Jim Strang (HgCapital Trust) - Building an Experience Curve in Business Software

02/09/24 • 41 min

In this episode we speak to Jim Strang, Chairman of HGCapital Trust. The Trust has an outstanding track record investing in business-to-business software companies. We discuss the evolution in private markets over Jim’s career, the benefits of specialisation and the reasons behind Hg Capital’s success.
Show notes:

[01:15] Jim discusses his early career
[02:12] HgCapital Trust’s history
[03:41] The benefits of specialisation
[05:56] The importance of controlling the capital structure
[08:02] Characteristics of typical Hg investments
[10:07] The growth model
[11:29] End market fragmentation
[13:29] Being highly selective
[16:25] Having the flexibility to own the best businesses over the long run
[18:07] Replicating Hg’s success in the US
[19:58] Why Hg is an attractive owner for entrepreneurs
[22:35] Sustaining Hg’s culture and using greater scale to drive operational improvement.
[25:25] Objectively assessing each company’s potential
[27:03] Low loss rates and a few major successes
[27:57] Why things typically go wrong
[30:22] Leverage and the capital structure
[33:33] Valuing private companies
[38:43] M&A in a higher interest rate environment
[40:54] Trust your gut

Previous Episode

Stuart Widdowson (Odyssean Capital) - Concentrating on UK Smaller Companies

Stuart Widdowson founded Odyssean Capital, is co-manager of the Odyssean Investment Trust, and has a wealth of experience investing in UK-listed smaller companies. We discuss the lessons Stuart has applied to public equity investing from his days in private equity, the rewards derived from investing in good quality companies that can be improved, and the overall state of the UK market.

Show notes:
[01:28] Stuart discusses his early career
[04:12] Swapping private equity for public equity investing
[06:11] The market imperfections in small cap investing
[07:44] A focus on global niche market leaders
[09:35] Stuart’s ambitions for Odyssean Capital and its cultural values
[11:51] The meaning behind the Odyssean name
[12:49] The benefits of concentration
[14:25] Managing risk and avoiding bad businesses
[16:41] The quality attributes Stuart looks for
[19:38] Pattern recognition in TMT, healthcare, specialist industrials and services
[22:18] Being cycle aware rather than trying to time cycles
[24:18] The role of static and dynamic valuation
[28:20] Managing for liquidity
[31:27] Identifying companies with the potential for self-help
[34:15] Backing people and focusing on what is fixable
[36:05] Being credible when engaging with companies
[39:37] The structural headwinds facing UK equities and the valuation opportunity
[43:16] Contrarians come in first
[44:18] Navigating a higher cost of capital
[47:20] Find out what you enjoy and are good at and get a good mentor

Next Episode

Robbie Robertson (Personal Assets Trust) - Trust Matters

In this episode we speak to Robbie Robertson. Robbie is on the Board of Personal Assets Trust and spent a nearly 40-year career in the investment trust industry. We discuss the evolution of the investment trust industry, the advantages of a closed-end structure and the role Personal Assets Trust can play in a portfolio.
Show notes:
[01:28] A different world
[03:17] Observations from a career in the investment trust industry
[06:42] Characteristics of successful investors
[08:03] How Robbie got involved with Personal Assets Trust
[09:03] Advantages of the investment trust structure
[11:39] Evolution of the investment trust industry
[15:05] Impact of higher interest rates and a changing cycle
[16:48] Are they investment trusts or operating companies?
[20:54] Valuing assets in newer parts of the market
[22:24] Appropriateness of the investment structure for alternative assets
[23:57] Is there demand for general equity investment trusts?
[25:51] Why some investment trusts scale and others fail
[27:25] Common pitfalls to avoid
[28:57] Trading discounts
[30:50] What makes a great investment trust Board?
[32:58] The role Personal Assets Trust plays in a portfolio
[37:56] Advantages of a discount control mechanism
[39:36] Why most Boards do not commit to a discount control mechanism
[40:47] Enjoy yourself