[REPLAY] André Perold – Pockets of Inefficiency at HighVista Strategies

Ted Seides (0:01)

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Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind Capital Allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting capitalallocatorspodcast.com.

My guest on today's show is André Perold, the managing partner and chief investment officer of HighVista Strategies, a $4 billion firm with roots in endowment style investing that searches for inefficiencies across asset classes. André was the second guest on the show where we discussed his background as a renowned investment professor at Harvard Business School and the founding of HighVista. Our second conversation covers the evolution of HighVista over the last few years. We discuss changes in the business and the firm's response by focusing on inefficient markets. We then dive into examples of opportunities in biotech, private credit and litigation finance and close with a perspective on active management and private markets. Please enjoy my conversation with André Perold.

André, thanks so much for joining me again.

André Perold (4:32)

It's good to be here.

Ted Seides (4:33)

Well, somehow, it's been 16 years since you started HighVista. And we'll replay our first recording. So we'll have the HighVista story.

What's happened over those 16 years that's changed the way you think about your investing in the business?

André Perold (4:52)

You know, that's such a good question. A few things. One is the original idea hasn't changed where we're very much looking opportunistically for returns and having the freedom to look around the world in any asset class, in any type of security for opportunities is very powerful. Provided you have the skill set to pursue those opportunities, that you have the governance to make sure that you don't go off the rails when you go to further away corners of the world. And that hasn't changed. I've always said and I still believe that Alpha is scarce and it's transient. It doesn't stick around for very long because it gets competed away. And so you always have to skate to where the puck is going, knowing that it's not going to stay long in any one place.

And so having the freedom to be able to do that is very powerful. So that hasn't changed at all. When I look back, I think the single biggest change has been how the opportunity set itself has changed.

Investing is a game where you're dealt a hand every day. The hand is different and you need to play the hand you dealt. You can't play a hand that you wish you were dealt. And I think the challenge for us all has been how we adapted. And I must say I'm pretty proud of how our firm has adapted to get some sense of how the opportunity set has shifted. When we began in 2005, bond yields were 3% higher than they are today. So that alone is a huge difference in what you see out there, not just because bond yields are lower by a lot, but also because the way it occurred and what has happened in the world to go with that. We had the GFC, we've had the European crisis, we've had a bunch of others and obviously, we're now in the middle of COVID, still trying to come out of it. So I would say it's very different all the time, especially today, and yet as I look back, we were able to put up pretty good numbers in a pretty consistent way. So that feels good.