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

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.

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).

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]

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]

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.