White Mountains Insurance (WTM 1.07%) has a sizable investment in Kudu Investment Management, an advisory and capital business with a unique business model. Here's an overview of Kudu and where it could be heading in the future.
A full transcript follows the video.
This video was recorded on June 18, 2018.
Michael Douglass: There's one other major business we're going to call out, and then we're going to head to a quick commercial break. Kudu Investment Management. White Mountains recently did a $250 million round investing in Kudu Investment Management with Oaktree, which, for the hardcore investors among you, that's Howard Marks' shop. Howard Marks wrote one of the books that has most influenced me as an investor. It's called "The Most Important Thing." I highly recommend it. I think it's a great read. It really changed how I thought about growth and value investing. What Kudu does is, they're advisory services primarily. Then, they also provide capital to asset management companies in very specific circumstances.
One thing that they're particularly focused on is, when you have senior partners in an asset management firm, maybe they're looking to retire, but, of course, they want to get paid well to leave this lucrative business that they've built up. You have the younger, junior folks, who are usually pretty hungry and really want to take the reins, take this firm to the next level, but they don't have capital. What Kudu does is provide that capital in exchange for an equity share and usually a pretty significant portion of revenue that they get to siphon off and keep for themselves.
It's a really attractive business model, assuming that asset management does well long-term. Which, if asset managers can do a good job of handling indexing and robo advisors, that seems like a reasonable bet.
Matt Frankel: Yeah. I just worry about the fees that they'll be able to command dwindling in the future, as we talked about, with the robo advisors and the other disruptors in the area over time eating away at the fee structures that they can command.
