outside of work.

• Favorite Hobby:
  [50:01] Chris Heller:
  "I'm a big music fan. I have absolutely zero talent for it, but I love it."

• Biggest Pet Peeve:
  [50:39] Chris Heller:
  "Rental car pickup, without a doubt. I don't understand why we can't figure that out."

• Influential People:
  [51:34] Chris Heller:
  "Without a doubt, my two partners, Ashley and Gus."

• Best Advice Received:
  [52:56] Chris Heller:
  "When we had to make a decision to are we going to start Cordiera as a firm or not? ... 'It's time to move on. It's time to get going.'"

• Life Lesson:
  [53:35] Chris Heller:
  "Things will generally work out... If you've got a good work ethic and you try, you just keep plugging away at it."

Conclusion

Chris Heller’s conversation with Ted Seides offers a deep dive into the intricate world of niche alternative investments. Cordiera Investment Partners exemplifies how dedication, strategic foresight, and a commitment to unique investment philosophies can carve out a formidable presence in the institutional investment landscape. For listeners seeking to understand the underpinnings of unconventional capital allocation, this episode provides both strategic insights and personal narratives that illuminate the path Cordiera has forged over the past ten years.

Notable Quotes:

• Chris Heller [06:05]:
  "The original premise of us starting the firm was really that... alternative assets are not alternative anymore."

• Chris Heller [12:32]:
  "10 years of just being here and plugging away and having our names get out there has been helpful."

• Chris Heller [21:39]:
  "The identification of people... is going to be the right group to run my boat marina company, or is this the right group to run our whiskey assets."

• Chris Heller [28:32]:
  "We're looking at deals where there's not other capital around, we can do a lot of things to our cash flows and make them more senior in the stack."

• Chris Heller [31:25]:
  "We have enhanced our asset management capabilities at the firm significantly over time."

• Chris Heller [44:35]:
  "Humility. I think having the humility, Ashley, Gus and I all have totally different strengths and weaknesses."

• Chris Heller [51:34]:
  "Without a doubt, my two partners, Ashley and Gus."