Educational Alpha: Episode S3 – Conversation with Fernando De Leon, Founder and CEO of Leon Capital Group
Release Date: April 2, 2025
Introduction
In this episode of Educational Alpha, host Bill Kelly engages in an insightful conversation with Fernando De Leon, the Founder and CEO of Leon Capital Group. The discussion delves into Fernando's journey from his upbringing along the US-Mexico border to building a diversified multi-sector investment firm. They explore topics such as private capital, real estate investments, patient capital, the evolution of Leon Capital Group, the role of technology and data analytics, and the firm's commitment to investing in future generations through its scholarship program.
Fernando De Leon’s Background and Early Career
Fernando begins by sharing how his upbringing in South Texas, straddling the US-Mexico border, deeply influenced his approach to business and investment strategies.
Quote:
“I learned how to become a social systems engineer, where we built companies and we built organizations around operating systems.”
— Fernando De Leon [02:48]
He highlights the contrasting operating systems of the United States and Mexico and how navigating these differences equipped him with the skills to identify and capitalize on unique business opportunities.
After completing his undergraduate studies at Harvard, where he immersed himself in biology, government, and economics, Fernando joined Goldman Sachs. However, following the events of 9/11, he decided to return to Texas to pursue entrepreneurial ventures.
Quote:
“I saw one community where we sold lots to a home builder and we sold out of 200 lots. We sold 180 of them in one weekend. And when I looked at the files of the buyers, they were all subprime buyers.”
— Fernando De Leon [10:38]
Founding Leon Capital Group and Navigating the Financial Crisis
At around 25 or 26 years old, Fernando founded Leon Capital Group as a single-family office. His initial focus was on controlling land, forming partnerships with landowners, and solving real estate development challenges. This approach allowed him to create a small capital base by trading land positions.
When the Global Financial Crisis (GFC) hit, Fernando had strategically sold most of his land positions, positioning Leon Capital to leverage opportunities during the downturn.
Quote:
“From 2009-13, with my capital and a few other people that understood the moment we jumped into the market and did a lot of all in bets, I would put all the capital in into the center of the table, all the chips into the center of the table over and over again for about 300 times for the next six years.”
— Fernando De Leon [05:42]
Evolution of Leon Capital Group
Post-GFC, Leon Capital Group transitioned from special situations investing to a more diversified, operator-led model. Fernando outlines the firm's expansion into various sectors:
- Real Estate: Focused on industrial and logistics in the US and Europe, rental and multifamily housing in the Sun Belt, and healthcare real estate including hospitals and medical offices.
- Healthcare and Financial Services: Establishing operating divisions that are independently run by expert CEOs.
Quote:
“Every one of our businesses is operated by experts and we have people that are very aligned and very vested in the success of each one of those business units.”
— Fernando De Leon [22:10]
This diversification strategy has allowed Leon Capital to build substantial capital and navigate complex industries with a focus on patient capital.
Investment Strategies and Patient Capital
Fernando emphasizes Leon Capital’s commitment to patient capital, which involves long-term investments and creating value through operational excellence.
Quote:
“We try to be about a third or 30% of the capital in any one of these funds. So we are very committed and aligned.”
— Fernando De Leon [15:40]
Key aspects of their investment strategy include:
- Value Creation: By controlling costs and manufacturing a cost basis advantage, Leon Capital can flexibly enter and exit markets.
- Operational Efficiency: Building infrastructure such as their own insurance company to manage costs and maintain margins.
- Talent Investment: Attracting and rewarding top talent to drive the success of their operating subsidiaries.
Quote:
“We sell a lot of our byproducts. We build businesses around businesses like ours.”
— Fernando De Leon [17:39]
Geopolitical Considerations and Market Stability
Bill and Fernando discuss the impact of geopolitical risks on investments. Fernando remains optimistic about the United States' stability and its robust capital formation environment despite global uncertainties.
Quote:
“It is far and away the most stable rule of law, the most stable democracy, the place where your assets are actually owned by the people that invest in them.”
— Fernando De Leon [23:28]
He points out that the US continues to attract significant international capital, reinforcing its position as a premier destination for investment.
Use of Data and Technology in Investments
Fernando highlights the pivotal role of data analytics and technology in Leon Capital’s investment decisions. The firm leverages extensive data across its sectors to identify trends and make informed investment choices.
Quote:
“We see terabytes and zettabytes of data and great data in order to conform basically models that we can then repackage and provide to our customers.”
— Fernando De Leon [33:31]
Key initiatives include:
- Crexi: A real estate data platform akin to Zillow for commercial properties, providing leasing comps, sales data, and auction platforms.
- Consumer Lending Insights: Analyzing default rates and consumer spending patterns to inform healthcare consumer lending strategies.
Leon Capital’s Recent Expansion into Fund Management
Traditionally a single-family office, Leon Capital has recently ventured into fund management through a partnership with iCapital. This move opens up investment opportunities to third-party Registered Investment Advisors (RIAs) and other investors.
Quote:
“Now we do have dedicated investment vehicles that are distributed through iCapital.”
— Fernando De Leon [13:04]
This strategic shift allows Leon Capital to scale its investment footprint while maintaining alignment with co-investors.
Scholarship Program and Investing in Future Generations
A significant highlight is Leon Capital’s scholarship program, which supports around 20 students annually in Texas. This initiative reflects the firm’s dedication to nurturing future talent and fostering long-term relationships.
Quote:
“Our scholarship program has allowed me to interact with young people that are going to schools and making a name for themselves and building a career.”
— Fernando De Leon [34:01]
Benefits of the program include:
- Supporting Diverse Aspirations: Funding education and career pursuits in various fields such as culinary arts, biology, and anthropology.
- Networking and Talent Development: Providing internship opportunities and integrating scholarship recipients into Leon Capital’s business network.
Conclusion
The conversation concludes with Fernando emphasizing the importance of adapting to technological advancements and staying connected with younger generations to sustain investment success. He reiterates Leon Capital’s focus on creating value, maintaining operational excellence, and fostering long-term relationships through initiatives like the scholarship program.
Quote:
“Subsequent generations define value. So you can oppose it or you can manufacture products and services to build businesses around that preference because they will define value whether we like it or not.”
— Fernando De Leon [36:47]
Bill Kelly thanks Fernando for the enlightening discussion, highlighting the firm's impressive track record and forward-thinking strategies.
Notable Quotes Recap:
- “I learned how to become a social systems engineer...” — Fernando De Leon [02:48]
- “We sold 180 of them in one weekend...” — Fernando De Leon [10:38]
- “We try to be about a third or 30% of the capital in any one of these funds...” — Fernando De Leon [15:40]
- “It is far and away the most stable rule of law...” — Fernando De Leon [23:28]
- “Subsequent generations define value...” — Fernando De Leon [36:47]
This episode offers a comprehensive look into Fernando De Leon’s strategic vision and the operational prowess behind Leon Capital Group’s success. Listeners gain valuable insights into navigating financial crises, leveraging data, and the importance of patience and adaptability in investment strategies.
For more episodes and information, visit icapital.com and subscribe to Educational Alpha at cai.org.