(New) Robert Conrads

Interview & Company Profile

(New) Robert Conrads

Classification
Evolving Investment Opportunities
Company
Colchis Capital Management, L.P.
Biography

Bob is the Co-Founder, CEO/CIO of Colchis Capital and is responsible for all investment decisions made by Colchis Capital and oversees the daily administration of the Firm. Prior to Colchis, Bob spent twelve years as a Senior Partner with McKinsey & Co. as part of their global strategy consulting group, and six years as Managing Director and Global Head of Technology, non-Japan Asia and Israel Investment Banking with Credit Suisse First Boston. Further experience includes three years as CFO and Board Member of Indigo, a Dutch/Israeli Printing Equipment Company, and eight years as a Private Equity/Venture Capital Investor and Senior Partner with Sienna Ventures. In addition, Bob has served on Boards of private and public US, Chinese and European Companies and is an active business and financial advisor to companies throughout the world.
Education: B.S. and M.S. in Physics from Georgia Institute of Technology, MBA from Harvard Business School

Q1. Please describe your investment philosophy, your firm history and how you invest.

Colchis has been early to capitalize on macroeconomic trends and has launched multiple investment strategies and funds over the last 15 years that has taken advantage of periods of economic uncertainty. Every strategy during the life of its investments has made money for our investors going back to December 2006.

We believe the firm’s competitive advantage lies in our ability to leverage technology, big data, fundamental credit analysis, and our unique real estate experience having invested in real estate since 2006 and having developed our own property management company. Our investment philosophy is always focused on downside risk and to not lose money. We have always invested alongside our investors and seek to do what is best for our investors.

 

Q2. How have you found your investment ideas and how your focused sectors had shifted overtime?

During periods of macro dislocations, we seek opportunities where we can invest thematically. Over the years we have invested successfully in several thematic investments as our historical timeline shows.

We are currently excited about the Residential Bridge Loan arena due to the shortage of supply of single family housing in the use and growth in demand by the millennial generation, the largest population in the US. Growth in single family housing market is positioned to grow by 30% by 2025. This growth is only accelerated by Covid where households are seeking more space away from dense urban centers.

 

Q3. Please let us know where you find investment opportunities today. What do you think of the impacts of COVID-19, how do you find sustainable investments, what are the risks you wish to avoid?

We use a variety of outside sources that are utilized in generating investment ideas, which are largely unpaid services. Outside sources used include: news and research reports from sources such as John Burns Consulting, Attom Data, ClearCapital, various Wall Street firms such as Morgan Stanley, Deutsche Bank, Goldman Sachs, publicly available government macro data from the Federal Reserve, FEMA and local real estate agencies but also from market intelligence derived from conversations with companies, industry participants, service providers and other investors. The combination of both quantitative and qualitative analysis helps Colchis create a mosaic of the changing industry landscape and trends to formulate the right approach to investing.

An idea has generally been researched by the Investment Team and presented to investment committee in context of a loan purchase program with a counterparty that we believe is best-in-class in the specific asset or industry. Thereafter, continuous credit analysis is done on a daily basis as we continue to accumulate loans in the position to constantly re-test our investment thesis to ensure it still holds true.

The outlook on the single-family housing market has become stronger as remote work becomes more accepted and consumers look to homes with outdoor space in suburban areas over apartments in densely-populated cities. We focus on refurbishing older homes rather and investing in home appliances that save energy/water/gas. We are seeking ways to track these various green energy metrics. We are identifying and investing in homes that we believe make good long term steady rental income generating assets instead of investing in homes where we believe it may be more speculative based on projections of high growth prices or dramatic increase in rents. We are avoiding areas that have had speculative buying and volatility over the years.

 

Q4. Please explain why you have decided to be a CIO.

During my early years of investing with a variety of hedge funds and working with wealth managers, I found that they were more focused on their business and gathering assets with very broad mandates that served their purpose more than my interests. As a result of this experience I decided to start Colchis Capital with the dominant theme of putting investor interests first above all other considerations and always investing a large portion of our family capital alongside investors. I feel like this is the best way to first and foremost preserve and grow capital for ourselves and our investors.

 

Q5. What is your belief as a CIO? What do you try to achieve and what would you never do?

First and foremost we are fiduciaries of our investors’ capital and put investor interests before all other things. Importantly we have built a culture at Colchis that supports this objective. Our investment objectives are to preserve capital first and deliver superior risk adjusted returns while minimizing volatility. We are attracted to niche credit and real estate strategies with a large amount of downside risk mitigation and we seek to use technology to give our funds a competitive and sustainable edge in the market. In the last ten years we have increased our focus on strategies that benefit consumers and the environment as illustrated by our credit income strategy that helped consumers reduce their cost of borrowing while providing good risk adjusted returns to our investors and our real estate investments that aim to upgrade the existing housing stock in the United States that is expected to have a severe housing shortage for at least the next five to ten years.

Two current examples of the strategies we are actively pursuing include:
- Launching the residential bridge loan strategy that purchases short duration bridge loans made to entrepreneurs and small businesses for the purchase and renovation of existing housing stock in the US taking advantage of the investment skills built up over the last several years in purchasing over $700 MM of these loans with a cumulative default of 4 basis points.
- Managing the real properties income strategy that purchases existing homes in high quality neighborhoods in the Midwest, renovating, leasing and managing them for current income and long term capital gain.

In both these cases, Colchis has built its own proprietary technology using Mega-Data sets, Machine Learning and Artificial Intelligence along with commercially available software, systems and data to select the best geographic areas and individual homes or loans that will optimize the risk adjusted returns for investors.
We would never reach for returns by comprising investment/credit quality or engage in an irresponsible use of leverage.

 

Q6. How best would you protect clients assets?

We identify attractive investment opportunities given the changing environmental situations and then we build an investment approach with clear parameters and risk and return objectives. We share these with investors and report performance regularly. We believe in full transparency and communicate regularly with our investors. When the investment thesis has run its course or the risk adjusted returns no longer meet our objectives, we return capital to investors and identify new investment strategies where we can build a competitive advantage and form new investment vehicles to pursue those. We have done this several times in our 15 year history.

- First, in recognizing the subprime mortgage excesses in 2006 and launching a fund to short the junior bonds in late vintage subprime securitizations. This fund was closed and capital distributed to investors in 2009 at an average of 5.7X gain on invested capital.
- Second, in 2008-2009, purchasing the distressed senior bonds in early vintage pay option arm securitizations. This fund was closed and capital distributed back to investors in January 2011 at an average gain of 1.7X invested capital.
- Third, recognizing the stress in the banking system in 2011 that caused banks to abandon lending to a large segment of consumers, launching a credit fund to purchase prime consumer loans originated by the early leaders in online direct lending. With spreads compressing and our view of long term stress in consumer loans as a result of the Covid pandemic, we ceased our investing activities in the funds in March 2020 and are in the process of returning capital to investors.

 

Q7. Please recommend your favorite books on investments, and the reasons you favor them.

- Intelligent Investor and other books by: Benjamin Grantham because of its emphasis on value investing and risk mitigation

- The Black Swan: Nassim Niholas Taleb because it emphasizes the risks of unpredictable events and the value of diversification

- End the Fed: Ron Paul because it provides insights into the power of the Federal Reserve and other central banking systems

- The Big Short: Michael Lewis because it describes how the financial system is susceptible to a catastrophic single point of systemic risk

- Deep Medicine: Eric Tropol because it describes the impact and limitations that the application of machine learning and artificial intelligence can have on complex systems

- On Impact – Guide to the Impact Revolution: Sir Ronald Cohen because it demonstrates changes needed in investing to recognize change in world order. The book incorporates social and environmental impact as a key consideration in the way we think, make decisions, and act.

Company profileInterview

Colchis Capital, headquartered in San Francisco, CA, is an alternative asset management firm focused on private credit, real estate and venture investing leveraging technology, big data, and proprietary credit analysis with a focus in the fintech ecosystem.

Colchis has been early to capitalize on macroeconomic trends and has launched multiple investment strategies and funds over the last 15 years that has taken advantage of periods of economic uncertainty. Every strategy during the life of its investments has made money for our investors going back to December 2006.

Colchis Capital has a proven track record in RE Credit going back to 2006. One of the first institutional investors in the real estate bridge lending fintech oriented arena, Colchis has invested over $700 million in secured US real estate bridge loans with minimal loss (4bp) and has participated in the residential bridge loan market for over the last 5 years.  Colchis ingests property level data, overlays machine learning and decision tree analytics to select high quality assets in real estate bridge lending.

Strategy

Colchis recently seeks to generate stable, durable income from investing in short duration, self-amortizing loans and credit products in residential real estate. Colchis' team makes tactical decisions regarding investments across counterparties and makes loan selection decisions using their own proprietary credit model and asset selection models to meet its risk adjusted return target while seeking to reduce volatility through diversification.

The team leverages insights from their proprietary captive single family real estate operations, proprietary technology focused on normalized geospatial data on individual properties across the U.S., and thorough analysis of proprietary longitudinal data set of loan origination and performance data of real estate credit to optimize the portfolio.

(New) Robert Conrads

September 25, 2020
by Investment and Research Team