The cavalry isn't coming: UK stocks, relistings, and AI analysts | Ben Isaac, Brizo Capital

With me today, I’m excited to have one of my favorite people in the whole industry. I finally got him on: my friend Ben Isaac from Brizo Capital. Ben, how’s it going?

I’m doing well, Andrew. How about you?

Doing great. Super excited for today. Before we get started, a disclaimer: nothing on this podcast is investment advice. The full disclaimer is at the end of the podcast in the show notes. That’s always true, but Ben and I have a lot of things we’re going to talk about, and a lot of them are in international waters, so maybe that’s particularly true today. You can see the full disclaimer at the end.

Ben, if I can just set the table: I think we’re going to talk about a lot today. You have a lot of different seats. Obviously, you’re at Brizo Capital. You teach a class at Columbia. I believe it’s Applied Securities Investing; you can correct me if I’m wrong. I want to talk to you about so many things.

To start, your class is teaching first-year MBA students—correct me if I’m wrong—how to analyze a company and spend a semester diving deep into one. A lot of these students are looking for internships or analyst roles. Some want to go into investing, and some just want to go out into the world with a capital-allocation and investor mindset.

The past 3 years have been crazy, with AI and everything, and I’d love to talk about that. At Brizo, you’ve had 30 interns, and you’re training all these people through the class. How has the analyst and internship role been evolving over the past few years as AI has come in? If you’ll give me a 5-minute intro setup for that question.

Yeah. And, by the way, just to acknowledge, the course I teach, Applied Security Analysis, has 2 other professors as well. Evan and Zach do great work, too, so I wouldn’t want to make it sound like that’s just me. But between the internship program and the opportunity I have to work with these students, I do think we’ve got something interesting to say about that.

1. AI in Analyst Training

There are a few different ways to approach it. First of all, there’s an inherent tension: these are young people, they’re motivated, and they want to get something that looks professional as quickly as possible. But there’s a real tension between having Claude or whatever help them do the initial analysis and having it do their thinking for them. Above everything else, that’s where the tension is, at least for now.

I know you like hitting the gym. If you build a machine to do the leg press for you, you’re going to be able to put a lot of weight up and down on that machine, but it doesn’t make you any stronger, and it doesn’t make your form any better. It’s not helping you personally. It’s a cool machine you built, though.

That disconnect can be hard for some students because they’re thinking—and understandably—that people are evaluating them on their work product. Of course, an element of that is true. But ultimately, this is about quality of thinking. To date, while I believe these tools are essential and it’s very important that students learn how to use them well, outsourcing their thinking to them is where you often wind up seeing the disaster scenarios.

That temptation is hard, and it all works on a gradient. Ultimately, using these tools to gather clean information, find alternative sources, slice data more finely, or do things like Python scripts and big information scrapes for due diligence—work that was historically incredibly time-consuming and painful—is a huge unlock. I don’t want to say it’s easy now, but it’s infinitely easier in terms of the number of person-hours you’re putting in.

I’m really proud of the work the students do. Ultimately, that’s them. I’m hoping the professors are value-added. What we really try to preach is: be prepared to use the tools, but be very specific about where you’re using them. Disclose. Don’t be cute about saying whether Claude, or whatever, was involved. Have it focus on pre-chewing information as opposed to digesting information for you.

When they get that balance right, what we’ve found is that the median quality of work has come up so much. It’s a course of 70 to 75 students, so people come from all sorts of different experience levels. Hopefully, the pedagogy has helped with that, but I think the way students are using these tools has also allowed them to accelerate their learning.

For me, the proof is in the pudding when I actually speak with the teams. We spend a lot of time talking with them, not just evaluating deliverables. The quality of thinking, on average, really has improved. Are the absolute best pitches materially better than they were 4, 5, or 7 years ago? I don’t know. I think there was some really good work being done in the course 5 years ago.

We’re about to do our 20th anniversary of the course. It was a relatively established course when I took it in business school 11, 12, 13 years ago. This is light-years better than before, and I do think these tools have contributed to that. But these are still not a substitute for investment judgment.

Absolutely. You’ll hear a lot of people say, “These tools are great.” I have a Substack, and a lot of people come to me because of it. They’ll say, “I’m launching a Substack,” and the quality of writing is really good. Then, when you talk to a lot of people who are just starting out, you realize, “Oh, you had AI write this whole thing for you.” As soon as you start pushing back or asking questions, they’ve got nothing.

I think you’re right: the quality is going up, but the judgment piece still needs to be developed. Let me ask it a slightly different way. You’ve hired 30 analysts at Brizo. A lot of people going through your class are looking for internships or analyst jobs in the investing community. Four years ago, if you and I had this conversation, there was no AI, right? Nobody would’ve cared.

Right.

I think probably last summer was the first time AI would’ve been a bedrock of an internship analyst role—what people were looking for. How is that evolving? When your students are looking at analyst and internship roles, what are firms saying they want in an analyst today, compared with maybe 3 years ago, or with what a lot of people might still think an investing analyst role looks like?

2. AI Adoption at Investment Firms

That’s all over the map, because both the general acceptance of the tools and skepticism about them vary hugely, depending on the firm and its mandate.

Compliance is also a big sticking point in a lot of places. I know a lot of firms that do great work, but because they’re large, they’re concerned about compliance, and they don’t have an IT architecture that allows for different structures that let you use the best tools. They’re still stuck on things like Copilot, which really doesn’t have the same kind of horsepower as Claude.

I vomited in my mouth a little bit when you said that.

Hopefully Copilot gets way better. But at least today, there’s a night-and-day difference between the best tools and the rest. If you’re going to a pod shop, they’ve got amazing tools, amazing data, and amazing data cleanliness, so you can actually do stuff with it. But if you’ve got access to a Claude account, hypothetically, and you’re not allowed to put any files in—including company files—obviously, work product probably needs to be sensitive. Clearly, client information and things like that can never touch these things. That all makes sense. Someday, maybe the enterprise licenses will work that out.

But when you’re not even allowed to have a central drive of all the company documents, a whole bunch of Excel files, maybe expert network calls, and things like that, for your agents to access, the power of these tools goes down dramatically. A lot of this winds up becoming very enterprise-specific. Everybody wants their new hires to have a lot of proficiency with this, but they’re not always in a place where they can adopt best practices. At a number of firms, there’s still a lot of skepticism, whether around hallucinations or data security. I’m sympathetic to the data security point. We think a lot about that. But there’s also the question of how much value these things can meaningfully add beyond Google.

In fairness, if they’re totally disconnected from everything except the raw internet, there’s only so much better than Google they can really be. They can still save an amazing amount of time, but they’re radically less powerful than if you can feed them incremental context.

You mentioned hallucinations, and it’s funny: you and I have talked about AI a lot. Roughly a year ago, hallucinations were a big concern for me, where you put something in and it’d say, “Hey, four Rs in strawberries,” or make up the classic fake legal cases. I’d say that over the past 6 months, my concern about hallucinations has gone way down. I’m still concerned that it might feed me something fake, but when I talk to someone who maybe hasn’t been spending as much time with the Cowork and AI agent stuff, hallucination pops to the top of their list. For me, it’s way down the list.

If somebody says the first thing they’re concerned about is hallucinations, I think, “Oh, you haven’t really been playing with this that much, or you’re a little bit further behind.” And not that that’s bad. Maybe it’s better to take the old analog approach. I’m sure you and I came up around the same time, still building models by hand. It’s slow versus just having Bloomberg import everything, but it does teach you something and force you to slow down and think a little bit. Maybe skipping AI is good or something.

But if hallucinations are your thing, just one more question. You’ve got a class of 70 to 75, right? That’s not an infinite N, but it’s a much bigger N than my sample set. Ten or 15 years ago, there was a lot of worry that mutual funds were shrinking and fundamental investing roles were going away. They’re not easy to find, either. Five years ago, I’m not sure what the state was. You could tell me, “Hey, AI is exploding the demand for analysts and interns,” or you could tell me, “Hey, AI is replacing analysts and interns.” Broad strokes: where do you think demand for analysts and interns is heading?

3. The Analyst’s Human Edge

For now, people don’t know. I think, at least for now, the main pressures are much more the economic pressures on large organizations that historically represented the bulk of the seats. As you’re seeing fee compression or AUM challenges, there are only so many seats to go around. But in the fullness of time—and this is perhaps a hot take, because I know it’s obviously very controversial—our view is that AI actually materially expands the need for good-quality analysts.

The analysts still need to have the fundamentals in place so they can meaningfully push back on the models and understand what good work actually looks like. To me, this puts a premium on people who can go out and get differentiated information, whether that’s going to a trade show or doing value-added research through expert networks or otherwise, above and beyond what everybody else has access to. That’s unavoidably time-consuming work, and it requires someone with judgment, finesse, people skills, and EQ. The more people you have doing that, within reason, the more you’re able to build a sustainable edge over time.

One reason we really like having interns at Brizo is that these are young, motivated people, often with a different cultural context, because we hire a lot of international students for internships. That allows us to get very different kinds of people on the phone and have very different kinds of industry experience and perspectives. If you’re pretty much locked into a database of expert network calls, as much of an unlock as that is versus the way the world was before, it’s ultimately a quasi-commodity, particularly as organizations start to get comfortable with the idea of feeding that stuff into a context window. Albeit, maybe it’s going to be Copilot and not Claude.

I ultimately think this increases the value of the incremental analyst, because the stuff you really need people for is the kind of thing senior people sometimes haven’t been trained on. That value-added research has really come to the fore in the past 20 to 30 years, as much as Philip Fisher wrote his book so long ago. It’s also, frankly, about being a young, energetic person with a lot of time flexibility. People often underrate how much time a senior person is locked into investment committees and the administrative stuff of sitting at a large asset manager. I’m sympathetic to that. That doesn’t make them bad at their job. I’ve met many of these people, and they’re amazing. But they definitionally have less time to do on-the-ground scuttlebutt. That’s the kind of stuff that, through no fault of the models themselves, they’ll never have access to.

You hit on so many things, and I couldn’t agree with you more. On the time thing, you and I have both got kids, and you’re starting to get the grays in your hair. When you’re young, if I was looking at a company, I’d fly over and visit them, or go to a big trade show. Yes, there are institutional committees, but as you get older, there are the kids and the family. The analyst who can just go on a whim and visit a trade show—that’s a big time component.

The other interesting thing is AI. You hit on trade shows. The past few Pershing Square Challenge winners—I’ve been lucky enough to have them on the podcast—have done that kind of thing. One thing I’ve said to people who are applying for jobs is, “Go get a picture of yourself at a trade show. Show you’re willing to put that on-the-ground research in there.” That’s unique data, and I don’t think it should be lost on anyone. The winners do that kind of stuff, and there are lots of reasons for that, but that’s the type of unique data that gives you an edge.

In an AI world where AI can filter it out, if you go to a trade show and get a unique piece of edge, 20 years ago, maybe we short all the homebuilders if they’re all in distress. When you put it into AI, it could find 1,000 trades in 100 different markets and automatically get that off your data. Maybe the edge gets smaller, but it gets applied over more things, and there’s more premium on that unique information. That just seems very much where the world is going to me. Whenever these analysts talk to me and send me a pitch, I’m like, “Dude, a photo of you at a trade show. Photo of you.” If you’re a CEO, a hard hat is a short indicator. If you’re an analyst or an aspiring intern and you’ve got a hard hat photo, that’s a buy signal. That’s a job-offer signal. I just couldn’t agree with you more.

It’s one of the things I preach to Brizo interns, but also in the class. Maybe this is a commercial for Columbia interns and MBA students more broadly. While you’re a student, you have a superpower: a lot of people actually want to get on the phone with you.

Yes.

Most people don’t want to talk with Andrew and Ben unless it’s coming from a warm reference, or we’re already a known quantity. If Andrew and Ben basically hit up some random stranger in an office building, people are going to be asking, “What the heck are you doing?”

That’s how we got banned from Two Betty Park[?], Ben.

Yeah, exactly. When it comes to the average MBA student, if they come in saying, rightly so, “We’re doing a project on XYZ company. We’re trying to learn more about the following things. It seems like you’re really in a position to know a lot about that. Would you mind taking 15 to 20 minutes out of your day to speak with us so we can do our research? And we’re happy to share some of our findings with you afterward,” while not everybody’s going to say yes, the hit rate is pretty good.

You build a network as a student, and you can come up with differentiated information that most people aren’t going to be able to come up with, even with a very large research budget, putting aside the time-arbitrage point I was making before. We think the students who really embrace that set themselves up well to distinguish themselves in the challenge. But I also believe strongly—and I think my fellow professors would agree—that it builds an important skill set for afterward. That willingness to cold call, frankly, and have people shut doors in your face without taking it personally is very powerful for getting differentiated information. That’s just for context.

My wife makes fun of me so much because, 10 or 15 years ago when I met her, she’d be like, “Hey, let’s go here,” and I’d be like, “That’s a networking event. I don’t want to go network,” or, “I don’t want to go do sales and stuff.” As you get older, you realize that maybe you’re not making hard timeshare sales commissions on something, but your whole job as a person is sales, right? That is part of your job, and you just have to know that.

To your point about getting the door slammed in your face, yes, they’re not getting timeshare commissions, but if they’re just willing to get on the phone… By the way, as a student, there are CEOs who will spend 10 or 15 minutes with you. What’s the going rate for an expert network? $750 or $1,000 per hour. CEOs don’t even do them, right? And ex-CEOs will sometimes charge $5,000 an hour. You can get that for free as a student. You can get access that is literally priceless.

And yeah, it’s just one of the reasons—again, stock pitch contests, all this sort of stuff. People want to write things and say, “Hey, this company trades for 10 times P/E and the peers trade for 15 times P/E.” That’s fine, but if you’re a student and you just go, “Hey, I got five minutes on the phone with this CEO and he said we’re going to the moon,” that’s a bigger edge and a bigger signal than anything else you could get, I’d say.

Yeah. And by the way, one of the reasons those basic skills as an investor and an analyst aren’t going to expire is that you still need to understand what’s actually relevant. What are the load-bearing components of your thesis? These people who do massive write-ups—I really admire it in some ways, but there’s a big focus on, and I’m being a little dismissive, but you get the point of what I’m getting at, “I know the name of the CFO’s cat.” It’s really impressive that they’re able to dig up that information, but is it actually going to be meaningful in driving outcomes? Probably not.

Understanding what’s really relevant still puts a premium on skill in terms of the questions you ask and who you choose to speak with and reach out to. Relatedly, if you seem like you know your stuff, it unlocks a totally different level of conversation when you’re getting people on the phone.

4. Fixing Global Corporate Governance

Clearly. Let’s hard-switch to the thing I think you and I have spent the most time bonding over the past couple of years: corporate governance.

Yes.

I’d say corporate governance and UK-listed stocks, but let’s focus on corporate governance. We can use the UK to broadly unlock the discussion, but I think both of us, as value investors, have seen that if you’re an AI stock, if you’re a stock with a lot of momentum, you get a full multiple. People are there. If you’re a sleepier stock that grows at a nice rate and returns capital, that sort of thing, a lot of these stocks have been left behind. We’ve felt—the term I’m going to steal from you is that the cavalry isn’t coming to save us. We need to save ourselves. These companies haven’t helped themselves. I think that’s a lot of the criticism around corporate governance.

I’d love to talk to you a little about the state of corporate governance when you’re looking outside these indices and spending a lot of time internationally. How are you engaging with firms, and all that type of stuff?

Yeah. It’s a funny set of global markets. We have a very global mandate, and we’re very fundamentals-driven. We’re trying to find genuinely compellingly cheap stuff around the world. Obviously, where companies are and what they do informs what we think a fair price is, but within reason, we’re pretty agnostic about where they are, assuming we think we can underwrite them and be treated fairly. Being treated fairly is not a trivial consideration, incidentally—something you and I have discussed a ton.

Yes. Internationally, being treated fairly could mean, “Oh, the local shareholders make off with all the money.” Or it could mean, “Oh, the local shareholders took our assets and anyone on the ground was tossed in jail.”

Yeah, that’s on the extreme end, but there’s a huge range of things you want to be mindful of when you step outside your borders. I’d also argue that politics are becoming more relevant in U.S. investing and developed-markets investing, and maybe that’s a good thing in some ways. I don’t want to presume your audience’s political priors, but in a world of, for example, tariffs, that changes the math on the ground for a whole bunch of companies. That may be good or bad economic policy, and that’s a totally separate discussion, but politics have real consequences for the economics of businesses.

It’s one thing that I’ve—you know, you have to put your politics aside, and you just have to recognize that they’re a reality, right? As you said with tariffs, you can like tariffs or hate tariffs, but they’re a political reality. If you were going to invest and ignore that there are tariffs, cool. You went long some steel companies, and now they’re maybe bankrupt, or maybe you went long the steel winners and they went up a ton. You have to at least acknowledge it and think through how it changes the landscape.

For sure. When we look globally, it’s very easy, in our view, to find statistically cheap companies, and sometimes statistically cheap, pretty good companies, with a global lens. We’re not saying every company is cheap or that every company is necessarily good, but there’s a meaningful fraction where there’s a nice, maybe even very nice, business at what we think is a nice to extremely nice valuation—or, I should say, a very attractive valuation.

You see a lot less of that in the U.S. It’s still definitely available in the U.S., but the U.S.—with the exception of maybe Australia, probably India, and maybe the Nordics—is really the only robust, well-functioning set of equity markets in the world at this point. Obviously, the U.S. is about 70% of global market cap, give or take, so it’s not a trivial thing that the U.S. is the best-functioning equity market. But there are real knock-on effects in a world where there are 40,000 publicly traded securities, and the vast majority trade outside the United States. We kind of like that hunting ground, per se.

But then there’s the question: What do you do about that? There isn’t a cookie-cutter answer, but you and I have talked about this a ton. The corporate-governance piece is so important because the reality is that a lot of stewardship questions—not necessarily coming from malice, incidentally—hold back a lot of these companies from getting a better valuation.

You talked about a good business in another jurisdiction returning capital, or even a cheap U.S. business returning capital. If they’re doing that, that’s great, and I’d anticipate that most of the time, within reason, that valuation is going to work itself out broadly. But there are fundamental blocking-and-tackling things like disclosure, compensation, incentives, and, crucially, capital allocation. There’s an evolving conversation happening around the world. Japan is probably the one people are most familiar with, given all the corporate-governance reforms happening there. But there are a bunch of different markets where this is a live discussion.

We’re most attracted to the UK because these are often big global businesses that aren’t really tied to the UK domestic economy. It’s not that the UK domestic economy is going to be bad forever, but it’s a very different bet you have to underwrite. And if the business isn’t able to find relevant support in public markets, either in the UK or elsewhere, there’s a really logical, deep pool of strategic and private-equity buyers who can buy it because it’s an English-language business.

These often have close commercial ties already to the big pools of capital in the United States and Europe. The rules of the game are similar enough that getting to that point is relatively actionable. Whereas if you’re looking at, say, a Southeast Asian company, there could be amazing opportunities there. We’ve looked at a bunch of those, and we even own a few.

But it’s a very different set of rules on the ground, and you’re at a very different point in the corporate governance evolution discussion. So actually sitting down and explaining to companies that these are some things that would be a win-win—we’re not asking them to sell their prize asset and shut down the company or something like that. Sometimes that’s the right answer, but that can be a harder discussion, and usually that wouldn’t be what’s compelling to us.

There are so many cases where there’s attractive stuff out there, and we think it’s not easy, but very doable, to find win-win situations where you’re pushing on an open door in terms of the management team and other stakeholders. There are relatively easy fixes available to the company, and you can create incentives so management feels like they’re being treated fairly for doing things a little differently than before.

Let’s be clear: for a bunch of these companies, at an operational level, the businesses aren’t broken. In some cases, they’re actually doing quite well. But if they don’t have the right disclosure, if they’re stuck with a highly suboptimal capital allocation policy, or if they’re on an exchange that’s structurally challenged in terms of assigning them fair value, these are fixable problems. But it does require taking some steps to actually fix them.

You hit on a lot of things I wanted to talk about. But let me start with the thing that you’ve done the most behind the scenes, and I’ve done a little bit of it. I’ve highlighted it on this podcast a lot: you mentioned pushing on an open door, right?

Yeah.

This is generally where you’ve got a stock that’s just… Let’s use a UK company, because I think you and I look at UK companies the most, and these are the most obvious examples. I had Sven Larson on recently, and we talked about Zigup and a few others. John Cohen from Zipperline came on to talk about NewCo—a slightly different story there—but I’ve talked about London stocks a lot on this podcast.

You’ve got a London-listed stock. The business is international, so it trades kind of down with the UK and Brexit and everything. But it’s like, “Hey, 80% of our revenue is outside the UK.” The stock is in the doldrums. A lot of times, the board owns no stock, and the management team doesn’t own a lot of stock. They probably pay a little bit of a dividend because that’s all the rage in the UK, and the stock just languishes.

I know you’ve worked with a lot of these companies on this. I’ve tried, and maybe we’ve had different views, but I feel like when I talk to them, they look at me and say, “Hey, you’re a foreigner sitting in your little shoebox of a closet, coming to us with these ideas. You don’t understand the way business is done over here.”

And I’m with you. I’m like, “Hey, I want you guys—I want the management team—to make a ton of money. Give them some stock. Put them on our side. The stock goes up, we all get rich.” I’m okay with that. How have these conversations gone with you? I realize it evolves over time and depends on stuff. I sit here feeling like I’m about to pull my hair out, like the companies just don’t listen. I’m like, “I want this to work for everyone. I don’t understand why. I’m on your side.” How have these discussions been for you?

Yeah. It’s not one size fits all. We’re very lucky in the sense that our capital base allows us to be genuinely long-term, and we can kind of prove it with legacy investments. We think that, plus being at least a reasonable size, unlocks a different quality of conversation. If you can be a 1% to 5% shareholder, that changes the contours of the discussion.

The other thing is patience and being selective. I can think of very few cases where we just came in and said, “Do this. We’re such brilliant Americans. You should do exactly what we say.” And they said, “That never occurred to us,” did it, and six months later the stock was in a different place. That’s obviously unrealistic on a bunch of different levels, at least for us.

There’s a different style of investing that can get those results faster, with some potential trade-offs as well, and maybe that’s worth talking about later. But being consistent about the messaging, doing a good job of listening, and being selective all matter. There are a bunch of companies that are, I’ll say, happy with where they are—maybe “happy” is overselling it. Only 10% of UK PLCs have a requirement that directors own equity. That creates obvious cascading consequences for a whole bunch of these companies. It doesn’t make the directors bad people, but they’re working from a different set of incentives as a result.

When you find companies that have the opportunity in front of them and show a lot of receptivity, this has to be combined with a lot of respect and, hopefully, good listening on our part. Building the position as they show a willingness to engage can be really helpful. You also have to understand that some companies feel like they’ve got it figured out and are going to go a different way, and there may just not be an opportunity for a productive discussion. You can say, “Look, this one may be cheap, but it may be one to put on the back burner, because if we’re right, it may take a while for them to get there.”

That means listening to stakeholders, talking with other shareholders and service providers, and talking with multiple levels of a company. What does middle management say? What does the C-suite say? Ideally, what does the board say? You’re trying to understand where their challenges and hang-ups are. These are usually pretty sophisticated people in the greater scheme of things, so you need to understand where they’re coming from and what their blockers are.

It might be a leverage target that they feel is being imposed by legacy UK norms about appropriate leverage, or hang-ups or misunderstandings about the mechanics of buybacks. These can sometimes be gradual education processes, and that can be a very unsatisfying answer. That’s why it’s so important to us to be selective and find businesses where we think we’re getting a really compelling valuation and there’s a real opportunity for value to accrete in the core business as we build a stake.

The metaphorical unprofitable steel mill trading at 30% of replacement value, burning cash, but which could be sold for 70% of book, is less attractive to us, although other people can do that very well. If it turns out that’s going to be a five-year conversation, it’s a very different economic proposition from the same steel mill hypothetically generating a 7% to 12% ROE before the improvements.

It’s so funny you say that, because you’re right. But the bottom-feeder in me hears “30% of book, could sell it for 70%” and just thinks, “Yeah, I’m in. I’m in. Let’s go.”

5. The Relisting Debate

There are a lot of things we could talk about. You mentioned the dividend policy, the leverage policy, insider buying. But one place where you and I have discussed things and come out a little differently is the relisting process, right?

Sure.

For those who aren’t familiar, you have a company—let’s say a UK company—and it’s kind of stuck in the UK backwater. It relists in the US, and the goal is basically multiple arbitrage, right? You mentioned well-functioning US markets. We can debate that in a second, and we might.

You go from the UK, where maybe you trade at 5x EBITDA, to the US, where you trade at 8x EBITDA. You can choose your numbers. I’ve been a little… Some of these have worked. GAN, in the 2020 to 2021 timeframe, was a huge home run for so many value investors. It eventually went bankrupt, but what value creation along the way. CRH was a recent one that did very, very well when it relisted.

I’ve been a little skeptical of the relisting trade. I like it when there’s a company with 80% of its sales in the US, it trades in the UK, and it relists in the US, because I can see a reason for it. But I’ve heard—and I understand the liquid-markets argument and all that—if a business has 80% of its sales in the UK and Spain, let’s say, and relists in the US, I’m kind of like, “What’s the point?” Your natural shareholder base is in the UK. It’s all over there.

It feels like financial engineering for financial engineering’s sake, if that’s right. I know you have data and numbers there, so I’m going to pause there.

That’s my overall view of listings.

Yeah.

I’d love to hear you, because you talk to these companies and you’ve helped them orchestrate relistings. What have you heard, and what are your thoughts on them?

Your skepticism is warranted, by the way. This is not a one-size-fits-all thing. There are a very small number of companies we’ve interacted with where we felt that the primary or even secondary plan should be looking at a relisting.

But I would push back on a few things. First and foremost, while there’s no denying that getting a valuation re-rate, or as you put it, multiple arbitrage, is absolutely part of the appeal, there are a lot of other things that come with moving to the U.S. from some other jurisdictions. To be really tangible, consider management compensation. It’s often very difficult to be competitive on management compensation. There’s one relatively large U.K. company that you and I both know where they had to pay their head of North America multiple times what the CEO is getting paid, because the CEO compensation rate in the U.K. is so far below where the market for American talent is.

Now, that might be more of an indictment of U.S. pay. Some of these boards are crazy, but 100%, absolutely.

For sure. But going back to your comment about tariffs, this is also the situation on the ground. The reality is that talent has a market and there’s a market price, and when you’re paying below market, it’s not to say that people who are getting paid below market are definitionally inferior players. It’s just harder to compete for the best players when you’re not able to pay them.

Relatedly, when you don’t have a well-rated equity, and when you don’t have, frankly, even from a governance level, the ability to pay with equity, it’s hard to attract and retain talent—not just at the C-suite, but below that level. That’s especially true for growth companies, where there’s an entire class of employees, particularly high-skilled employees, who, at least for now, aren’t obviated by Claude. And, by the way, I don’t think they ever will be. I’m just being a little silly. There’s an expectation of getting equity, and if you don’t have a stock that’s going to reflect the work that you’re doing, it’s much harder to use that as a currency.

Even at a more fundamental level, you talked about dividends in the U.K. Dividends are great. For the right company at the right valuation, a dividend is absolutely a very important capital return tool. If they don’t have other ways of using the cash, if they’ve got a stable business, and if their share price isn’t really, really cheap versus alternatives for the capital, it makes all the sense in the world to be paying a dividend.

But the dividend policy in the U.K. is kind of trapped in amber from a very different set of facts. When you’ve got a whole bunch of shareholders who are either actually saying they want to keep the dividend policy as it stands, or, even more challenging in some cases, management and the board are paranoid that that’s what they feel, it can be difficult to engage in that discussion in the first place because they’re worried there’s going to be a leak or something else.

Changing your shareholder base actually changes your ability to do certain things, whether that’s reinvesting for growth. We have literally one portfolio company today that talks about how what they believe is the optimal margin structure, in terms of balancing growth prospects and margin, isn’t optimal for their U.K. shareholders. Are U.S. shareholders fundamentally better? I don’t know. But at least in the case of that business, it seems like the company is better suited to having a more international, or maybe we can say U.S., shareholder base versus what the preferences are in the U.K.

Obviously, people in the U.K. are entitled to their preferences. But in an international market for capital, there are suboptimal choices for any given business, whether that’s leverage levels, dividend payouts, compensation, capital allocation, margin targets—take your pick. So I would really push back pretty strongly on the idea that this is purely a multiple-arbitrage exercise, because there are real operational consequences to having a suboptimal listing. Those can cascade, by the way.

But let’s talk about the multiple-arbitrage piece. When you look at the universe of real companies—and we’re going to define real companies as businesses that have real revenue and real profitability today, have substance to their enterprise, and are not just speculative pre-revenue biotech companies or something like that—

Well, it’s funny you say that, because today some of the companies that might come public are trillion-dollar companies, and they’re kind of what you’re describing as not real businesses right now, but—

That’s another conversation to be had by people smarter than me. But when you take a look at the companies that have relisted into the U.S., not just from the U.K., but from Australia, Scandinavia, and a number of other jurisdictions, it’s really hard to find companies that didn’t meaningfully re-rate upon announcement of the relisting and keep that re-rating over time.

Importantly, on top of that, their liquidity has grown well in excess of the re-rating and valuation. On our math, the average U.K. equity trades, in terms of shares traded per day versus shares outstanding—so, as a percentage of shares outstanding—at about a third to a quarter of what a comparably sized U.S. company trades. That’s like-for-like on a market-cap basis.

So again, there are real consequences for what kind of shareholders you can attract, to what extent you can use it as a currency, and whether you might even want to use a richly valued equity for M&A and things like that. If it’s much less liquid, there are people who aren’t willing to consider that sort of thing. So, again, there are business consequences.

Among the 30-plus real businesses that have relisted to the U.S. over the past five years across different jurisdictions, there are only a handful of cases where we can see a real failure in terms of the subsequent success of that choice. In those cases, it’s overwhelmingly companies that had fundamental challenges to their business, unrelated to the nature of the relisting. GAN got itself into trouble, not because of the relisting, but because of inherent characteristics of its business. And guess what? It would have gone to zero in any other market, not just in the U.S.

Let me give one pushback here.

Please.

I’ll just use CRH because it was an example, right?

Sure.

You get a company that’s listed, and they announce a relisting to the U.S. They get a pop, and their shares get more publicly traded. All of that is great, but I do think a board could look at you or look at me and say, “Hey, Ben, Andrew, you’re coming to us and saying, ‘Relist to the U.S., and we’ll get a pop and our shares will get more liquid.’ That sounds nice, but isn’t that reward just a one-time sugar high? Why should we go for that one-time pop?”

Would it be better—and again, the boards aren’t doing this, so maybe this is too pie-in-the-sky or too rose-colored-glasses—but wouldn’t it be better for us to just buy back our stock at a discount, keep doing that, and accrue all that value for our real long-term shareholders? Again, I don’t think a lot of these companies are actually pursuing that, but I think that is a fair pushback. Are you just looking for that—

Yeah.

—one-time sugar-high pop versus, hey, wouldn’t it be better to just buy back the shares and keep doing it so the market recognizes the value?

Yeah, I think that’s absolutely a great alternative. The challenge is that, with only a couple of exceptions, I can’t really think of companies that have done that, at least in the markets that we’re looking at today. We think you’re going to see more of it. There’s a company that we own today that’s doing exactly that, and we’re really happy about it. We’re pretty happy just to let them cook and keep that going.

But for other folks that are hamstrung by a mismatch between the business prospects and the shareholder base, where there are talent-retention issues, or where they’re having trouble attracting the relevant investors in the first place because of liquidity, this isn’t just a sugar-high thing. Again, I would want to stress that this is not a one-size-fits-all approach where we want everyone to do it. But we think it’s worth exploring because in a lot of cases it solves business challenges beyond just the valuation. And there are a lot of ways to pursue these transactions where current U.K. holders can benefit from the relisting, and it doesn’t just benefit the new international shareholders.

Let me give one more pushback I had. All right.

Please.

I’m just using CRH because they’re one of the biggest examples, and they’re very top-line. But CRH does the relisting, right? It works well: you get the pop, the shares perform well, the multiple goes up, and liquidity goes up.

How much of that is the relisting, versus there being a signal in the relisting? In the same way, if somebody announces a share buyback—good or bad, share buybacks versus dividends—there might be a signal. These U.K. companies don’t do share buybacks a lot, so when someone announces a share buyback, it’s really worth paying attention because they’re going so against the grain, and management is signaling, “We’re thinking about these things.”

The relisting—is it the relisting, or is it, “Hey, we’ve got a very biased set of companies that are performing well on the relisting because these are the few companies that are actually thinking about their shareholders”? And, by the way, maybe their stock is undervalued, so they’re announcing this. I guess that’s a chicken-or-the-egg problem, but can we rely on that for the next 20 sets of companies that do this or something?

I can’t disprove the counterfactual. It’s totally fair pushback. When you look at these companies that have relisted, they represent a pretty broad range of different industries. And, to a point you made before, a decent number of them are not really US companies in any meaningful respect. In some cases, literally, they’re not US companies at all.

It’s not like they’re going into the US and then aggressively pursuing buybacks or something like that. Could there be a signal in terms of operational outcomes or things like that on a go-forward basis? It’s definitely possible. But when we look at the set that we have so far—call it 30-something companies over the past 5 years that meet the criteria of kind of real businesses—it’s not obvious to us that it was just the people who were hyper-shareholder-focused and knew they were playing with a stacked deck in terms of their operational outcomes.

In a number of cases, it happened after major shareholders pushed. In the case of CRH, Trian was pushing for CRH to do it when the stock was around, I think, 35, 45, something like that. Prior to that, our sense is it was not meaningfully on the board’s agenda. It’s not obvious to me that that’s the strict reason, but is it probably going to disproportionately select for companies that care broadly about good outcomes for shareholders? Yeah, I’m prepared to believe that.

Let me hard switch to something else. Your portfolio—and I’ve had the pleasure of talking to you about a lot of different companies—spans domestic, UK, and international companies, from cellphone towers in Africa to UK retailers. One thing people who’ve listened to this podcast for a long time know I struggle with is when somebody comes and pitches, “Hey, I have the Walmart of Kenya,” and it’s trading at a huge discount to Walmart in the US. I always struggle because I’m like, “Hey, yeah, it’s great that it’s awesome, but it should trade at a huge discount.” The cost of equity in Kenya is just higher.

One of the tough things with constructing an international portfolio, where you’ve got a cellphone tower operator in Africa alongside a distribution business in the UK, is that the cellphone operator in Africa is going to have a much higher growth rate and a much higher cost of capital. When you’re operating with a global mandate like that, how are you weighing the two differences? It’s just very difficult to have those two things in the same portfolio. If they’re both 5% weightings, one’s inherently going to be much riskier than the other. How do you think about those pushes and pulls?

Yeah. It’s a very important question, and I think part of it is to decompose the components of an international equity risk premium. Obviously, it’s not just simply that Kenya is X amount riskier than the United States, and so therefore it’s got a 25% cost of equity, versus somewhere between 8% and 11% in the US.

Yep.

I’ll let you fill in the number. There’s currency, which is far and away the biggest risk in a lot of these markets. But then you’ve also got potentially government or government-adjacent risk versus on-the-ground operating risk, which can include things like sporadic financing environments and supply constraints. We think it’s really worth breaking that down when you’re looking at the nature of the business.

I’ve had a bunch of conversations around exactly this topic, where there are a lot of functionally USD- or euro-denominated businesses that trade in an undifferentiated way with businesses that are entirely domestic. In our view, that’s obviously inappropriate. We don’t own the company, but there’s a business in Turkey that owns the Houston Airport operating concession. Clearly, that’s going to move with Turkish equity flows to a non-trivial extent. But does the Almaty Airport have a Turkish cost of equity? I would argue definitely not.

That can run an entire gamut. You mentioned the cellphone towers, for example. When those contracts are overwhelmingly hard-currency-denominated, inflation-linked, and have pass-throughs on things like energy prices—not to say that these are totally riskless operating environments, although we can talk about why we think that’s really manageable—the functional risk premium people optically look at can be really misleading. They might look at JPMorgan’s valuation versus a big local bank, for example.

That applies to a UK business that functionally has all of its revenue outside the UK and so, in our opinion, shouldn’t have a UK cost of equity, or something in Kenya that is primarily producing a USD-denominated cash crop, where it’s effectively a participant in global markets and gets hard currency in. We think there’s a real art to that. But this is not an argument that you should basically ignore all those things. You just want to be super clear about what’s present in the specific business that you’re underwriting versus what isn’t.

No, it’s a great answer. It’s one of those things that’s very hard, right? On the one hand, if you have a broad mandate, you should look everywhere. But I find it very difficult because a South Korean example might be too broad, but the Kenyan company is always going to look cheaper than the domestic company, right?

Sure.

But obviously there are risks. As you said, you can break them into USD and stuff. But with such a wide mandate, it’s very difficult to avoid just concentrating in the riskiest areas or perhaps the safest areas, right? There’s this whole wide swath in the middle, which I would argue—

Yeah.

—probably UK stocks. We’ve been talking about that. I think we have shared a patch before. They probably fall into that middle, and you’re kind of like, “Oh, it’s just…” It’s a very difficult thing.

Yeah.

And it’s one of the things that’s made me wonder what the thing is. Constraints are what create the best art. I’ve been wondering if the constraints of being like, “I only invest in the UK” or “I only invest in biotech”—

Yeah.

—I have wondered if that constraint actually would produce more alpha on the back end.

Yeah. Here’s how we think about it. You’re asking a fairly mechanical question. It’s an important one and it’s nuanced, but it is ultimately a mechanics question. We would start by asking: based on the current yield of the business we’re buying, assuming the margins are relatively stable and it’s not a hyper-cyclical business, what is the fundamental return we’re getting?

If hypothetically that Kenyan retailer is trading at 10 times earnings and we think we can underwrite 10% annual nominal growth, theoretically that’s a 20% return. But when the Kenyan cost of equity is, we think, somewhere in the low to mid-20s, particularly for things that are mid-sized or below, that’s actually not really cheap. In fact, it’s probably kind of expensive.

Making sure you’re getting a substantial spread over the local cost of equity is a very important part of our underwriting process. As a practical matter, unless we’re really smoking that spread, it’s not necessarily something we’re interested in engaging with. Take Brazil today, which has the highest real rates in the world outside of maybe Kazakhstan. The Selic is in the low teens today. That’s kind of their local risk-free rate.

There are a lot of companies there trading at very low multiples, but when your local risk-free rate is in the teens and your equity risk premium, particularly for smaller companies, should be mid- to high-single digits, you’ve got to be looking at a fundamental return of 20% plus in nominal terms just to get out of bed and think it’s even vaguely attractive.

A company in Brazil that we like is connected to the ag industry, so it’s mainly dollar-denominated business streams pretty much all the way through. On top of that, it’s trading at a single-digit multiple of earnings. Historically, it’s been able to grow organically at 20% to 40% nominally per year, and we think it will continue to grow at something like that over time.

We may wind up getting this one totally wrong, but the combined return of the growth plus the earnings yield is so far in excess of the Selic, the local risk-free rate, that we think it’s a really attractive place to have some of our Brazil exposure today.

Whereas some other businesses in Brazil, particularly if real rates wind up coming down, are probably going to do fantastically well. But that winds up being much more of a macro call on rates. For your Kenyan retailer, I would just ask: to what extent is it materially beating the local spread?

Because if you can find a U.S. company that you think has a fundamental return of 14% to 17% and a cost of equity of 10% to 11%, that may be much better than a Kenyan company representing a 30% nominal fundamental return. The actual real spread you’re getting might even be narrower than what you’re getting in the U.S. At a mechanical level, that’s really how we try to differentiate these things. Obviously, as we go farther away from the stuff we know best, we’re going to demand an even higher spread to spend the time and really diligence stuff.

Let me ask one last question, then we can wrap up—

Yeah, please.

If you want. Again, at the start, you said “well-functioning U.S. markets”—that’s a quote I have—and I believe you said 70% of the world’s market cap is kind of in the U.S. When we’re looking outside, it’s a substantial minority, but still, the majority is in the well-functioning U.S. Maybe it’s a function of recent markets, but I think David Einhorn would’ve argued for the past 14 years that your well-functioning equity markets are Fed-supported, passive liquidity, all this sort of stuff, right?

I’m not trying to hate. I’m just pulling up the jelly donut example that sits top of mind. I think a lot of people might push back on you on well-functioning markets. At the top, if you’re S&P 50, very liquid, probably pretty efficient. I don’t know. The Mag 7 seems to do 20% annualized every year, no matter what. But I think a lot of people would say that as you start getting to the dregs of the Russell 2000, and especially below, these things trade pretty inefficiently. It’s a bit of a U.K. problem: corporate governance gets much worse very quickly. I’ve torn my hair out over the corporate governance of a lot of these things.

When you say “well-functioning markets,” you can say, “Hey, I just mean the top 500 names.” That’s fine. But do you think U.S. markets as a whole are well-functioning?

Well-functioning is sort of a relative question, to some extent. For those people who really hate the way the U.S. is functioning, I’d urge them to start taking at least a little bit of a tour of some other markets around the world.

In the land of the blind, the one-eyed man is king. That’s kind of the situation.

There’s a little bit of that, but also, on top of that, look, the U.S. is such a big market that there are always going to be pockets of cheapness. We’re always looking at things in the U.S. because it’s too big not to be aware of what the reference point is for global cost of equity.

Yeah.

We find things that seem reasonably interesting even now, but on average, valuations are much higher. On average, liquidity is much better. We think corporate governance is getting worse at the margin, but it’s still the best in the world, or at least for now.

My point is not that the U.S. is functioning perfectly. Possibly because of passive and other things, there are a whole bunch of areas, particularly on the smaller side, where you’re seeing these weird eccentricities, where things hit air pockets and things like that. But I struggle to find a lot of situations in the U.S. that mirror the market-mechanics dysfunctions we see in a lot of other markets around the world.

By the way, if your listeners can show me some that are really attractive, I’d love to add them to the list of companies I want to look at. I would love to be looking at nothing but U.S. companies. It would mean I’d be on a plane somewhat less than I am, because we travel a lot every year to be close to the companies.

On average, we find that it’s much more episodic and sporadic. If nothing else, the market for corporate control in the U.S. is much more liquid and robust. There’s a huge private equity bid for anything that winds up getting cheap and staying cheap, and you have a well-established network of activists willing to come in, sometimes in a not-so-friendly way, and try to fix things.

So, is the U.S. perfectly well-functioning? No. Are there things that seem like they’re kind of breaking on the smaller side and in the less-loved parts of the market? I totally see that, but brokenness is relative.

6. Private Equity in the UK

Actual last one, and then I’ll let you go. You’re the one who pointed this out to me, just reading some of your stuff, but I think one thing that’s interesting with the U.K. is these companies are cheap, and a ton of them are getting taken out by private equity companies. It’s a win-win-win for everyone except for perhaps shareholders who get a big premium.

Because of the way the U.K. underpays its CEOs, the way no one owns any stock, and the way they focus on very conservative leverage levels—way too conservative, in my opinion—it actually creates a really nice opportunity. Private equity firms can come in, pay a huge premium to the market price, increase leverage, give the CEO stock, incentivize them, and create enormous amounts of value for themselves.

I’ve always been of the opinion that if somebody wants to buy a stock from me for a big premium tomorrow, they can have it, and I’ll go find a new one. But then you get into this: if your company’s trading for 10 and you sell it for 15, and 3 years later private equity is re-trading it at 45, you made a little bit, but you left a lot of money on the table. Now, you could find the next one, but then the next one gets taken out for 15.

You were the one who pointed that out to me, and I just think it’s interesting how the limitations of a market, the cultural limitation, whatever it is, can create the opportunity for private equity to shift a lot of value to themselves while giving a little bit of value to shareholders. I don’t know if you’ve got any thoughts on anything I just said there.

Yeah. The challenge for a lot of people in the U.K. is that the U.K. is now in year 10 of basically just continuous outflows from active management. Any time they can ring the cash register and take a win, a large number of local active managers are very incentivized to do that. I understand why they’re coming from that perspective.

My view is that the happy medium is having shareholders like us, who try to be aligned with management and the board to the best of our ability, and fight for fair value, while having other folks who are pushing for more, faster. That’s sort of the happy medium in the ecosystem. Maybe we’re the deer and they’re the wolves or something like that. I’d like to have something where I’m not being eaten, but where we’re each performing a function in the broader ecosystem.

The reality is that every time you’ve watched a market, whether it be Japan or otherwise, go through one of these corporate governance revolutions, the U.S. saw it in the ’70s into the ’80s. If you remember the Danny DeVito movie Other People’s Money, that’s a classic example of the conversation. He literally goes through an entire liquidation value calculation on a chalkboard in the boardroom.

The early-to-mid stages of these kinds of renaissances in these markets are private equity or other people lobbing in opportunistic bids and making a lot of money for themselves. If that signal value isn’t there that the water is warm, it’s hard to get the competitive bid dynamics down the line, where the markets actually start to converge on fair value.

I don’t love it when my companies get bought for a lot less than they’re worth. There have been some markets where I’ve really torn my hair out over exactly that kind of outcome, because I felt like it got stolen from me. I’ve actually gotten yelled at by some very large-cap CFOs in the process of fighting those bids.

But the reality is that this is probably a by-product of these markets going from cheap and broken to hopefully going through some self-help processes and getting back to the point where they’re serving some kind of price-discovery function.

7. South Korea’s Reform Path

Okay, actual last one, and then I’ll let you go. You mentioned Japan and the corporate reforms they’ve done over the past 4 to 5 years, which have been successful in large part. They might be stalling out; I’m not sure. I can’t say I’m the full expert.

A lot of people have brought up South Korea and its attempted reforms recently as Japan 2.0. Obviously, South Korea has the memory stocks, which are a whole different ballgame. Just before we started recording, I saw that South Korea’s index had been hammered by memory stocks recently. I saw their president saying, “If you’ve lost money, take a deep breath. Here are suicide prevention hotlines.” You’re like, “Whoa, I didn’t realize it hit that.”

Do you think the South Korean market right now is Japan 2.0, or are you seeing something different? I’d just love quick thoughts on that, if you’ve got them.

We think it’s a super attractive market. It’s a market we’ve spent a fair bit of time on for several years. You can really see the reforms stacking up, and the valuations are really compelling. The challenge is that there’s more work to do to modernize the various governance and other codes and make them more minority-friendly.

Yeah.

A lot of progress has already been made, by the way. But these are often family-controlled businesses, which is a fairly different dynamic than in Japan, for example. There are definitely family-controlled businesses in Japan, but they’re a smaller portion of the overall market, and you also have fewer of these complicated holdco structures. That contributes to a cultural environment where, even as the rules change, many of the key decision-makers may be slow to fully get with the program—

Yeah.

—in terms of that. But with all that being said, we think it’s worth spending time on. We’ve owned things there for a number of years now, and we expect to continue to play there for a lengthy period of time. It’s absolutely competing for capital with, say, the UK, where those companies tend to be more international. The corporate governance is already there, and the companies tend to be somewhat larger on average. Valuations are very good, but you can find some even cheaper stuff in the UK. It has slightly different characteristics in terms of where the cultural and corporate governance issues are, and the companies tend to be smaller and more domestic. That’s not a bad thing, but it does change the nature of the bet. We see those and a handful of other markets as being some of the most exciting corporate governance-related markets in the world.

No, you hit it spot on, because I think what’s interesting is that in Japan, they introduced reforms, and it was a corporate managerial class that had gotten control of companies with very low ownership. There was obviously employment for life and tons of cash retained on the balance sheet. So that’s one reform. South Korea has some of that, but it’s family-controlled, with dynastic legacies. As you’re introducing these reforms, they do own a lot of stock in many cases. So, yes, the reforms are targeting the same thing, but you’re coming at it from two different angles. I haven’t spent as much time there, but those are just the high-level thoughts I had. It’s interesting to get your perspective. Ben Isaac, Brizo Capital, one of my favorite people in the world to talk stocks with. Thank you so much for coming on, and we’ll chat soon, buddy. Maybe a Knicks game this year.

Yeah, I’m looking forward to it, man. Thanks for taking the time. Love the podcast. Have a great day.

A quick disclaimer: Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor.