Seth Fischer, Oasis Management
Episode 1 of Perspectives our dedicated series where AIMA, in partnership with KPMG, speak to alternative investment industry leaders from around the world begins with Seth Fischer, Founder and CIO of Oasis Management. Seth recalls the story of how he ended up in Hong Kong running one of the largest activist investment funds in the world as well as giving us an insight into his investment strategy in emerging markets and his unique experience in Japan. He also explains how he approaches attracting top talent to his firm and how he is embracing new technology such as artificial intelligence to retain his edge in an increasingly competitive market, and much more besides.
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This podcast is the sole property of the Alternative Investment Management Association (AIMA). This audio production and content are intended as indicative guidance only and are not to be taken or treated as a substitute for specific advice, whether legal advice or otherwise. AIMA permits use or sharing of the content in media or as an educational resource, provided always that proper attribution is made. The rights in the content and production, including copyright and database rights, belong to AIMA.
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Seth Fischer
CIO and Founder of Oasis Management
5 Lessons from Seth Fischer
Venture beyond the familiar to uncover untapped investment opportunities
Business activism isn't just about pleasing the shareholders. Seth’s approach underscores the importance of ensuring prosperity for all stakeholders involved. He champions shedding outdated legacy assets that only burden a business and advocates for embracing digital evolution. Sticking to the familiar can be limiting and so his philosophy of looking further afield for less contested investment opportunities aligns seamlessly with Japan. While the US market might seem saturated with competitors, akin to a crowded fishing spot, Japan brims with potential, waiting for the “fat” to be trimmed—a realm where the US has already thrived. Seth aptly describes this as the US being on a “keto diet for the last 25 years,” while in Japan, metaphorically speaking, “everyone's still having a bowl of ramen for lunch."
Why AI is ‘awesome’ so don’t get left behind
AI is “awesome”, according to Seth. It is not just a fad but a transformative force that will enhance various aspects of investment research, operations, and decision-making, he argues. Swift implementation is key and so cautions that the chief pitfall “is if you don’t implement (AI) fast enough”. Yet AI is also not the job killer that so many anticipate it to be. Seth remains steadfast in his belief that human creativity and a deeper understanding of situations remain key differentiators and that there is “still no replacement for man”. As an industry leader, it is crucial to discern the genuine game-changing potential of AI from over-inflated expectations.
Seek out opportunities where others don’t
Empower your team to be free thinkers
Seth encourages his team members to think beyond what currently exists and envision “what could be”. Challenging the status quo stands as a cornerstone of Seth's philosophy and not one individual holds a monopoly on wisdom. He often prods colleagues with the query “If you were the CEO, what would you do?”, all with the intention of nurturing a culture brimming with innovation, and empowering colleagues to be free thinkers.
Challenge the convention when hiring
Similar to Seth’s investment strategy, his hiring process involves seeking hidden gems where others may not see opportunities.Whilst many opt to cast a larger net in the hunt for talent, Seth’s approach entails an outlook beyond the confines of a “traditional” resume. Regardless of a background in architecture, maths, politics, or law, Seth’s approach to talent acquisition revolves around recruiting individuals with innate potential, curiosity, creativity, and a flair for business, mirroring the inception of his own career. Seth cherishes a tapestry of skills of his team and the zeal of fresh minds. His firm typically recruits individuals with 0 to 3 years of experience, guiding them to flourish within the organisation's ethos and realise their true potential.
Read the transcript
Drew Nicol, AIMA 00:02
Hello and welcome back to The Long-Short, I’m Drew Nicol and I’m delighted to be rejoined in the studio by my co-host Tom Kehoe. Tom, good to have you back!
Tom Kehoe, AIMA 00:10
Thanks, Drew. It’s great to be back. Good to be speaking to you.
Drew Nicol, AIMA 00:13
Although we haven’t shared the studio in a little while, you haven’t been neglecting your podcasting duties have you, because you’ve been working on something quite special that I believe you’re finally ready to let our listeners know about.
Tom Kehoe, AIMA 00:26
Yes, that’s right! For background, we’ve spent the past two years going around the world seeking out interesting people within the alternative investment industry to speak to The Long-Short podcast, and the point was made to us that we weren’t making the most of the community of leading fund managers that AIMA counts among its membership. So, to rectify that oversight we’ve partnered with KPMG to bring you something a little different, in what we are calling the ‘Perspective’ series.
Drew Nicol, AIMA 00:52
I’m intrigued, tell me more.
Tom Kehoe, AIMA 00:55
Yes, Perspectives is a dedicated series of conversations with leading CEOs and founders of alternative investment firms from around the world. Over the next few months, we will bring listeners along with us to hear from industry leaders on a variety of areas, including how to attract and retain top talent in the context of the fierce war for talent out there, as well as how to navigate the increasingly complex operational scaling challenges of running a modern investment funds business and much, much more.
Drew Nicol, AIMA 01:23
And for this dedicated series, I believe as well as us as your usual hosts of Tom and myself, we will be joined by KPMG’s John Budzyna, Managing Director and US national leader for market development for alternative investments who will be helping us along the way us ask all those questions you wish you could if you found yourself in a room with these industry leaders.
Tom Kehoe, AIMA 01:47
So, sit back, we hope you'll enjoy the show. And thank you for joining us!
Tom Kehoe, AIMA 01:54
Seth Fischer, you are very welcome to Perspectives!
Seth Fischer, Founder of Oasis Management 02:05
Thanks, Tom. Thanks, Drew. Thanks for having me. I'm super excited to be here.
Tom Kehoe, AIMA 02:09
So, you currently run a worldwide investment firm based out of Hong Kong. Can you tell us a little bit about your background, Seth?
Seth Fischer, Founder of Oasis Management 02:16
Sure, Tom, I grew up in New York. We all know one of those kids that if you gave me a birthday gift when I was 10 years old, I was out the back selling it. And like, every neighbourhood has one of those kids that, all the mothers and the parents call up and you're going to have a dinner party, he's going to organise all the neighbourhood kids to help you waiter and help park your cars and help clean up afterwards, where there's a snow storm, and he's going to organise everybody to clean your walks and clean your driveways. And ran the newspaper around and sell tomatoes and anything else you grew in the backyard and everything else. I was always that commercial kid.
So, I grew up in New York, went to high school in the city, went to college in the city, went to the army, in Israel, came back from the army and was looking for a job. And somebody told me something called a hedge fund. And remember, this is January 1995, and hedge funds were like a tiny sliver in the entire universe and (they) described the hedge funds by saying they have capital and they're just looking for ideas. And I'm like, don't worry, I have plenty of ideas, I just have no capital. I got a job working for free at Highbridge (Partners), which was an awesome opportunity, and I thank Henry Swieca and Glenn Dubin for that opportunity. It was awesome.
I started getting coffee, I was working on trying to figure out whether Highbridge should keep their excess cash at the time at these two little firms called Bear Stearns and Lehman Brothers, right, both of which are blessed memory. Thinking about Fed funds versus LIBOR, LIBOR blessing memory at this stage, and Alex Jackson was working on an idea on the whiteboard, and he was trying to figure out a problem and I suggested, hey, why don't you do it this way? And he's like, well, what's your name again? I'm like, oh, I'm Seth, and he's like, how would that work? And I'm like, oh, you know, it works this way and we want to sell the shares onshore then you converted the onshore rate and then avoid this and then sold an offshore you can see the onshore and offshore FX rates in Venezuela at the time. And, he said that's a good idea, let's go present it to Henry.
We presented to Henry and we invested US$500,000 and we made US$125,000, and he's like why don’t you come here, you sit down next to me and you do that again and I basically got a job with a desk and stopped getting coffee and all of a sudden had a job. And so, the next trades were like FX, we were cash extraction trades and warrants in Italy at the time. Italian rates were super high, and this was pre-the euro and there are just ways of buying warrants and shorting stock against all these arbitrage opportunities. And then effectively we had Goldman Sachs portfolio of corporate bonds in Japan, and we stayed up one night looked at them, and they gave me an opportunity and we bought them and then next thing you know I had a night job and I've been working Asian hours ever since.
Tom Kehoe, AIMA 05:19
Seven years later, jump into 2022, having worked for seven successful years at Highbridge, you then decided to break away from what I would describe as the fairly somewhat safe security that comes with working with an investment bank. You decided to break away, risk it all and go all alone. I guess that goes back to your days when you were a kid selling on street corners and that entrepreneurial spirit that pushed you, that gene pushed you to go, you know what, I got to do this for myself, right?
Seth Fischer, Founder of Oasis Management 05:49
You know what? Yes, but Highbridge was an extraordinarily successful fund, an extraordinarily established fund. You’re right, I didn't need to leave in any way shape or form. But, for those who don't know, working in an investment bank these days, there's risk everywhere. And there's risk sitting in an investment bank, also. We were just talking about Bear Stearns and Lehman, and unfortunately, a lot of friends who worked at Credit Suisse just now. So, the most secure way to be able to continue to produce returns, whether it's at Highbridge, whether it's Oasis, whatever that might be.
I left, we had an opportunity to get seed capital, US$180 million of seed capital at the time, from AIG, by way of DKR and was able to start a fund. I viewed it as doing the exact same thing. I decided on Highbridge because I was able, and you know, extremely fortunate to be able to find opportunities to make money with that money. And doing that, doing that effectively under my own umbrella was the same thing, we were going to survive and do well and be able to find opportunities and be able to capitalise on them. And if we weren't going to then, you know, I'd have to sell falafel and do something else in life.
Drew Nicol, AIMA 07:05
So, tell us a little bit about Oasis, the name and the structure of the fund. What were your goals when you set up the firm? Could you just give us a little bit of the highlights from day one to today?
Seth Fischer, Founder of Oasis Management 07:20
We're just trying to make a buck and not lose one. We’re trying to do that in a sustainable long-term way. I'd like to be in this business for a very long period of time, I've been lucky enough to be doing this for 28 years, and I'd like to do this for another 28 years.
As you've heard, I started off doing some Venezuelan FX ARB and then there was an opportunity to go to Japan and I’ve been in Japan ever since. But generally, we're just looking for opportunities. And those opportunities have been very different over this period of time. Those opportunity sets, we like knowing more than everybody else about the situation of the company. We would like to often be first in the situation, we've been at the advent of activism and engagement opportunities in Japan, and we've been at the advent of a lot of other opportunities when providing capital for Japanese companies for a very long period of time. And variably, originally only when they would let us in, they would help us. We provided an enormous amount of financing for Mitsubishi Motors, for Softbank, once upon a time for all the Japanese banks when they needed restructuring. This is all like in the late 90s and early 2000s. And then, you know, through today, continuing providing capital for companies, sometimes it's buying secondary shares, but sometimes that's providing primary capital for them.
There was an extraordinary opportunity in Japan. Ever since I went to visit my first company in person back in 1996, in Japan, you look at these companies and you walk out of the room and you’re like, if only, if only they focus on return, but only if they focus on making net income, if only they focus on monetising this fantastic IP they have, if only if they go ahead and stop losing money on some legacy business that they don't need to be in. If only they will go ahead and go mobile, if only they'd go ahead and use the land that they're just not using but they all own. If only they use all these different assets they had for productive uses, that would just be an incredible opportunity for them and for the whole company, for all the stakeholders in the company. And yet you weren't invited in. And so, you weren’t kind of allowed into it. The conversation was kind of like, you will sit there and listen to what they had to say, you maybe make some very friendly suggestions, but you couldn't be at the time, and you weren't going make more productive or more aggressive suggestions, like, I really think you need to be doing this. You could say that nicely. But at the time, the CEO at the time could easily reject you and didn't have to listen to you. So, we watched that happen. We watched that happen through ‘05 –’07 when some people from New York came in and said, you know, the original round of activism in Japan said no, this is my company, you have like 20% net cash, and I want that money. And basically, watch Japan throw them out. At the time, we were very engaged in a couple of companies that would invite us and that really needed our help. A former colleague of mine is actually still the CEO of one of those companies.
And that brings us all the way to 2013. At the very, very, very beginning of Abenomics, when we were invested in Nintendo, we spent a lot of time with a large amount of the shareholder base at Nintendo and Nintendo was trading around cash value at the time with all this extraordinary iconic IP. And all of 3.5 million people in the world were using that IP, that was the entire install base from Wii U. And so, I was talking to the CEO and said look, you need to go mobile. You need to monetise that IP and you need to make that IP available to everybody else. Otherwise, the IP is going to die. And so, that's about going mobile, that's about movies, that's about TV, that's about amusement parks. That's about all the ways to make sure that it doesn't die. And yes, it's going to make Nintendo a lot more money as well. But it's going to be good for everybody, it's going to make sure that Nintendo is a long-term business.
Tom Kehoe, AIMA 11:18
If you were to define activism, you've mentioned about returning to the shareholders, what other elements of activism would you describe, thinking about it in the broad definition of the term? And the second part of that question, how is it different, or has it changed, for where you are in APAC (Asia-Pacific) versus the rest of the world, say the US?
Seth Fischer, Founder of Oasis Management 11:39
It's dramatically different in APAC. But let me start with the first part. Engagement or activism for me, is how to make a more profitable company. And this is not from the shareholders' perspective, this is from all the stakeholders' perspectives. And that, Tom, is what's different between Japan activism, what we're doing there, and where like the US is, which I would say like is the 28th innings, like the longest baseball game ever. So, the US is far, far advanced. In Japan, right now, almost all thoughtful investors will agree with kind of what we are suggesting for the company. You don't need to have some legacy business that loses one amount of money every year and has no prospect of making money. You don't need to be sitting on empty land that you've no plan on developing because it's just an unproductive use of assets. You don't need to be sitting there with great titles, like Godzilla, and everything else sitting in your basement without selling it. These should be things that you should be doing, like actively doing, and you need to have a digital strategy. And so, these are things that are good for everybody.
So, first of all, the point here is, what is good for all stakeholders, everybody would agree, there are no arguments yet in Japan about whether you have a short-term outlook versus a medium outlook versus a long-term outlook, they're all together because they, quite frankly, are good for everybody and everybody involved. So, while in the US, I think this has gotten a lot more personal. Your perspective on what the company should do is a lot more subjective to whether you have a short-term or medium-term, or long-term view. And honest people can really debate about what the company should do. Honest serious investors might have a very serious debate. And often a lot of it has to do with financial engineering. And so, what we're doing is not that primarily. Now, I understand the net financial engineering part of it. But, primarily, because this is such early stages, there's just so much fat to cut, and it's so easy to talk about what's good for everybody involved. I mean, my bad joke about the subject is that US companies, for lots of reasons, as well as the equity options and the shareholdings that an enormous amount of the management have, behind those and a lot of other reasons, it’s like US companies haven't seen a car be built since Bill Clinton was in office, right? They’ve been on like on a keto diet for the last 25 years. And in Japan, everybody's still eating a bowl of ramen at lunch every day, right? Like, if you just like cut that down to like, the smaller size bowl of ramen, right? This is an enormous amount of fat to cut. And you can make these businesses a lot more profitable, turn up their arteries a lot more, double their margins, and all of that will have a massively positive impact on these businesses. And so, that's why we're just in very early stages.
Drew Nicol, AIMA 14:43
So, let's pivot for a second and discuss some of the other trends that are impacting the asset management industry and the world at large at the moment. And arguably, the biggest megatrend of them all is the growing influence of technology on every aspect of our lives. The topic talked about most right now is, of course, the arms race that seems to be going on in Silicon Valley in the development of AI with obviously ChatGPT, and Bard, there are more and more coming every day, more and more plugins, it seems to be all anyone is talking about. So, what's your take on all this?
Seth Fischer, Founder of Oasis Management 15:23
Awesome. It's awesome. What can be better? Almost everybody can be even more productive. And so, yes, it can take away some of the more basic work from people. And as everybody's written already, so said the buggy makers as well. What about the buggy makers? Yes, they're going to have to learn something else. And what about the subsistence farmers who planted by hand and all of a sudden you had a plough? Yeah, it just means we could all be much more productive. It's awesome.
We have a committee internally at Oasis to implement all of AI as much as possible across the board. Where can we use it in the research process? How can we use it in our trading process? How can we use it in our operations process? How can we use it in our NDA and some of our compliance processes? how can we use it to make us more effective and efficient? And so, I think we really need to use that tool. Podcasts for that matter, talk about whether this is the end of homework. Like for my kids, is this the end of homework? What does this mean? Well, because nowadays, you’ll get AI to do it. For that matter, we had a candidate apply, we think he had AI basically write his PowerPoint presentation for him. Now, it's not good that he got caught by us. So, it just means he didn't do a good job implementing AI. But it means my kids are going to go ahead and use it. Yes, education has to change to know how to implement and use AI appropriately. But you know, sticking your head in the ground is the same way as teaching kids to use an abacus instead of a calculator. You want to teach them how to use the most powerful tools possible, in order to be more efficient.
Drew Nicol, AIMA 17:09
So, you're looking to incorporate it front to back in the firm. But just to drill into that a little more, do you not have any concerns about crowding, around everybody implementing the same AI that's pulling on the same data? And, again, from your point of view, you want to know more than anybody else, is that going to take away from your edge, if everybody just has these fantastic resources at their fingertips?
Seth Fischer, Founder of Oasis Management 17:35
The best news is that AI is a super helpful research tool. It's not the best, most helpful for a creative tool. There's still no replacement for man, from a creative point of view. I mean, the same way you might hire super smart people out of a couple of Ivey and say, oh, well, everybody's got the same education. I don't have any edge anymore. That's true. But they teach you a lot of tools. And you get a couple of MBAs from the same MBA school, and they all know the exact same case studies and how to implement the same SWOT analysis. But the fact of the matter is that creativity is still a super, super advantage. This advantage could be commercial. And there's still a massive demand for being curious. And these are the traits that we try to hire and find, but AI doesn't solve that. I'm not worried about AI taking away our edge. The only biggest problem is if you don't implement it (AI) fast enough.
Tom Kehoe, AIMA 18:38
So, wearing your activist hat. Do you think then that AI-focused tech firms could be an area that might be in need of oversight from firms like yourselves, given the recent comments about the need for better regulation and stronger governance?
Seth Fischer, Founder of Oasis Management 19:02
This is above my pay grade in many ways. There was that experiment that was done a couple of days ago, just an experiment, but they told an AI-guided drone to attack a certain target and not let anybody stop it, right. And so, it went ahead and killed this operator. And then he said, okay, you can't kill your operator so instead it just destroyed the communication tower from the operator. And so like, we're all worried of like, somewhere between how Schwarzenegger comes back in The Terminator, somewhere between those two worlds, worried about AI taking over the world. I’m not averse to the feelings of like, let's be careful about what the technology is. That's not a new problem either. Meaning, you know, the good news is, we have to be careful what technology we create. There's also, hopefully, somebody that can unplug the computer. The technology is super powerful and it's really dependent on who is in control of that? So, yes, I’m all in favour of smartly designed protocols and systems around these things.
Drew Nicol, AIMA 20:25
Something we've danced around a little bit here, but not addressed directly, in terms of megatrends of our industry, is ESG, or environmental, social and governance policies and trends in investment strategies. Just tying in a few of these threads that we've touched upon here in terms of your role as an activist and evolution in technology, and also looking at this from the point of view of APAC as well. How do you incorporate ESG? And maybe just to add to that as well, how new is ESG to you, in the sense that I imagine you've been focusing on governance forever, right?
Seth Fischer, Founder of Oasis Management 21:06
I've been focused on governance forever. That's basically it. Yes. I mean, investing in emerging markets means you need to focus on governance forever. Talking about Japan in particular, you know, corporate governance is the broad remit. This is also about having women on boards and diversity on boards of which we’re a big sponsor and sponsored 68 women last year to get training to be directors of Japanese companies. One of them today is a chairwoman of an independent Japanese company. She's probably the second chairwoman of a Japanese company ever. But governance in Japan is that and more. Governance in Japan is everything. Governance is how to make a more profitable company. How to make a better company, because good governance says, let's make a good sustainable, better profitable company. Yes, it's about diversity. Yes, it's about that's about having better whistleblower procedures and having functional nomination and compensation committees, that's about actually having real oversight over the board, that's about really being open to bids, if and when that happened. It also means it's about improving ROE (return on equity). It's about improving your balance sheet. It's about improving your earnings. It's about focusing on how to produce a better business that's holistic.
I think that's true for the E and the S part (of ESG) as well. It's extraordinarily important, if you want to go ahead and run a better business, yes, you need to create better opportunities for all your employees, that's all of your employees, your female and male employees, your Japanese and non-Japanese employees, in the Japan context. But that's about working out how to create a better work environment so that companies like 7-Eleven can actually go ahead and find people who want to work there and expand that opportunity set for people. That's also about on the E (environmental) side, it's about companies being more sustainable and creating better businesses for the long run and more profitable businesses for the long run.
So, yes, you know, we talked to 7-Eleven and afterwards, they go ahead and implement the CTO, they didn't have a CTO and again, this is Japan, right? So, theft is extraordinarily small. Why are you going ahead and standing in line at a 7-Eleven with a long line behind you, and then you know, just to walk up, so you can buy like a bottle of water, and they can wrap it in two different plastic bags, put some tape over it, and then you can walk out of the store. Why can't you just go ahead and have an app on your phone, scan the bottle and walk out? So, like let's go ahead and work on that. You don't need the full Amazon Go super complex store with lots of great shelving spaces and great cameras everywhere, you can even just have an app on your phone and trust people because actually, that works in the social fabric of Japan. But yeah, that's good from an environmental point of view. It's good from a social point of view where you get people who are way overworked, trying to work at these stores for you know, for 10/12/15 hour shifts. And it's good clearly from a governance point of view because it makes the businesses more profitable. So, we're interested in engaging in all three.
24:17
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Drew Nicol, AIMA 25:07
So, switching gears for a moment, let's talk about your future priorities for the firm over, say, the next 5 years, and I'm keeping this purposefully broad. What are your priorities?
Seth Fischer, Founder of Oasis Management 25:21
We continue to try to make outstanding risk-adjusted returns for investors. That's it. Now, every single day, we're just trying to make a buck and not lose one. Every single day, we’re trying to do that in a way that is productive for everybody, productive for our investee companies and productive for our investors. That's it. I know we're all going to do really well if we can produce great risk-adjusted returns for our investors.
Tom Kehoe, AIMA 25:49
The question of talent management is an evergreen issue. We've been seeing a new light since COVID-19, and we've had the so-called ‘Great Resignation’ and other pressures at keeping top talent. So, what is your strategy when it comes to getting the right talent into the firm? I imagine it goes beyond being competitive on compensation, right?
Seth Fischer, Founder of Oasis Management 26:10
Now, obviously paying people well is always a great place to start and end. But we don't, we don't typically compete with people on talent, we typically will hire eclectic people. And so, we like people, as I said, who are curious, creative, and commercial. I like Tyler Cowen's book on talent recently, as well which talked about creativity, but also grit and energy. I think we got that always in interviews. And you see that in resumes. But we typically hire people with 0 to 3 years of experience, we typically hire people who are very young, and then we grow them up in our culture, and they grow up in our culture. And invariably, we don't typically lose them to another fund. We maybe lose them to starting their own funds. But we don't lose them to other funds. And so, there's a culture of being extraordinarily open and transparent. Every attorney could see everything. Hopefully, I'm a good partner for everybody. So, I'm a good colleague to them. And, you know, an extraordinarily open to their ideas and listen to them. And so hopefully, it's a good place and a productive place for people to work. And yes, if you pay them really well, hopefully we can continue working together.
Drew Nicol, AIMA 27:31
So, that's really interesting, then, you very much go for the philosophy of trying to mould people who are sort of a blank slate maybe. Where do you go about finding these people? Because it's very easy to just poach people from an investment bank or something. And in terms of Oasis's growth strategy over the next few years, is there a particular area that you're looking to grow into? Is there a specific type of person with a particular type of skill set that you're most looking to build on in the short to medium term?
Seth Fischer, Founder of Oasis Management 28:05
Yes, I'm a buyer, I'm trying to hire great raw talent. And then make sure that they have a very, very, very basic skill set, a toolkit, but if you're creative and curious and commercial, you should be able to grow and learn a lot of those skills. We pay for education so people can carry on continuing their education, we're doing that all the time, we're doing that today in three hours' time. We have an entrepreneur who started a business and just sold it for US$7 billion-plus. And so, I asked him, I was extremely impressed by him, and I asked him to do a teaching with our entire team of how he built that business. And so, we spent a lot of time continuing education.
I spent a lot of time reading, I spent a lot of time sending books and sending ideas around to the office. And so, we want to try to create that culture of continued curiosity about what's going on. That's super important to me. And if we can hire people that also have a very big toolkit, they could do lots of different things. And so, I really like people who have a broad flexible skill set. So, that means in the narrow construct, that they look at things from an equity perspective, looking in the bond perspective, looking from an options perspective, that's in a slightly broader sense, they have a very good accounting skill set, they also have an investigatory skill set. And that's in terms of the types of people we hire, I do want to complement the people with each other.
So, we have former salesmen who have a great unheralded skill of actually being able to pick up the phone and call people and talk to people. It's like, funny, there's a ton of people in the hedge fund industry that you know, are like, most comfortable behind the screen and most comfortable sitting behind Bloomberg screen by themselves. But we know the skill set to actually be able to pick up the phone and call anybody and get them on the phone is super, super valuable. For people who worked in like lots of different types of investigations, people who've done forensic analysis, people who have been architects, people who have degrees in architecture, people who have degrees in math, you know, degrees in political science degrees in law, the whole spectrum of different types of skill sets. And s,o it's really about the raw talent you have, and your ability to apply that rather than the fact that you happen to have done two years in investment banking, we do have a couple of those too. And that's also a skill set. But I don't do well with people, we don't do well with people who seem to have more than a couple of years, more than 2 or 3 years. Because then they seem to think this is carpentry. And they're like, this is how you do it, they stop asking all the questions.
The first day at Oasis, I said, look, I sit everybody down and give them a big starter day speech. But I always ask them and say, look, you know, the way we do things is the way we just happen to do them. If you have any new ideas, any different ideas, or any questions about why we do it, speak up, and speak up now when you have the most wide-open eyes. Like people, they sit there, and they think they're an analyst, and they just have to analyse it. As I've tried to explain, but as an activist, you want to think not like a fan in the stadium, we want to think like a player or a coach, right. And if you think like a player or a coach, there is a whole different way of thinking about it, like what you're actually going to do, rather than like sitting as a fan and betting on the game, you know, you're betting on the game, but you’re not having an influence on it, and you can be a participant in it, and question what they should be doing, not just what they are doing.
I had a call this morning with an associate analyst in the company. I asked him 3 times, if you're the CEO, what would you do? And this is a published analyst, he's had a 38-page report on the company. And he just couldn't answer the question. He said, well, that's what they're doing, I said, no, no, I'm not asking what they're doing. I know what they're doing. I'm asking you if you're the CEO, what would you do, not what they are doing? He couldn't answer the question. Now, I wasn't interviewing him for a job, I happened to be talking to him about the company. I was kind of curious, and I had some questions, in particular about this particular company, but he couldn't even answer that question. I think that's typical of a lot of people who will do this for 5, 7, 10, 15 or 20 years, analysing what is and not wondering what it could be.
Tom Kehoe, AIMA 32:28
That outside-the-box thinking.
Drew Nicol, AIMA 32:30
I think I know the answer to this question. But I just want to put it to you directly, in terms of your outlook for APAC, as a region. And I completely appreciate your point that each of these markets are distinct, and you can't just bundle them up. But just from a very high-level view, how excited are you about prospects for APAC?
Seth Fischer, Founder of Oasis Management 32:52
I am super excited about the opportunities I see today. It's above my paygrade to sit here and tell you what my long-term vision is for China, or for India, or for Vietnam, or for Korea, or for Japan, right? Can I have a cocktail conversation about it? Sure. Do I have any really strongly held convictions about this? Not at all. Have I sat here and watched MSCI World not perform very well, certainly developed markets have not performed very well over the last 10 and 20 years? Absolutely. Am I humbled by the fact that the Hong Kong market has not performed very well over the last 10-20 years? Absolutely. Now, we recognise that, absolutely. Do I think that a lot of things come down to governance, and this enormous amount of cheap securities and maybe like you're cherry-picking the wrong hour, and that's why there's been no performance in many of the Chinese indices? Absolutely.
But, yes, the US has crushed, and developed markets have crushed China, and Hong Kong for that matter. So, there has been an economic miracle in many ways in what's happened in so many of these countries, but that's very different from stock price performance. I mean, this is just cocktail talk, because this is not what I do, necessarily as my day job. But multiples matter. A lot of these businesses have grown a lot. And they've made a lot more money, and they have a lot more cash than ever before. But if you bought them at 30 times earnings, and then they all of a sudden traded five times earnings, heck, you know, you’d have to grow a lot more to grow yourself out of that implosion of multiple. And so, multiples matter. What you're buying something multiples-wise matters in many cases a lot more than what the actual underlying performance has been.
Tom Kehoe, AIMA 34:53
Seth, how do you perceive then alternative investment strategies in general, then amend the value proposition for those strategies continuing to expand for institutional and other significant investors over the coming years?
Seth Fischer, Founder of Oasis Management 35:09
I think this industry is extraordinarily important. I think it's extraordinarily important, good value proposition in the best of funds and the top quartile of funds to produce superior risk-adjusted returns for investors. That's because there are just so many people who are bound by so many different rules, there should be an opportunity set for those who can flirt around them to find that different opportunity sets and be the first of them, and be the best at them, and take the lion's share of the rewards there. So, I think that's true for all different types of funds, whether it was a macro funds, whether it was a micro ARB fund, whether it was a very interesting long-short business. I think there's a lot of room for people to generate genuine long-term alpha.
I think it's also important to, structurally in a world where you have an enormous amount of index tracking funds, that if you just have a world of index tracking fund hands you don't have anybody actually is going to go ahead and enforce it. There is going to be governance there, we're going to go ahead and enforce it, the management is acting appropriately in the interest of shareholders and all stakeholders, not just in their own interests. Or, they even have the best management and the worst management there who are just lazy or not doing what they should be doing, or rule by nepotism and don't have functioning boards or any of the above. We don't have people that actually actively call it out. You're just driving on autopilot. And it's going to decay and degrade all the index-tracking funds as well. Index tracking funds, go ahead and say, oh, you know, what? We did we had very little slippage because we charge only 5 basis points to track the index, that's great. But if the index doesn't move anywhere, it doesn't help.
I think that was the problem in Japan. That was part of the dynamics behind the Third Arrow with this corporate governance change. And that's why the GPIF, the biggest pension fund in the world, the government pension fund in Japan, said, you know, we need people like me, I mean, people like you reaching out, and we need people like you to go ahead and spur this change in companies. We pay a very little amount on our index tracking, but actually, the index will go up, because you're going to drive that change. And so, if everybody's in autopilot, we're just not going to go anywhere. And so, I think structurally, a lot of funds form a very important role. Even arbitrage, as well, means that prices can be more efficient if everybody is in index tracking. So structurally, think generally, the whole industry forms an important role. And then individually, the top quartile should produce really superior, risk-adjusted returns over the long run.
Drew Nicol, AIMA 37:50
So, I've asked you about your outlook for APAC. I just want to zoom out a little bit further, and just ask you to quantify your optimism for the industry on a scale of 1 to 5. 1 being, it's all going downhill. 5 being the most bullish you could possibly be. What number would you give the industry over, say, the next five years? And if you could just talk around that a little bit in terms of if it's not a five, then what headwinds are you perceiving?
Seth Fischer, Founder of Oasis Management 38:24
I would say it's around a 4. And so, it's a broad buck, you know, so it's a 4, not a 5, but it's a 5, not a 3, you know, not 1, 2, or 3. It's gotten more regulated than ever before. Regulations continue to increase, and the costs of running of business continue to increase. And so, that's the only reason that it’s not a 5, because that's a barrier to entry for a lot of people who would otherwise start funds, and produce and could create great business leaders, and can be great investors, but just have all these headwinds that they need a fairly large amount of AUM (assets under management) to really get started. And so, I think that's the reason it is not a 5.
The fact of the matter is you have so many people who just do index tracking, and hugging the index creates even more opportunity for hedge funds. And it's not quite the industry that I started back in ‘95, when nobody even knew what a hedge fund was, and the long term was a billion dollars in 1988. I mean, Highbridge was US$300million (AUM) when I started there, and like all these businesses were very, very, very small, and you're able to go out around and pick your spots, and literally not be a price maker, but be a price taker and just take the opportunities when there were all these inefficiencies.
There were super inefficiencies in Japan at the time when the pre-regulatory change in Japan, where they issued convertible bonds at 20% premium when they should be 25% premium and they were doing it because long only insurance companies were the only big buyers at the time, not even funds. And they just issued them systematically as surrogate equity. So, they're all these like, strange phenomena. That was an 8 on your 0-to-5 scale, right? So, it's not that world, but it's not also the world where you got into in maybe ’07 or maybe in ‘13 or ’14, where you had a phenomenon where in so many markets hedge funds were the price makers, right? And that became really competitive and some strategies were all of a sudden competing against a bunch of other people on Madison Avenue or in the West End in London, right? Whereas, that's a game that I don't like to be in at all, and I kind of chose to step out. I have no interest in competing against other really smart people. Let’s find a business where you're not competing with them.
When it gets to be super competitive, and it feels a lot more like a zero-sum game, and yes, the top quartile will outperform and the bottom quartile will suck, they will exactly balance out. Investors; if they didn't have a broad portfolio they won't make any alpha or any superior risk-adjusted returns at all, I don't think we're there at all. I think we're not there because there's been so much money that’s gotten into index tracking businesses who are not looking at this, so, there are so many opportunities to skate around. There are also tons of opportunities as paradigm changes happen. And so, that means that there's a lot more opportunity to be at the beginning of a paradigm change. We're seeing that as rates go up, it's hard to find people who actually remember what it means when rates go up. You see inflation go up and it's hard to find people, outside of asking your parents, what it's like to live with real inflation. There are tons of regulatory regime changes, there's war in the continent of Europe again. There are lots of things that we haven't seen for a generation or 2 now. I mean, I'm 51., I've barely seen these things. You have to go back and talk to people who are between 75, and 80, to really see a lot of these things. Yes, it helps to read a lot of history, and also helps to speak to people who have had these experiences themselves, or you can read their biographies and stories of people as well.
That all creates lots of different opportunities. So, I'm very bullish on the opportunity set. Question now is, can we and others execute on that?
Tom Kehoe, AIMA 42:45
Seth, in addition to your real passion that you've shared with us for your job, your day job, you also make time for several charities and charity work. Can you briefly tell us about this?
Seth Fischer, Founder of Oasis Management 42:59
Sure. Let's start with the Karen Leung Foundation, which operates out of our offices, which I co-founded with Waqas Khatri, whose mission is to treat for and to try to prevent and care for women with gynaecological cancers. And we set up the foundation in memory of a colleague of ours Karen Leung, who passed away 11 years ago from cervical cancer. And her last wish, her wishes, was that nobody would have to suffer from and die from the same cancer that she had. The amazing thing about most types of cervical cancer is they are actually preventable.
And so, we use the same kind of technology from an activist campaign point of view, in this case, to go ahead and pay for cervical cancer vaccinations and promote vaccinations, HPV vaccinations in this case, so that women in Hong Kong who are not able to get HPV will not have the day. And so, we spent a fair bit of time, we were successful in that, in that campaign, and now it is part of a program for all young girls, effectively, the ages of 13 to 16 to get HPV vaccinations. We still have an enormous amount of testing to try to get pap smears and other innovative technology to get women to get easier and better tested. It's an Asian phenomenon. Women don’t go to a gynaecologist, as a regular part of her going to doctors, and they don't get enough pap smears.
There are lots of other methods to deal with this as well as other research in this regard to reduce cervical cancer. We care for and help work on treatment for other women with other gynaecological cancers. And we do this not just in Hong Kong, but across the region. We're currently running an HPV campaign in Japan as well. And so, that's run out of our office in the same way you want to look up a portfolio and different types of investments, I think of investments and things that we might think will yield fruit in 30 days, some that might yield fruit in 3 months, some things that might yield for a year and some things that might yield fruit in 5 years and 10 years. In the same way, we're trying to build a charitable portfolio of things that are producing short-term, medium-term and long-term goods. And so, that's a wide variety of different types of things, things that are clearly related to medical fields, related to poverty, related to education, related to policy. And so yes, hopefully, I'm using the same set of skills that I'm able to execute in our financial portfolio and our charitable portfolio.
Tom Kehoe, AIMA 45:45
Thank you, Seth. It's been a real pleasure to speak to you and for letting our listeners into your world. And we wish you all the best and hopefully, we'll speak to you again soon.
Seth Fischer, Founder of Oasis Management 45:55
Thanks, Tom. Thanks, Drew. It's been a pleasure.
John Budzyna, KPMG 46:01
Thank you for listening to today's episode of Perspectives. Done in partnership with KPMG and part of AIMA’s The Long-Short podcast. We trust you found the discussion both interesting and insightful. You can get the latest episodes by subscribing to Spotify, Apple podcasts, Google podcasts, or Amazon music or streaming directly from aima.org. Thanks for listening.
The Long-Short
Perspectives is a series of episodes done in partnership with KPMG and part of AIMA’s The Long-Short podcast. You can get the latest episodes by subscribing to Spotify, Apple podcasts, Google podcasts, or Amazon music or streaming directly from aima.org.