Herb Wagner – Opportunistic Value at Finepoint Capital (EP.460)

Summary

Capital Allocators – Herb Wagner: Opportunistic Value at Finepoint Capital (EP.460)

Date: September 22, 2025
Host: Ted Seides
Guest: Herb Wagner, Founder & Managing Partner, FinePoint Capital

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Episode Overview

This episode features Herb Wagner, founder of FinePoint Capital, a $4B value-oriented hedge fund, with prior experience at Baupost and Appaloosa under legendary investors Seth Klarman and David Tepper. Ted and Herb explore Herb’s roots, his early experiences in distressed investing, the DNA and evolution of FinePoint’s investment process, and the current opportunities he's pursuing—especially in Japan and reinsurance. Wagner shares lessons on value investing’s transformation, portfolio construction, risk assessment, and leadership, offering a rare inside look into how a top allocator adapts and thrives in changing markets.

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Key Discussion Points & Insights

1. Early Life, Work Ethic, and Career Beginnings

[04:56–08:53]

• Formative Years: Herb grew up in small-town Ohio in a working-class family; instilled from a young age with responsibility and a strong work ethic through early jobs like being a paperboy and busboy.
• Self-reliance & Hustle: Early exposure to business/practical economics—managing a paper route, dealing with responsibility, learning about customer service and financial loss (e.g., customers not paying).
  "I used to think to myself, when my friends are sleeping, I was out hustling." – Herb Wagner [06:16]
• First Industry Roles: Started as an auditor at Pete Marwick after graduating during a recession; pivoted quickly towards investing at First Chicago's distressed debt trading group.
  "I had a finance degree, I had an accounting degree. Always wanted to do investing. Didn’t know a lot about it, but was always intrigued." – Herb Wagner [07:48]

2. The Power of Mentorship

[08:53–13:06]

• Emphasis on seeking mentors, being open to mentoring others, and learning from industry pioneers.
• Advice for young professionals:
  1. Find a mentor and don't be afraid to ask.
  2. Don’t worry about maximizing pay early—prioritize learning and growth.
  3. Join a growing industry.
     "If somebody says no to you, they’re never going to be a good mentor anyway, so that’s fine." – Herb Wagner [11:21]

3. Learning from the Greats: Tepper and Klarman

[13:08–19:13]

• Appaloosa (Tepper): Aggressive, concentrated, willing to embrace volatility, skilled at sniffing out dislocations across asset classes and acting swiftly.
• Baupost (Klarman): Research-oriented, fundamentally long-term, focused on developing talent and deep diligence.
  "You walk in during the day and it was quiet and everybody had their heads down. Everyone was reading, doing research…. This is a research organization." – Herb Wagner [16:22]
• Personal fit: Baupost’s mentorship culture and research rigor aligned better with Herb’s temperament.

4. The Evolution of Value Investing

[19:13–23:13]

• Shifted from traditional “cigar butt” value investing to a broader search for structurally mispriced assets, focusing on situations with clear catalysts.
  • Traditional value metrics (low P/B, low EV/EBITDA) lost potency as disruptive forces accelerated.
  • Mediocre businesses at cheap prices underperform due to faster-than-expected declines. "The curse of the value investor is buying mediocre businesses at cheap prices. That has not been a good strategy." – Herb Wagner [21:26]
• Increasing weight on leadership quality in underwriting; learning that great leaders surprise on the upside, mediocre ones on the downside.

5. Credit Markets: Challenges and Future Opportunity

[24:14–27:55]

• Credit investing is harder now: less liquidity, tighter spreads, increased market complexity.
• Anticipates future volatility/opportunity as large portions of credit are now held by daily-liquidity vehicles (ETFs, mutual funds)—creating severe selloffs under stress.
• Private credit now crowded and untested through a full cycle; public credit might offer better risk/return when dislocations arise. "I'm very excited about the credit opportunity set for the next three to five years. We don't see it right now, but... this could be a really great place to invest." – Herb Wagner [25:22]

6. FinePoint’s Opportunistic Mandate and Investment Process

[27:55–33:45]

• FinePoint’s model: global, open-mandate value investing—“miles wide, miles deep.”
• Not wed to any geography or asset class; keen focus on risk assessment and only diving deep where sufficient conviction and pricing anomaly exist.
• Prioritizes “know what you don’t know” and fast rejection of situations that are too opaque.

7. Opportunity Sourcing and Diligence

[33:45–36:14]

• Pattern recognition, event-driven opportunity identification.
• Metrics: spreads in credit, price-to-book in equities, bespoke factors in esoteric markets.
• Starts wide but only commits resources when there's a clear path to a defensible downside.

8. In-Depth Case Study: Investing in Japan

[36:14–48:46]

• Initial Reluctance: Japan long avoided due to poor governance, bad disclosure, cultural/language barriers, and demographic worries.
• Catalyst: 2012–2015 corporate governance reforms (introduced by PM Abe) set the stage for real change.
• Structural Tailwinds: Under-owned by foreign and active investors, changing norms around activism, and a true bias against the region (ripe for outperformance).
• Unique Approach: Built in-house Japanese capabilities (now 5 Japanese-speaking team members), spent years developing relationships and understanding local norms.
• Strategy: Focus on companies with improving governance—look for real change, not just promises; opportunistic, not activist. "In the early days there were companies that started to adopt these changes. When they started to adopt these better governance changes, the opportunity is massive." – Herb Wagner [41:33]
• Risks and Hedges: Deep awareness of geopolitical, macro, and natural disaster risks; employs robust hedging for yen, rates, and market downturns.

9. Other Major Opportunities: Credit & Reinsurance

[48:46–52:59]

• Remains bullish on credit long-term but is cautious in the current environment.
• Reinsurance Explored Post-Hurricane Ian: Found “re-priced risk” after successive major catastrophes, leading to higher compensation for tail risks—active exposure in Florida wind and California wildfire risks.
  • Focus on sourcing and pricing complexity; spends time with scientists to assess climate change implications but only participates when pricing is clearly favorable. "We actually have four verticals that we operate within the reinsurance space." – Herb Wagner [49:54]

10. Portfolio Construction and Sizing

[57:15–60:35]

• Investments vary widely in type and duration—uses a blend of quantitative and qualitative factors, including scenario analysis, base/peak risk, “HERB conviction score,” historical performance, and qualitative judgments.
• Execution requires collaborative debate, continuous revisiting, and, ultimately, PM go/no-go.
• Can act quickly during market disruptions (e.g., SVB, Credit Suisse) due to firm’s agility.

11. Lessons & Regrets

[60:35–61:46]

• Greatest mistakes have come from failing to adapt investment style quickly enough as markets change.
• Emphasizes the need for continuous evolution away from outdated mental models.

12. Building a Culture and Running a Business

[61:46–64:59]

• Underestimated difficulty of building a high-performance, value-aligned team; now takes pride in strong culture, respect, and transparency.
• Key elements: ethical standards, perfect LP alignment, transparency, kindness, respect for all employees.

13. Looking Ahead & Philosophy

[64:59–73:19]

• Excited about team, concentrated and catalyzed portfolio, and ongoing evolution—remaining opportunistic and nimble.
• Deep enjoyment from mentoring and developing people.
• Five-year outlook: sees potential for best years yet, both in business and personally (children’s growth, family, and philanthropy).

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Notable Quotes & Memorable Moments

• On value investing’s transformation:
  "The curse of the value investor is buying mediocre businesses at cheap prices. That has not been a good strategy." – Herb Wagner [21:26]
• On barriers to investing in Japan:
  "The cultural barriers are huge, the language barriers are huge. The accounting is different, the time zone is different… The barriers to invest in Japan are enormous." – Herb Wagner [39:42]
• On finding opportunity where others won’t look:
  "What we found was the companies that were making these changes… the stock market was recognizing the increase in value, but generally not until the seventh or eighth or ninth inning." – Herb Wagner [43:35]
• On mentoring:
  "Being part of that, investing in people, helping people… when they actually grow and they make a great investment and they’re so proud… that is really the icing on the cake." – Herb Wagner [71:44]

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Timestamps for Key Segments

• Formative Years and Work Ethic: [04:56–08:53]
• Mentorship & Early Career Lessons: [08:53–13:06]
• Learning under Tepper and Klarman: [13:08–19:13]
• Evolution of Value Investing: [19:13–23:13]
• Assessing Leadership: [22:26–24:14]
• Credit Markets Past & Present: [24:14–27:55]
• FinePoint’s Process & Open Mandate: [27:55–33:45]
• Japan Case Study: [36:14–48:46]
• Credit & Reinsurance Today: [48:46–52:59]
• Portfolio Construction: [57:15–60:35]
• Mistakes & Adaptation: [60:35–61:46]
• Building the Firm & Culture: [61:46–64:59]
• Looking Forward & Personal Reflections: [64:59–73:19]

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Final Thoughts

This rich, wide-ranging conversation provides a comprehensive look at how one of today’s leading allocators synthesizes decades of learning into an adaptive, opportunistic, and principle-driven investment process. Herb Wagner’s evolution from Midwest paperboy to global value investor highlights the importance of hard work, humility, embracing change, and above all, staying true to one’s core values in the face of uncertainty. This episode is a masterclass for investors interested in global value hunting, leadership, and building sustainable, principled investment organizations.

Transcript

[Herb Wagner]

One of the things that's fascinating about Japan is most experienced investors have some horror story about investing in Japan. And so when I started getting into it, what I realized was people don't like investing in Japan. There's a real institutional bias against it.

[Ted Seides]

I'm Ted Seides and this is Capital Allocators. My guest on today's show is Herb Wagner, the managing partner of FinePoint Capital, a $4 billion opportunistic value hedge fund he founded 11 years ago after spending 14 years at Baupost and two at Appaloosa under legendary investors Seth Carman and David Tepper, respectively. Our conversation starts with Herb's hard work as a youth in small town Ohio, his fortuitous early entry into distressed investing in hedge funds, and mentors who shaped his investing career. We then dive into the DNA that Herb carried forward to finep, including the evolution of value investing, sourcing miles wide, conducting research and diligence miles deep, constructing portfolios and current opportunities in Japan and reinsurance.

[Podcast Host/Announcer]

Before we get to Ted's interview, it's football season. Which in my house also means it's indoctrination season. Because let's face it, young minds are malleable. And when you've got kids, you've got a once in a lifetime chance to wire them the right way with your favorite football teams. Just ask my 4 year old.

[Herb Wagner]

Sick em. Woof, woof, woof.

[Podcast Host/Announcer]

Now that's an easy one. The Georgia Bulldogs are a college football powerhouse. Three national championships in recent years, tons of glory. Who wouldn't want to be a Dogs fan? But on Sundays.

[Herb Wagner]

Here we go. Brownies, here we go.

[Podcast Host/Announcer]

That one's just mean. The Cleveland Browns are famous not for winning, but for testing your character year after year, heartbreak after heartbreak. And yes, I made her a Browns fan anyway. Some might call that cruel. I call it parenting. That's the thing about young minds. They believe. Believe what you repeat. So, just like forcing your kids to cheer for your favorite football teams, now's the time to plant another seed. Share the Capital Allocators podcast with friends, family and colleagues in their formative years because if you get to them early enough, they'll be lifelong fans, too. Thanks so much for spreading the word.

[Ted Seides]

Capital Allocators is brought to you by my friends at WCM Investment Management. To outperform the markets, you have to do something differently from others. In my 30 something years investing in managers, there may be no one I've come across who does that as clearly and as well as wcm. I've seen it up close as an investor in their international growth strategy for the last five years. WCM is a global equity investment manager majority owned by its employees. They believe that being based on the west coast, away from the influence of Wall street groupthink provides them with the freedom to live out their investment team's core values, think different and get better. As advocates of integrating culture research into the investment process and advancing wide moat investing. With the concept of moat trajectory, WCM has delivered differentiated returns while building concentrated portfolios designed to stand out from the crowd. WCM is committed to defying the status quo by dismantling outdated practices, believing in the extraordinary capabilities of its people, and fostering optimism to inspire each individual to become the best version of themselves. To learn more about WCM, visit their [e-mail] and tune into this slot on the show to hear more about WCM all year long.

[Podcast Host/Announcer]

This testimonial is being provided by TED Cites and Capital Allocators who have been compensated at a flat fee by wcm. This payment was made in connection with Capital Allocators testimonial and production of podcasts and does not depend on the success or level of business generated. The opinions expressed are solely those of Capital Allocators and may not reflect the opinions of others. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Please visit wcminvest.com for WCM's ADV and further information.

[Ted Seides]

Capital Allocators is also brought to you by Morningstar. What if data wasn't just a bunch of raw numbers, but a clear and decisive language to help connect investment strategies with long term investor needs in a constantly evolving market landscape. Morningstar created that language bringing order and utility to insight rich data so you can prepare for your next opportunity no matter the asset class or market. Visit wheredata speaks.com to see what Morningstar Data can do for you. Please enjoy my conversation with Herb Wagon.

Herb, great to see you.

[Herb Wagner]

Thanks for having me.

[Ted Seides]

Why don't you take me all the way back to your upbringing?

[Herb Wagner]

Well, I grew up in a small town in Southwest Ohio, Beaver Creek, Ohio. My mother was a teacher. My father drove an oil truck. When I look back at that time, the most formative thing to me was the fact that my parents really believed that we should have jobs. We should be working when we were in school. So if you ever wanted to buy something, you had to make money for yourself. So we were really encouraged to have jobs at a very young age during that time. I started out as a paper boy when I was 11 years old. I remember the kid that had the paper route was the only kid in the neighborhood, had money. And so when he ended up quitting, I really wanted that job. And So I was 11. You had to be 13. I begged my parents, I begged the paper company to let me do it because it was a route. In the morning, I had to wake up at 4:30, had to deliver newspapers every day, 40 newspapers for an hour. But I was able to convince them to do that. And so as an 11 year old, you're running your own business, you're taught responsibility. Whether it rains or snows or sleets or has a blizzard, you have to get up and deliver the newspapers. And then on the weekends you have to collect for the newspapers. So you buy the newspapers for 65 cents, you sell them for 90 cents. If people don't pay you, that's out of your pocket. I learned early on that I had a brother who's five years younger than me, who was super cute, and if I brought him along, we got better tips. So I used to always haul him along whenever I collected for my newspapers. But it teaches you responsibility. You have to show up. People don't get the newspapers at 4:30 in the morning. They're not happy. I did that for four years. Thing I also remember at that time was I used to think to myself, when my friends are sleeping, I was out hustling. So some of the other jobs I worked as a busboy. That was a pretty tough job. But I will say you learn how to deal with all types of people. So if I'm at the golf course and I'm caddying, you have an angry CEO who's having a bad round, or you're in a restaurant and you have a customer who's really unhappy, you have to deal with those folks. I also learned that there's a lot of really hardworking people in our economy that get up every day and bust their butts and you can't support yourself. When I was doing that, I remember thinking to myself, as someone who's in a small town, I want a lot more. I have to focus on my education. That's the only way that I'm going to achieve the goals that I really want to achieve.

[Ted Seides]

As you went through school, what was the spark that turned you into finance and investing?

[Herb Wagner]

When I was younger, I would say I had a lot of interest, I played a lot of sports, I worked a lot. But it wasn't really until later in high school, and then when I got into College that there was some spark that really just forced me to focus on my grades. I remember my mom was super proud of me, and that was a huge spark for me. Wow. I did something. My mom was so happy. She's been a huge influence in my life. So that was the biggest spark. And then once you start doing well, you get good grades. That feels good. You get all types of opportunities. And so it really builds on itself.

[Ted Seides]

What was your first job in the industry?

[Herb Wagner]

1990. I graduated, so I went to Miami of Ohio. As you remember, there's a pretty big recession back then, so I had a finance degree, I had an accounting degree. Always wanted to do investing. Didn't know a lot about it, but I was always intrigued by it. But at the time, Wall Street's firing people, laying people off, and so I didn't have the opportunity to go to Wall Street. My very first job was working at Pete Marwick as an auditor. From the first time I started working, the one thing that I vividly remember at that first job is that I felt like. I've always felt like in life like I was running a race. And because of my background, because of where I grew up, I was starting this race way behind the starting point. And so for me, the only way to get ahead was to work my butt off. I've always had this mantra that nobody was going to outwork me. At my very first job, my peers are working 40, 50 hours a week. I'm working 80 or 90 hours a week. I got promoted very, very early as part of that. What I also remember is I befriended somebody. They're five years ahead of me. I saw what they were doing and I said, I don't want to do that. So I took a risk. I left Pete Marwick and actually went to go work for First Chicago, which was really my very first investing job.

[Ted Seides]

What did you do in that first role?

[Herb Wagner]

I have to say I've had a lot of really good fortune in my life. But one of the most fortunate things was when I was at the bank, a position opened up in this group called Distress Debt Trading. This is back in the early 90s. And what this group did was when the bank had loan that went bad, they would just sell it. This group used to do the selling of the loans. There was a woman who used to run the group named Jean Legrand, who actually was one of my very first mentors who they figured out, we're selling these loans for 20, $0.30 on the dollar, and the buyers are recovering 70, 80, $0.90 on the dollar. And at the time, there was a very small universe of people who bought distressed loans. You had Sam Zell, you had some of the Drexel spinoffs, you had a group of Fidelity, but It was probably 10 people that we were trading these loans with. But the bank figured out, wow, instead of selling these, we actually should be buying these. And so they were one of the very pioneers in distressed debt investing that figured out they had old workout people that were in the group, so they had the bankruptcy expertise, they had capital from inside the bank. And so we were, instead of often buying these loans, then when they were going bad, we actually were going out, learning about what the recoveries were going to be. And then we started buying loans from other banks. And we actually built a pretty good business during the early 90s doing that. @ the time, I didn't know that was going to be a big chunk of my career. I didn't know that was going to be an exploding asset class. I didn't know it was going to be nearly as profitable is what it was. Back then, we used to value every company at four times cash flow, and you'd buy them at two times cash flow, and you would make gobs and gobs of money for many, many years. One of the things I learned from that job was that I've always believed in finding mentors and also mentoring people. I had been the benefit of phenomenal mentors throughout my career. I mentioned Gene Legrand, one of my very first mentors. But throughout the years, I always would go to people that I respected. And I say, hey, do you mind if we grab coffee or grab lunch once every couple months? I really respect you and I find you to be insightful, and I'd love to pick your brain on issues over time. By doing that, I just got to meet a lot of great people, but also got phenomenal guidance for my career. And then over time, I ended up mentoring people. And actually, I think being a mentor, you actually learn more than being a mentee. Often young people will say to me, what advice will you give to us? And I always tell people three pieces of advice. One of them is, find a mentor. Just ask somebody. Most people will say yes. If somebody says no to you, they're never going to be a good mentor anyway, so that's fine. I also tell people, don't worry about how much money you make when you're in your 20s. It doesn't matter. Just take a job where you can learn, you can grow, you'll get good at it. The money will follow But I find there's just way too much focus on people trying to maximize their income at a point in their career that it really doesn't matter. And the third thing I say, which I was a huge beneficiary of, was get into an industry that's growing, a business, an industry or something that's growing, because if you are, like I think about distressed debt investing when I was in the. In the early 90s, but if you're an industry that's growing like a weed, you get so much more responsibility faster you learn, you become a pioneer with very little amount of experience. And so if you can do that, there's tons of. Tons of great things fall from it. So I was an early investor in distressed debt when I went to Appaloosa when I was young as well. And that was one of the first larger hedge funds that existed. And that whole industry ended up exploding. So I've been the beneficiary of these massive tailwinds behind me. So that's another thing I always encourage folks to do.

[Ted Seides]

When you were in that first role, you had a great mentor. You were in a growing space that was doing really well. What led you to leave?

[Herb Wagner]

I loved the job First Chicago offered where you could actually get your MBA at night and they would help finance that. And Chicago is a great city where both University of Chicago and Northwestern have night programs. And so I was working during the day, I was getting my MBA at night. Actually, funny enough, I met my wife during my MBA and we've just passed our 29th year anniversary. So it's fantastic. You meet great people. But I was working a lot, and I think I just looked at the bank and thought there was a cap to what I could do there. And there was a lot of smart people that were in front of me. The group was highly successful. But once again, I wanted to learn not only what they were doing. I wanted to think about different asset classes, think about different parts of the public markets. I wanted to grow. I wanted to be a great investor. I was there for four years. I think I feel like I learned a lot, but I just had a thirst to learn more.

[Ted Seides]

And where did that take you?

[Herb Wagner]

When I graduated with my mba, I moved to Boston first, went to Putnam. I was there for a short period of time, and then I got a call from Dave Tepper to go work at Appaloosa. Another incredibly fortunate thing, Ted, for me is I've worked for two of the best investors of my generation, Dave Tepper and Seth Klarman. I mean, it's incredibly fortunate. I did research on both of them before I went to go work for them, but I had no idea how talented either one of them was and how much I learned from them as well. So went to Appaloosa and went to go work for Dave. And one of the things I learned from Dave, he's an incredibly talented investor, but he has a nose for opportunity that I've never seen before. He is like a moth to flames in terms of trouble. Risk changing, pricing changing. He look at any asset class, can really understand the fundamentals. I was there when we had the Asian financial crisis. We found great opportunities there. I was there during the Russian default back in 1998. But Dave had this ability to traverse multiple markets, think incredibly sharply and simply about macro risk. And when there was massive dislocations amongst fundamentals and prices, he would really jump in price assets, learn how investors were thinking about them, and be very aggressive at the right time. When there wasn't great things to do, he would do nothing. When I think about the variety of things that we did there and the variety of areas that he's been successful in over time, it's very, very unusual. So I felt like I learned a lot. I felt incredibly fortunate to have worked with Dave and to have learned from him and to watch him invest.

[Ted Seides]

When you think about the Appaloosa style, the Baupost style, almost opposite ends of the spectrum in terms of risk taking, what did you see, say first at Appaloosa in seizing that opportunity?

[Herb Wagner]

When it's there, Appaloosa has more volatility than what Balpost does. So Balpost has a very robust hedging program. Just a much different culture of the organization, more diversified in terms of what they owned. And so Dave tended to be a lot more concentrated, a lot more aggressive, and he didn't mind wearing volatility. I think that was something that he was very comfortable with at Baupost. It was also a value strategy, less trading oriented, more just really fundamental based. There was some private assets that they were doing as well. But you're right, there are two incredibly talented people with really different investment philosophies that have both been just incredibly successful.

[Ted Seides]

How did you go from one to the other?

[Herb Wagner]

I got a call from somebody who knew Seth, who said Seth was looking to add to the team. My wife and I went and had dinner with Seth when I was in New York and we just really hit it off. Seth is a incredibly kind, thoughtful and crazy smart phenomenal investor. He was willing to mentor me, he was willing to invest in me, I felt like he loved investing and he wanted to do it for many, many more years. There was phenomenal people there that I got to meet as well. So sometimes you just meet people, things just click. And when I met Seth and spent time with him, I was like, wow, I can really learn a lot from this guy and I can hopefully learn how to become a good investor from him. And then we were off to the races.

[Ted Seides]

What was different from what you might have anticipated in that style of investing? When you got to Baupost, the first.

[Herb Wagner]

Thing that jumped out to me was you'd walk in during the day and it was quiet and everybody had their heads down. Everyone was reading, doing research. And I remember thinking to myself, wow, this is a research organization. Like they're investors, but they're really researching incredibly deeply what they're doing. As you start to understand the Bob's philosophy, they're really trying to understand situations that they're in better than anyone. They bring in outside resources, they're incredibly smart people. They're very long term oriented. I always say to people, everyone thinks they're a long term investor. I think less than 5% of people are truly long term investors based on my experience, but they were truly long term. The model there was really hire great people. Seth would mentor you, give you resources, help you invest, invest alongside of you, and then as you did better, you'd get more responsibility and you'd hopefully grow and have a bigger impact. That was very refreshing to me. It was a culture of intellectual honesty, of trying to get to the right answer. Fundamentally, I thought about it as a research oriented firm.

[Ted Seides]

If you take the high level investment philosophies of the two firms, how did you think about what was resonating most for you into different cultures, different environments, different styles?

[Herb Wagner]

The thing that's unique about Dave Tepper is I don't know many people who have been as successful as he has in multiple asset classes. He started as a high yield bond trader. He did a lot of distressed debt, did a lot of credit. But then he did a lot of emerging markets, did a lot of sovereigns. And now when I listen to Dave talk, I think about him as being a macro investor. I mean, he has incredible insights on almost any market rates, currencies, et cetera. And he's been successful in all these different areas. It's very, very unique. Seth was also successful across a lot of different asset classes. I think for me what it was is I looked at myself more like Seth and Dave. Dave has a very unique talent but when I was at Appaloosa, a lot of it was feeding information to Dave, Dave making decisions. I wasn't sure I could ever be like Dave working at Baupost because Seth mentors folks, I just thought that I could develop and grow a lot more under that structure. The research orientation, the long term orientation. It just struck me as something that I could be more successful. This fit more with my personality.

[Ted Seides]

How did that play out over your years at Baupost?

[Herb Wagner]

I started as an analyst. I ended up rising through the ranks over the years. The model of how baopost invest I think is actually very similar in a lot of ways to how Finepoint Invest. And so I was at Appaloosa for a couple years. I was at Baupost for 14 years. Clearly the DNA of Baupost is going to rub off me a lot more just because of that. It just was a better fit for who I thought I was as an investor and how I'd like to invest and how I thought I was going to be successful.

[Ted Seides]

I'd love to ask you about two aspects of the evolution over your career into fine point value investing and credit markets. Value investing has had a tough slog over this last 10 plus years. How do you think about what it means to be a value investor and how you try to go about it?

[Herb Wagner]

When I think about value investing, to me what I think about is really trying to find misunderstood mispriced assets in a whole variety of markets. And it used to be back when I was just getting started, it was buying cigar butts like Warren Buffett and Benjamin Grant used to talk about. For me, really what it's more about identifying areas where there was structural mispricings and actually doing fundamental work in valuing what securities or assets are worth in these areas when you can value them and you can buy them at a big discount to that and there's a catalyst to help you realize value. You do it and when there isn't, then you don't have to invest. So when I think about the different areas of what I've done over the years, it's pretty broad. Take for example, we did a lot of stuff with credit high yield distress and then we moved into structured products. Did a lot of stuff in South Korea for a number of years, Japan. Then we ended up moving into reinsurance and different credit derivatives. So it's a pretty broad mix of products. But I think the common denominator is it's out of favor, it's hated. You can have a view that's different than the market, you can understand why it's cheap and you can have a view for what it's worth when you can buy things at a discount to that and there's a catalyst and you go ahead and do it. When I think about traditional value investing, to me that's buying cheap stocks. So cheap price to book cheap on enterprise value. Ebitda. What's interesting is years ago we did that. We did a lot of that. And that used to result in good investment returns. I'd say probably about 10 or 12 years ago, that stopped happening. What I found was we were buying situations where we had a differentiated view that were trading at a big discount to what we thought they were worth based on the metrics we had always used historically. But what was happening was our underwriting was correct. Stock of stocks would go down. And so that was happening over and over again. Underwriting correct stocks go down. We ended up pivoting a number of years ago. We don't want to be dependent upon what the market tells us something is worth. And that's why a lot of what we do is catalyzed. So that was one of the biggest huge change that I made in my investing style, probably starting about 10 years ago, was not buying things just because they're cheap, but really looking for catalyst. What's fascinating to me as well is one of the reasons that value investors have underperformed in the last 10 years is that there's a lot of technological disruption that's taking place and it takes place faster than it used to. When we underwrite a mediocre business, we project out cash flows. If I go back and look at those, which we often do, decline is always often faster than what you think it's going to be. And so I think that's the curse of the value investor is buying mediocre businesses at cheap prices. That has not been a good strategy. And so luckily we realized that years ago and we really pivoted away from that as part of our strategy.

[Ted Seides]

Are there any other significant changes from your thinking about value investing over the years?

[Herb Wagner]

The other big one is how I value the leader of an organization, mostly a CEO. So I would say the value that I give to leadership is significantly more today than what it ever was in the past. This actually applies to CEOs, but it also applies to leaders in the government or if I'm trying to do something with a not for profit. How a leader can influence an organization and what type of impact they can have. The way that I weight that in an investment or When I'm thinking about partnering with somebody is significantly more than what it ever was in the past. I think that's just through a lot of bumps and bruises over the years and a lot of investments. When you invest with great leaders, you're always surprised on the upside. When you invest with mediocre leaders, it seems like you're always surprised on the downside. And so that was a big change as well.

[Ted Seides]

How do you assess the difference between the mediocre leader and the great leader?

[Herb Wagner]

I think it's through a lot of experience and is spending time with a lot of different types of people. So the way that we have found is best is by finding people who have worked with them who have a positive or even a negative impression of them. The other thing I often will do is I've been doing this long enough where if I'm looking to invest in a company, I probably will have a friend who I've known for a while who also knows the individual that we're looking to invest in. Being able to call people who I trust and really ask them how they think about a specific leader, that has been helpful as well. The third thing too is what people do, not what they say. And so it's looking at their history, looking at what they had done, looking at their data. So often what I do today is I'm probably more reliant on the numbers and what people are doing, the actual facts or that's what's in front of you. Less so than just sitting down with somebody and having coffee and walking away and saying, boy, that guy is trustworthy.

[Ted Seides]

And the other credit markets, you started buying loans at 2 times cash flow and selling them at 4. The world's changed a lot since then.

How do you think about the credit.

Markets today and how that's changed?

[Herb Wagner]

I have been a credit investor most of my career. I've invested in a lot of different pockets of the credit markets. It's clearly a lot harder today to invest in credit than what it was when I was working at First Chicago. So we do keep a very close eye on the credit market. So even though we're sitting here in the summer 2025, our credit exposure is at historic low levels. Spreads are tight. There's a lot of capital. You know, when I look at where new issue is getting done, how there's covenants now in credit, you have these LME fights that are going on, these knife fights between creditors that can erode value or could be an opportunity. So there's a lot of changing dynamics that are happening in credit right now. However, I do believe credits have been historically pretty volatile because you tend to have money coming in and out of those markets, especially during times of stress. I am very excited about the credit opportunity set for the next three to five years. We don't see it right now, but if I think about the dynamics of the credit markets, there's a couple things that say to me this could be a really great place to invest. So number one, the number of assets in the credit markets that are held by vehicles that offer daily liquidity is growing dramatically. So mutual funds, etf, passive vehicles, the percentage of the market's assets that are held by those vehicles continues to grow. Number two, there's not a lot of liquidity in credit markets. And so when retail investors or people decide to pull money out because the dealer community and capital's down by 90 plus percent over the last 15 years or so, the price movements that you see in credit tend to be very severe. When you have something happen when there's a shock to the system. It used to be you had weeks or maybe a month to buy something, but now you have days because the volatility is so great because of the fact that you have money coming out for selling, dealers don't really have the capital to absorb it. So you tend to get a lot of volatility in credit. The third thing is I'd say a lot of our competitors have moved to doing private credit. When I look at what's going on in that market right now, it strikes me as pretty competitive and not really a great place to find attractive risk adjusted returns. And it's never been through a credit cycle. So we don't really know how private credit is going to perform when things don't go well, which will inevitably happen. We'll have a recession at some point, but we've had a lot of our competitors on the public side just aren't doing that anymore. And then the last thing I'd say is the markets are enormous. The credit markets continue to get bigger and bigger. At some point you'll have an SBB happen which happened in 2023 when you had to run in the bank. That whole thing collapsed in over maybe a couple days or a week. You had Credit Suisse that had a very quick demise. And so I do think there'll be a lot of things that will happen episodically that will lead to opportunities. The telecom space was a mess last year. We found things to do in telecom business fundamentals will change. We will see volatility There'll be a horrible hurricane that hits Puerto Rico or some area that will cause bond prices to change a lot. There'll be a big financial fraud. Like I joke around like we haven't seen a good financial fraud in a long time, but I've seen a lot of those in my career and I think we'll see those going forward as well. And so that will lead to good opportunities. If I go back to my example of 10 people used to do distressed investing back in the early 90s. Now I don't know the exact number. 500 to 1000 is some huge number. And they're all smart. And by the way, in the early days we used to be the only ones that would hire bankruptcy lawyers, financial advisors. So we had this real edge that actually lasted for probably up until the last 10 years ago. Now everybody hires the best bankruptcy lawyers, everybody hires the best financial advisors. It's just hard to get your edge. And then if I think about the other stuff that we're doing, it's the opposite end of the spectrum. It's differentiated, it's not competitive. And so those are the things that we always gravitate to.

[Ted Seides]

So as we dive into that and what you're doing, when you bring to bear both the experiences you've had and then these perspectives about how value investing, credit markets have evolved, how did you lay out what it is you're trying to do?

[Herb Wagner]

At fine point, we're really trying to compound capital over a long period of time. The way we do that is we have an open mandate. Our clients have given us a lot of trust that we can look across a lot of different global markets and we can look for areas of structural mispricings. We go in, we underwrite assets and we can buy things cheap with the catalyst, we'll do it and we can't, we'll move on. I feel like our job is to find really attractive risk adjusted returns. We have a global mandate to do that. And I'm also a big believer we don't have to know everything. Often people will say, oh, what do you think about the European stock market? I don't really know a lot about it. I don't follow it that closely and so I don't really have a view. We have this saying here that investing, you don't get paid for difficulty points. It's not like diving where the tougher the dive, the higher your score. This doesn't exist in markets. And so one of the things we try to do, and I try to do is really Have a sense for, okay, what can we know? Where are assets? Price? Where is there a lot of stress? Where are there problems? Has a big event happened that's maybe caused people to run away from a market? And then is that a risk that you can really understand? It's important to know what you know, but it's more important to know what you don't know. And I'm a huge believer in that. That's really stuck with us. We look at a lot of odd things and you have to ask yourself, can you really understand the key risks? So often you think you can, but you can't. So that's something that we spend a lot of time when we're looking at a different market or an opportunity. That's the key question that we're always asking ourselves.

[Ted Seides]

So when you have a global opportunistic mandate and there's a lot of things you don't know, how do you figure out what you're trying to canvas to then learn enough to know when you want to dive deep?

[Herb Wagner]

It starts with really just generally having an understanding for what's happening in the world and some of the key markets that we see potential opportunities. So we're looking for areas that have been volatile, things that we can understand that we can underwrite. One of the areas that we have gravitated away from over the years is take emerging markets, for example. So the sovereign risk, the macro risk, often are the most important risk in any asset you're looking at in a specific emerging market. We don't think we're good at that. We haven't had a lot of great reps Years ago, I would say I was better at that. But I think the uncertainties have grown over the years. Also. Take for example when the Chinese property developers all blew up, when Evergrande blew up back in 2023, we spent a lot of time trying to figure out could we understand the risk. We ultimately decided we couldn't because so much of it was dependent upon the government and also so much is dependent upon the accounting and how the banks treat these different developers. And it was very hard to get really good insights on that. But more importantly, there's a number of markets that we keep a really close eye on. Every component of the credit markets we are laser focused on. If I think about Japan, Japan was something I had looked at every year for a long time. But because of these changes that started to take place in 2014 and 2015, then we actually started investing. So I was an investor in South Korea for a very Long time. That was something that we know well. There's a number of markets that we have exhibited a lot of the characteristics that we look for, that we have a lot of relationships in that we talk to folks on a pretty regular basis, so we're keeping a close eye on. So when something happens, when you have an event like for example, 2016, when oil prices collapsed, there were certain components of the credit markets that got really attractive. During that time. We knew the companies we've invested in that area, so we were able to take advantage of that. If you have a geopolitical event, for example, when you had Greece essentially defaulted and they almost defaulted a second time, you have these big events that happen and you run to them and you say to yourself, can we underwrite this risk? And is this risk attractively priced? What I found over the years, from the outside, I think it seems overwhelming because there's so much to look at. But when you're in the inside and you're making the sausage, you're sitting around a table with your colleagues and you're going through what's happening in the world and how assets are being priced in a specific market, and is there a catalyst and can we have conviction? It actually becomes very clear.

[Ted Seides]

Is there a systematic way or screens or just things you read that lead you to be looking at what it is that you're talking to the team about?

[Herb Wagner]

I wouldn't say it's systematic. Having an open mandate that is one of the biggest assets of our firm, but it's also one of the biggest challenges. So we've built a lot of process around making sure that we're aware of where the global asset markets are priced. So we have a committee that's set up, has a number of senior individuals at our firm that really tracks a number of metrics to look at where opportunities are being priced in different markets. So there are certain markets that we have had a lot of experience and a lot of success that fit well within our mandate. Those are the markets that we have metrics that we follow. We say to ourselves, we really want to go a mile wide. And then once we find something that we think has some of the characteristics that we look for, then we really go a mile deep. Then we start doing a lot of diligence to understand how assets are being priced. And then when we start to think things are interesting, we'll bring in more resources, really marshal the troops, and then underwrite individual assets.

[Ted Seides]

What are the types of metrics that you're looking at to determine when something might Be attractive to dive a mile deep.

[Herb Wagner]

Say for the credit markets it could be spreads. How are single B spreads? How are triple C spreads? Where are those being priced? Other markets it could be price to book ratios, price earnings ratios. But then you have some markets like reinsurance where there's not really any normal metrics that you can look to. Some of that comes through conversations, but it just comes through reading. I'm a big believer of just ingesting as much information as I possibly can. There's markets that are very easy to follow financial metrics, and there's some markets that are very hard.

[Ted Seides]

Is there a defining characteristic or a thread of cheapness or dislocation that leads you to say that's something more likely to be an opportunity for you?

[Herb Wagner]

There definitely is a lot of pattern recognition in this business. Sometimes you see a really big shock that happens or you talk about an industry that something happened that just went through that securities were just repriced. Or it could be a company that files for bankruptcy out of nowhere. Or it could be a company that goes into liquidation. So sometimes there'll be a sudden event that will attract your interest and you'll start pulling threads to try to figure out is it interesting or not. One of the first things that I always go to is is there something that we can anchor ourselves to in terms of value? I can never lose more than a certain amount of money. So really defining the upside and downside very quickly of an instrument is something that we try to do very quickly. Now often you can't and so therefore you have to get paid a lot more. But what I found is that in these situations that are fast moving and opaque, if you can ground yourself in some kind of downside scenario and get conviction around that, then you can actually make something really large and you can be very aggressive. That's where we start.

[Ted Seides]

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M.Com and now, now back to the show. I'd love to dive into the example of Japan. You said you looked at it every year, but then about a decade ago, you decided to start investing. What was the reason that you first said now is the time to get.

[Herb Wagner]

Involved as a value investor? I've had numerous friends and folks who've gotten excited about different Japanese opportunities once, twice, three times a year. Before finepoint, I really never had invested in Japan. So we do work on these companies. We generally always found the same problem. Great company, cheap price, poor governance. They were accumulating a lot of money and the money was set in the balance sheet. They weren't reinvesting it and so they weren't accreting value. And also, disclosure was difficult, the accounting was difficult. And so it fell into the category of unknowable. So we ended up not investing. So the big change that happened was 2012 when Shinzo Abe came into his second term as Prime Minister. He started to recognize that when you have these great companies that are generating fat profits and all this money just sits on the balance sheet of these companies, they don't do anything with it. It's actually destructive for the economy. And so he was really ahead of his time. So in 2014, he came up with a corporate stewardship code, in 2015, the corporate governance Code. So the Corporate Stewardship code was a roadmap for asset managers to hold companies accountable for better governance. The corporate governance code was telling the companies what they should be doing. It wasn't mandated, it was more, here's some frameworks for what we think you should be doing. So we saw that and we said, hmm, that seems really smart. This is a market that seems ripe for that type of movement or that type of action. Let's see what happens. And so in the subsequent years, we started keeping a close eye who was adopting it, who wasn't. We started to see dividends increasing. We started to see share buybacks selling at some cross share holdings, you know, at a very minor level. And so over time we've said, hmm, is this time different? Are these changes really going to stick? And do investors care about them? One of the things that's fascinating about Japan is most experienced investors have some horror story about investing in Japan. And so when I started getting into it, what I realized was people don't like investing in Japan. There's a real institutional bias against it. You had a big asset bubble that exploded in 1990 and this has caused a lot of pain. And there's a lot of people just have a bias against it. So second thing I learned was people would say to me, oh, there's so much sovereign debt in Japan and there is, there's debt to GDP for Japan is 250%, but the central bank ends up owning a large chunk of that debt. So the actual net number is a lot smaller. Japanese interest rates are lower. But what's fascinating about Japan, I think what people miss is that when you're looking at the leverage in an economy, you have to look at every level. So the Japan sovereign leverage is high, but net of the central bank, it's actually manageable. The banking system is well capitalized. Now, corporates in Japan and then households, they're all net cash. And so households sit on massive cash balances. They generally don't like to invest in the stock market. So if you look at the economy collectively, it's actually not that levered. You compare that to the U.S. for example. Our sovereign debt now is getting close to 100%. Our banking system is well capitalized, so we're similar there, but our companies have a lot more debt and individuals are very levered. And so for some reason there's a bias against Japan because of this one number which we just didn't think told the whole picture.

[Ted Seides]

When you go to dive deep on Japanese companies sitting in Boston, you have cultural differences, you have language differences. How do you get up the curve to the level of depth that you would want to take significant positions?

[Herb Wagner]

You are exactly right. The barriers to invest in Japan are enormous. So the cultural barriers are huge, the language barriers are huge. The accounting is different, the time zone is different. I mean, I can't tell you how many times I wake up at midnight or one o' clock for a telephone call. So it's tough, it's difficult. We probably spent over a year underwriting Japanese companies, spending time over there understanding all of this before we made our first investment. Fast forward to today. We have five people on our team that speak Japanese. And so we understand the accounting, we understand the cultural differences between the two. I was always amazed when I first started going to Japan. We'd have investment meetings, we'd have the Japan team and we'd go in and I'd come out and I'd say, wow, what the guy just told me was A. And the Japanese guys were like, no, no, no, no, no, he wasn't saying A. He was saying B, C and D. And I was like, what? What you realize is they communicate in a totally different way. Relationships are very important in Japan. The government is very important to Japan. You need to be on the right side of the government on every investment that you make. That's very important. The government, I tell people, is the biggest in Japan. The other barrier I always hear about people investing in Japan is they'll tell me, oh, the demographics are a disaster. I mean, the birth rate is low, everyone knows that. The death rate is high, there's very little immigration, the population is shrinking. All true. What the government's figured out is because of these demographic challenges, they need to attract foreign capital. And so they have been doing a lot to try to make it easier. So what's interesting about Japan is you have this tailwind of governance reform that's actually being led by the government and being adopted by a lot of folks. And so to answer your question, when we go over there, how do you underwrite a Japanese company? We're not trying to invest in the market. We're trying to find people, most CEOs, boards, who really understand the benefits of better governance. We're not activists. We don't push people to do anything for us. If we buy stock and we meet with them and then we don't like what we hear, then we just sell the stock and move on. What we found in the early days there was companies that were starting to adopt these changes. And when they started to adopt these better governance changes, the opportunity is massive. So think about a company for 50, 60, 70 years that always paid low dividends, always held onto their earnings, had massive cross shareholdings, owns all their real estate, has no leverage at all. If you start to get them to say, okay, let's think about your cost of capital. The way to reduce your cost of capital is to take a little bit of leverage out at 1% or less, recapitalize your company, maybe buy back some stock or maybe reinvest or buy or reinvest in a growth business. The heart of the opportunity for us is there's very few people like us over there. So Japan is most long only managers. Most asset managers underweight Japan. Still, I'd never been able to exactly quantify this number. I think over 90% of the market is passively managed. There's very, very few fundamental bottoms up investors in Japan. So when we go in, we roll up our sleeves and we engage with these companies. Other people aren't doing that and we can really have a differentiated view. Every investment that we make, we spend a lot of time with these companies. It could be years before we actually make our first investment. We're not going to invest just by what they say to us. We need to see them start to do things. What's fascinating about Japan, because these opportunities are so big, you could see them do things for years and the stock prices don't react at all where we can actually gain conviction on what they're doing. As we started making these investments, what we figured out was the companies that were making these changes. The stock market was recognizing the increase in value, but generally not until the seventh or eighth or ninth inning. Once they started seeing the benefits of a lower cost of capital, higher margins, selling off bad businesses, reinvesting those businesses and the growth businesses. Once you started seeing that and the numbers, that's when the Japanese market started to get excited. We saw that and really started engaging and figuring out who's serious about these changes. And luckily we've been doing it for nine years now because we need to see a lot of tangible change. We need to spend time with people to really understand do they believe this. If you look at 20 years ago, there was a big push for activism in Japan that largely failed. Today the market is ready for it. So if you look at it today, these reforms are accelerating. The government continues to push hard. Companies that make these changes, stock prices go up and everybody wins. We feel like we're part of this revolution that's taking place. We're helping steward companies, we're helping realize a lot of these positive benefits. And so that's the core of our investment effort.

[Ted Seides]

Within that broad group of companies making significant governance changes, have you found any substrategies or sectors where that has been more prevalent than others?

[Herb Wagner]

The answer is yes. What's interesting about Japan is typically when you see a company in an industry start to make significant changes and their stock prices go up and they start to reap the benefits because now they have excess assets to buy other businesses. What happens is you start to see other people follow in that same industry. IT Services, for example, Hitachi was really one of the leading companies in this area. So they started making a lot of these changes and really started to sell off listed subsidiaries, sell off excess assets, reinvest in growth businesses. The stock price has done tremendous. And then other companies like to follow as well. Some industries that are very slow to change and they really haven't adopted the benefits of better governance. I don't exactly know what percent of companies are actually taking positive action, but it's, well, less than a majority. I think eventually most companies will do it. We're still in the infancy. I'd say the last few years you've seen a lot more of an impact than the five years before that. So I think that's really positive. But there definitely are industries who, because there's a leader, because there's someone who champions the cause, that a lot of other people see the benefits and then they follow.

[Ted Seides]

So you mentioned that you, you don't participate as an activist investor, but the time may be ripe for activism. How have you looked at the behavior of activists and companies in your investment remit?

[Herb Wagner]

We would rather find great companies and great management teams. I'd say today what we have found is 20 years ago, I don't think people understood what the activists were doing and why and what the benefits were. Now I think market really understands, okay, there's an activist who bought stock in a company that has massive cross share holdings, huge cash balances, owns all their real estate, very bad margins. And so investors say, wow, that's an opportunity. And so if there's an activist that gets involved, what you see today is there's a lot more support. They say, oh, everyone is doing this. This is really good for the market, it's good for society. There's buy in amongst the asset management community, there's buy in amongst the government. And so when you start to see activism taking take positions and advocate for change, everyone piles in behind them. There are instances where you still have companies that fight them really hard, but just the culture around activism has just really changed. And I think it's because people see the benefits of it. I think that's the biggest reason.

[Ted Seides]

When you started investing in Japan a decade ago and have continued since you built up your team, how have you grown your exposure in thinking about the risk reward to where you are today?

[Herb Wagner]

When we first started doing it back in 2017, it was a new market for us. There was a lot of changes that were taking place. We weren't certain our relationships were newer. It was a smaller part of what we did. As we did it more and started having more success, the things that we were underwriting were actually happening. Stock prices were trading to what we thought they should, events were happening that we thought were likely to happen. So as you had more and more success, we built out a great team who manages the effort. So as we got more confidence in the team and what they were doing and how they were engaging, the exposure continued to grow. And then if you fast forward today, it's a very large Exposure for us. People ask me all the time, how much longer will it last? And I really feel like Japan, I think is the third largest equity market in the world. Minority of companies have actually gone through these changes. I don't know if you're in the third inning, the fourth inning, the fifth inning, the number of people invested in Japan really hasn't changed that much. So what's fascinating to me too is we've had success, others have had success. You know, asset management is competitive. You think when you see firms that have outsized returns, you'd have a flood of folks running to a place. But it goes back to the barriers to entry. The barriers to entry are high. I remember the early days when we were investing in Japan. When you go to see a Japanese company, you have to go through a process. You have to go through the junior IR person, then the senior IR person, then like the controller, then the head of accounting, and then the head of accounts payable. Maybe you'll get to the treasurer and the holy grail of the CFO is maybe five years later you get to the cfo and the CEO would never meet with anybody. We don't always go straight to the top, but often we do. But we have a reputation that we've developed over there where people trust us as stewards, they trust us as investors. They know that we're doing things for the right reasons, we're long term oriented. So that's really a big difference today than what it used to be. So I'm very excited about our effort there. I'm really excited about the changes that are taking place as well.

[Ted Seides]

What are some of the other opportunities that excite you?

[Herb Wagner]

So I'd say there's two other things I continue to be really excited about the credit opportunity set for the next three to five years for the reasons that we discussed. Even though we have a much smaller exposure today, that's an area that we're excited about. And then the other thing we're doing right now is we have some exposure in the reinsurance. Reinsurance is an area that we looked at for a long time, never invested. The event that really repriced the market was Hurricane Ian. When that hit in the fall, I think of 2022, that was a very devastating hurricane to hit western Florida. Caused almost $50 billion of insured losses, significant loss of life. When that event happened, you had a run up of a few years before that with bad hurricanes. You've had really high construction cost inflation, you've had higher interest rates. And so what we Found was we got into is. Insurance companies in Florida had pretty big holes in their balance sheets and they were writing risk and they were being forced to offload that risk from rating agencies or regulators. We followed the market for a long time. We saw this event, we saw how risk was starting to get priced in 2023. And it was significantly different than any time in the past. The way I characterize it is if you underwrite a risk that has a 1 in 10 chance of happening historically that would get priced that you get paid 15 or 20% to take that risk, that number is over 50%. So the pricing around a unit of risk in Florida wind now is significantly different than it's ever been in the past. We spent a lot of time underwriting the risk, the market, and we've built a decent sized exposure to that. We actually have four verticals that we operate within the reinsurance space. The other thing that has really been significant, that's repriced risk is a California wildfires from last year. Those are very devastating. Once again, significant loss of life. But you've had a lot of insurance companies pull out of California and these insurance companies need capital to underwrite risk. And so the way risk is priced in that market has also changed pretty dramatically. I would say reinsurance because of the. A lot of the losses that have taken place and because of the insurance companies having lower amounts of capital. Like that's another area that we see great opportunities right now.

[Ted Seides]

Now, what risks in Japan are you worried about?

[Herb Wagner]

One thing we should at least talk about is there's a lot of risk in our portfolio that we have no control over. There's significant geopolitical risk in Japan. Every market they think about China, Taiwan, there's a lot of geopolitical risk. We could have the global pandemic, we could have a recession. We could have high inflation and interest rates. And so we actually have a pretty robust hedging strategy. Since we're fundamental investors, we hedge currency, commodity and interest rates at the investment level. So for example, we hedge the yen. We don't have a view on the yen doll. We think about ourselves as being dollar investors. So we hedge anything that's not dollar back to the dollar. So that's something we do. Same with rates. We don't have a view on rates, so we hedge that out whenever we buy fixed income instruments. And then on top of it, we say we own a basket of financial assets. We have no view on the risk of those events happening, such as a recession. But often the way the markets are Pricing, you can buy protection against those risks in a variety of different forms at very cheap levels. And so we build a basket of financial hedges on top of our portfolio when volume is low, and then when volume is really high, we typically sell them. And so we have a dynamic hedging program that we employ. I worry a lot about China, Taiwan, I worry about an earthquake, like you can have another. Japan has a history of horrible earthquakes, obviously, which led to a nuclear disaster. I think Japan has demographic changes that we talked about. One of the ways we deal with the demographic changes is, as I mentioned, the government's incentive is really trying to get foreign investors to come in. Most of the companies that we invest in actually are most of their businesses outside of Japan. So that's one of the ways that we deal with that. But I do believe these hedges that we buy protect a lot of our downside in these scenarios because it's dynamic. We tend to really load up on the hedges when they're cheap and then we sell them. So we ended up selling a big chunk of our hedges, for example, around Liberation Day when that happened.

[Ted Seides]

The one risk that you didn't talk about hedging that would be really hard in reinsurance is if the pricing is justified by climate change. You can see the price. It's much harder to see the risk.

[Herb Wagner]

The thing that's fascinating about reinsurance is that a unit of risk, say there was a vanilla measure for a specific risk. There isn't. Let's say there is. The way that it's priced across different structures, vehicles and different markets is dramatically different. So actually, one of the hardest parts about reinsurance is just sourcing the risk. It's an opaque market. It's a lot of bilateral contracts. To answer your question about climate change, we are very worried about climate change. We spend a lot of time thinking about how do you price it, what does it mean? We spend a lot of time with scientists really trying to develop a view on that. I say where I come out is take that 1 in 10 year risk that we talked about. I don't know if it's one in 10 years. I don't know if it's one in 11, nine years, one in eight years, one in seven years, even one in six years. I'm not sure, but I know it's not one in five years or one in three years. And that's how it's being priced. Often what we see is it's priced so dramatically that that's the opportunity. So one of the things we've heard from talking to climate scientists is that the world's getting warmer. Without a doubt, sea surface water temperatures are rising. And so we've seen that. What they'll tell you is that it increases very slowly year to year. You don't have big changes in the risk of a large hurricane over 10 years, 20 years you do, which is kind of what we've seen. But it's a slow moving increase in risk. That's what's fast. Fascinating to us is because you can have these year to year changes in pricing that is really, really dramatic. The thing that I talked to you about, the 1 in 10 year risk might go to over 50%. Next year it could be 30% or 20%. And so one of the benefits of our model is that we won't invest, we'll move on and we'll be doing something else. If I look at credit, for example, there's great times to be invested in credit. There's not great times. When I think about structured products and I think about subprime, the subprime betrayed. Back in the mid-2000s, you got into that market. Most people who were buying risk and who owned bonds, they knew it was insane. They knew it was being propped up by this easy financing that was taking place. And so you talk to them, but they said to you, we have to invest. There's so many of my peers who are doing something very specific to what their mandate says and they have to invest. We don't have to do that. So when credit's not interesting, we're not going to do it. When reinsurance isn't interesting, we're not going to do it. It if Japan changes, we're not going to be doing Japan. I think it's one of the biggest benefits to what we do. Financial markets are so large and I've done so many things over the years, a lot of it I could never predict. If you would have said to me, hey, Herb, when you started fine point, what's the chance that you're going to have over a majority of your assets in Japan? I would have said, you're crazy. And here we are, that's where we are. Or if you would have said, we knew stuff in the reinsurance space, I would have said, what is that? And that's the great part about our model. And behind those areas, we have a number of other things that we're working on that we're in the process of seeing if they meet our bar or not. I do feel very fortunate that our investors allow us to invest in different Markets to operate with an open mandate. They look to us to be the person who decides how much equity exposure do you have versus credit? I think they like that about us. I actually think it's one of our biggest assets.

[Ted Seides]

Are there any other broad opportunity sets that you're excited about about?

[Herb Wagner]

One of the things that we've been spending time on is an opportunity that's arisen because of the explosion in the pod shops and also the quant funds. This is not a new dynamic. The quant funds in these pod shops have gotten very, very big. They employ a lot of leverage, which of course allows them to invest even more assets. So we actually have recently found a derivative in an Asian market that we're buying for 10 to 20% of what we think is worth so 80 to 90% discount. And it's solely a result of the fact that there's a market in Asia that has such a large demand to be short because of these funds. So these indexes, there's a massive demand to short them. And so we can construct derivatives on the other side of that. It just gives us asymmetric return. We put a little bit of capital to work, and we can earn multiples of our capital based on reasonable assumptions. And our downside is defined because we can only lose the premium that we put up. But the thing I love about it is that this didn't exist a year ago, two years ago, three years ago, but because of the explosion in the size of these funds, we were able to find it.

[Ted Seides]

When you do have such disparate opportunity sets, how do you think about portfolio construction and position sizing?

[Herb Wagner]

When you think about the return characteristics of a Japanese stock versus a credit instrument versus a reinsurance contract, they are really different. We have developed this tool that we built internally that really is a variety of quantitative and qualitative factors that helps us think about the return characteristics across these different verticals and how we should think about sizing. Now, the quantitative factors that go into it will be things such as, what's your base case? What's your 90th percentile? What's the risk if you get everything wrong? How much money do you lose? What's the timing? Is there a catalyst around it? And then we have a large number of qualitative things that we think about as well. So do we have a history of success doing this type of investment? Does it have a catalyst? We have a category for the HERB conviction score. So how strongly do I feel about this? How knowable are the inputs? How knowable is the Risk. Does the analyst have a history of success doing this? I think it's important to say that the model really is a starting point. It helps stoke conversations. It helps based on all your history, what the model is telling you and then forms a great basis for a conversation. And then we go from there.

[Ted Seides]

How do the conversations lead to an ultimate decision either at a specific name or a bigger allocation in the portfolio?

[Herb Wagner]

We are a highly collaborative firm. We're all aligned with our partners. Nobody has their own P&LS here. Everyone is really aligned to find the best investments. What I have found is the best way to run an investment process is we'll have analysts who will go out work on investment. I tend to work on investments pretty closely with people. When they bring it to the group, we'll typically do that two or three times. We'll have large conversations around what we're looking at. I will be having conversations almost daily, if not weekly with the individual analyst. And then ultimately we only have one portfolio manager at the firm, that's me. And so I have to give the go ahead on an investment. Where the model comes in that we just talked about is that we will look at the model, look at, at how this investment stacks up versus other investments. What the model is recommending in terms of sizing, how I feel about that recommendation, does it seem right? Based upon my experience, and then based on that, then we'll execute on the investment. We have a large majority of our investments that go through this process that could take six months to a year from the time it gets into the portfolio. Sometimes you have a day to make a decision. And so those are the ones actually that are really fun but just require a lot of focus. The one that comes to mind, the recent one, is Silicon Valley Bank. When that was really melting down, you had not a lot of information. And you're often trying to make decisions based upon this limited amount of information. Markets are incredibly volatile. Same thing happened with Credit Swiss, which was of course at exactly the same time. A lot of it for us is unreal thinking about what's our downside, how much money could we lose, what's the return profile? And it goes back to what do we know and what don't we know often. And I have found those types of fast moving investments tend to offer really attractive returns. But you have to process a lot of information very quickly. But there is some percentage of our investments that we do have to react in a very short period of time. And I do think it's one of the advantages of Our size, we can move fast. You're looking at the investment committee. So off we go. And we can make decisions. We can trade bonds over the weekend, we can move fast. And that ends up being a big advantage.

[Ted Seides]

What are some of the biggest mistakes you've made over the last decade?

[Herb Wagner]

One of the biggest mistakes was that value investing has changed over the years. I mentioned the old cigar butts, which turned to buying cheap stocks, doing stuff in emerging markets. If I look at Fine Point when we first started the firm, we were doing mostly things that I had had success with historically. But what happened was you think about buying cheap stocks and great businesses without a catalyst, that doesn't work anymore. So sometimes you have to get punched in the gut a few times and have some bad experiences before you change. That ultimately ended up in us focusing on more catalyzed opportunities. So I would say the biggest mistakes that I've made have been not adapting quick enough to what's happening in the financial markets, somehow getting stuck on the past and thinking about, well, this always worked before, so it should work today. I had done some successful stuff in the emerging markets and then we ended up doing the same kind of investing, but it's just the markets had changed and we have to change with it.

[Ted Seides]

I'd love to ask you about the evolution of the business itself. What was the biggest challenge in getting the business where it is today?

[Herb Wagner]

I think the thing I didn't fully recognize When I started FinePoint was how difficult it was going to be to start a firm and get it to a point where it was highly functioning. When I look back at SaaS and bow post and what a phenomenal culture and firm that he built, I took it for granted a little bit. That was going to be easy. We really want to have a firm with a culture that's very strong, including the highest ethical and moral standards, intellectual honesty, perfect alignment of our own interests with the interests of our LPs. Always asking ourselves when we have difficult questions, what's in the best interest of our LPs. We want a culture of transparency. We want a culture of. Of kindness, culture of respect. I firmly believe that everyone in this firm deserves a high level respect. Whether you're the man at the end of the day who's cleaning the office or you're the president of the firm. Everyone deserves a very, very high level of respect. So getting all those ingredients right and hiring all the right people and getting everyone in the right seat and developing them and getting them to a point where you felt great coming into work Every day was just a lot harder than what I thought it was going to be. To have come from Baupost and to see what Seth had built and to see how difficult that was. This gives me a lot more respect for him and for that firm. And today when I walk into the firm, I can't tell you how good I feel, how happy I am when you see the fruits of that labor. And there's an old saying about you appreciate something a lot more when it's difficult. It took us a while to get to that place, but now I feel like we're at that place.

[Ted Seides]

When you started, value investing wasn't so out of favor and you really did start with quite a significant launch. How do you look at it today?

[Herb Wagner]

I'm very fortunate that I have a phenomenal set of LPs. I have a great team. I have people who are highly energized, who like coming to work every day. And we're really doing different things. The firm today, size wise, is a little bit bigger than what it was when we first started, but the types of things that we're doing are dramatically different because of that. We hire generalists, we hire really good athletes, really smart people who are intellectually curious and can learn almost anything. And we plop them into our model as we go off and embark in looking at a whole variety of asset classes. I would say we have a small number of LPs, we have a small team, we run a concentrated portfolio, we're a research oriented organization, we're value investors. And so a lot of the fundamentals of who we are really haven't changed. What has changed is just the construct of the portfolio. We started out doing a lot of credit, maybe some equities. And if I look at what we're doing today, I mean, we're concentrated in Japan and reinsurance and a couple other things. I'd say our hedging program really has never changed. That's probably the one part of our firm, the investment part, that has remained constant. I talked to you about how the investing style has changed. The focus on Catalyst. We used to hold a lot of cash early on as the team matured, as I matured, as we started doing things in different markets. We've been fully invested for a while now, so that definitely changed. But also I think the biggest change has just been the markets that we're operating in. We found great investments in places that I would have never thought and I'm extremely excited about what we're doing.

[Ted Seides]

As you look out over the next Five years. What do you hope fine point becomes?

[Herb Wagner]

I'm actually really excited for the next five years for a number of reasons. The first one would be we have a great team here. We just passed our 11th year anniversary. We still feel like we're relatively new, but I think over those first 11 years we have built a A team. And when you start from scratch, that doesn't happen overnight. It really doesn't. We've developed folks, we've invested in people, we have a great team. We spend a lot of time together, we work a lot, and we spend a lot of time outside the office together. I'm fortunate enough we actually have lunch together every day. The best half an hour of my day is having lunch with my team. So the second thing is, I'd say the things that we're doing, I'm really excited about. We're concentrated portfolio. Most of them are catalyzed going back to what we talked about with reinsurance. Reinsurance not correlated to the market. We really like that. Japan, of course, is. We have phenomenal LPs who will believe in us, who have given us a lot of rope to go out and find great investments. I'm excited about the areas that we're operating in. I'm excited about the team. That feels really good.

[Ted Seides]

I want to ask you a couple closing questions before I get to that. There's two things I want to ask you about outside of Fine Point. I used to joke that there was a time when people would be worried that if a hedge fund manager went out and made too much money, they would get distracted and go buy a sports team or something like that. And it turned out that you owned a piece of a sports team before you even launched FinePoint. So people didn't have to worry about that with you, but would love to hear about your interest in baseball.

[Herb Wagner]

Part of it goes back to my paperboy days. So I grew up in the 70s close to Dayton, Ohio, so we were very close to the Cincinnati Reds. So as a kid, I was a huge baseball fan. I still remember waking up and I'd get my 40 newspapers to deliver and I'd go straight to the box scores. Remember, you'd open up the newspaper and I'd spend a ton of time just going through every box score, memorizing the statistics for everybody. It just was a lot of fun. So even from a very young age, I was a big Cincinnati Reds fan. Back in 2012, through one of my mentors, I was offered the chance to buy a small piece in the Boston Red Sox. And I instantly jumped at it. I remember talking to my wife and I said, I'm not sure if this is going to be a good investment or not. In fact, it might go to zero. But I want to learn more about the sport. I want to learn about more about the team. I want to get. I want to have a deeper connection to what they're doing. And so she was supportive of that. And over time, they bought a football team in the UK called Liverpool. They bought the Pittsburgh Penguins. They made a big investment in the PGA Tour. I tell people it's one of the best things I've ever done. It's so much fun. I've enjoyed it with my kids. I've enjoyed it with my wife. I sit in rooms and I listen to the GM for the Red Sox talk about what he's going to do. I just pinch myself. I cannot believe I'm in the same room having these conversations. And so it's been an absolute joy.

[Ted Seides]

And the other is your foundation. You've done a bunch of philanthropic work and would love to hear more about what you're doing there.

[Herb Wagner]

My wife and I both grew up in the Midwest. I think we have similar values. We really believe in giving back. We've been very fortunate in our lives, but there's a lot of need and there's ways that we can impact people in a very positive way. So we set up a Foundation about 20 years ago. Our foundation's not going to be multi generational. We're going to give all the money away during our lifetime. We really feel like societal problems are compounding a lot faster than I can compound capital. So there's a bigger need today than what there is even in 10 years from now. So let's commit ourselves to being thoughtful about it and actually executing it. My wife runs our foundation. We work together on thinking about the different verticals and how we can make an impact. We focus primarily in global health and employment opportunities for inner city youth, and then also in the arts. And so we have three verticals that we have really tried to specialize in and try to focus on. We're going to run like crazy to try to make the biggest impact that we can make between now and the time. We can't do it anymore.

[Ted Seides]

What's been most surprising about your philanthropic work?

[Herb Wagner]

I think the most surprising part is actually it's really hard to give away money, as dumb as that sounds. There's so much need and you feel such a responsibility to make an impact and help people and you just don't want to make a bad decision. Often you can't measure impact in investment. You can measure whether it went well or not. If you give money to a organization that's providing healthcare to a certain part of the world or a certain neighborhood, it's really hard to measure success. And so. So there's not great financial metrics in a lot of what we do. Interesting enough, it goes back to one of the questions that you asked, which is one of the things that we do is we find great people who have built organizations, great leaders, and we really invest in them. So I can give you a lot of examples of people that are making tremendous impact in these verticals, and a lot of it is you're trusting them to make good decisions. But I've been very surprised about it. It's just really tough to do a good job in that area.

[Ted Seides]

Who's your favorite leader in the world of the charities you're giving money to?

[Herb Wagner]

Hands down, my favorite leader would be someone named Paul Farmer. He ran an organization called Partners in Health. He passed away probably three years ago, but there's a great book written about him called Mountains Beyond Mountains by Tracy Kidder. Paul was somebody who just was just totally committed to helping people and providing the most vulnerable people with the best healthcare that he could. He was such an inspiring individual, and he was so committed, and he's impacted millions of people in all types of different communities. He's just been an inspiration to me to know people like that. You just feel fortunate to have interacted with somebody with that mission and those kind of values and somebody who dedicates their entire life to helping people. So luckily, we meet a lot of those people. It's one of the coolest parts of the work that we do. My wife has a phenomenal team that she works with who help her on this mission, and so we've been very fortunate to have them along with us really helping to make an impact.

[Ted Seides]

Herb, I want to make sure I get a chance to ask you a couple closing questions. What is your favorite hobby or activity outside of work and family?

[Herb Wagner]

I'd say two things. I love to read. Ever since college, as I really got into my academic studies, I've just really become a voracious reader. I read everything I get my hands on. I read fiction, I read nonfiction, I read investing books, I read sci fi. It's relaxing for me, but it also just opens up different perspectives. You learn so much. I've gone through different phases recently, reading about the Civil War or reading about old shipwrecks, and then I think the second one would be I loved exercise. I've been biking to work for over 20 years. Some of the best parts of my day, in the morning, 30 minute ride in and then the 30 minute ride home. Nothing. Just your thoughts on a bicycle. People have often asked me if that's dangerous, but there's a bike path right down the Charles river that I ride for the most part. But if I'm not biking, I love to run. I still run half marathons and 10Ks, and I also like to swim as well. So I feel like I have a lot of energy. So I love to expend it either on a bicycle or running.

[Ted Seides]

What brings you the greatest joy?

[Herb Wagner]

So at this point in my career, the greatest joy is really mentoring people and then watching them grow, develop, and make a big impact. Being part of that, investing in people, helping people. We've had a number of people here at the firm who have made tremendous impacts for us on the business, on the investment effort. You spend time with people, you get to know people and you give them advice. But ultimately, when they actually grow and they make a great investment and they're so happy with themselves and they're so proud and it impacts the organization in such a fun way, that is really the icing on the cake. It goes back to what we were talking about with the team. We have a great team here. A lot of them are so talented. They probably would have done great without me. But there's something that's really fun about seeing that and feeling like you play a small part in it.

[Ted Seides]

One more. If the next five years are a chapter in your life, what's that chapter about?

[Herb Wagner]

I'm really excited about the next five years. We have a phenomenal team here at Finepoint. The combination of great clients, great investment mandate, great portfolio. I'm excited about what could happen on the credit front. So I think professionally, the next five years could be the best five years of my life. The other thing that I'm excited about is I've hit the stage in my life where my kids are launched. So I have three kids and my youngest is going to be a senior in college. But they're adults, they are building their own careers, they're building their own lives, they have relationships. So to help them navigate that, but also to see where they end up and how they grow and eventually to see their families grow is something that I just think is going to be really cool. So I'm excited about that also.

[Ted Seides]

Herb, thanks for this rare chance to, to share your story.

[Herb Wagner]

Thank you.

[Ted Seides]

Ted, thanks for listening to the show. To learn more, hop on our [e-mail] where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one and see you next time. All opinions expressed by TED and Podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast.