Hudson Hill Capital — Eric Rosen Letter
My name is Eric Rosen and I am the founder of Hudson Hill Capital. My goal in founding the firm is to create something new, differentiated, and informed by my 30+ year career in private equity. Our plan is to use this forum to share our approach to investing and the philosophical underpinnings of our firm’s strategy.
I was fortunate in my career to have a front row seat for the birth and growth of the private equity industry. Out of college in 1983, I began working as an M&A analyst at Kidder, Peabody. At the time, I was exposed to leveraged buyout transactions (this was before the industry ascribed it a cleaner term — private equity), a small corner of the M&A ecosystem occupied by a few firms buying companies that were not fits for the public markets or corporate acquirers. One of Kidder’s clients with whom I worked closely then was Kohlberg Kravis & Roberts (KKR). At the time, KKR was a small firm with a big idea.
After graduating from Stanford Business School in 1987, I joined Onex Corporation, which had recently gone public on the Toronto Stock Exchange. At the time, Onex Corporation employed a particularly attractive approach to private equity — investing permanent capital off its public company balance sheet into private, middle market companies. Over my 16+ years at Onex I benefited from the approach by investing in North American middle market companies building franchises over a longer time period (9+ years on average). During my time at Onex, I think it’s fair to say I contributed in a small way to the development of the private equity industry as we now recognize it. At the same time, I also made great friends north and south of the Canadian border and am quite proud of the investments that we made.
I left Onex in 2005 to build a new control, direct investment platform for MSD Capital, the private investment firm created to invest Michael Dell’s family and endowment capital, as well as that of the MSD partners. I spent a decade at MSD, building out a great team and investing in a number of powerful franchises. I continue to believe that families possess a wonderful position within the world to nurture businesses through stable, permanent capital.
While deploying permanent capital at both Onex and MSD for nearly 30 years, the cottage leveraged buyout industry blossomed into a large, global industry. In my opinion, the evolution of private equity over the last decade moved the industry towards an asset management business model, one focused more on fundraising and fee gathering than pure business building investing. One needs to look no further than the handful of publicly listed GP structures to understand this shift. The desire on the part of these successful firms to raise the next, larger fund has created all sorts of incentives that ultimately conflict with superior investment returns. In the articles to follow, we’ll discuss these incentives more fully.
As I set out on Chapter III of my investing career, I sought to continue investing with a permanent capital approach and create a platform that serves a singular focus — -creating substantial businesses with sustainable franchise value. We feel the formula is simple, but rarely followed. Why? Because it’s difficult and at times it’s less lucrative in the short run. Less splashy. Less sexy. Quite simply, we seek to invest in companies benefiting from strong secular tailwinds that operate in large industries with attractive business models that we think can take market share from competitors over time. We seek partnerships with founders and management teams who own significant portions of their businesses and wish to remain large inside owners of their companies. We invest largely family office capital. Our capital partners share the same orientation around the power of alignment and duration. As a result, we can be flexible and adaptive — customizing our capital to the unique needs of each business.
We are building Hudson Hill to be the most management team-friendly investment platform available. Our goal is to become the partner of choice for business builders. We can invest over a very long time horizon. We can invest as a minority partner. We seek to build our management team partners into highly successful business leaders. We feel this is a unique approach in a world awash with traditional private equity capital looking for investment opportunities that fit into a more narrow, circumscribed box. We seek to differentiate ourselves not by our own brand or fundraising prowess, but rather by the franchises the managers of our businesses build.
We look forward to using this forum to relay some of our ideas with you. We’ll start with the core concepts which inform our firm’s strategy and style of investing, some of which may challenge widely held investment rules and principles you may be familiar with. Over time, though, we aim to publish insights that are worthy of your attention. In a world with no shortage of commentary, we look forward to the challenge.
Eric J. Rosen