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Alternative Market Briefing

Prevatt Capital looks for moats

Monday, June 01, 2020

Bailey McCann, Opalesque New York for New Managers:

A new hedge fund from SAC Capital alum Jonathan Tepper is on the hunt for leaders. The long-only strategy, which launched in this month, looks for high-quality companies that have dominance in their industries. The fund runs a concentrated portfolio of under twenty long-term positions but may make opportunistic bets as market conditions warrant.

According to Tepper, the companies that make the best investments have significant barriers to entry as they are the most likely to withstand the age of disruption. These funds typically have few real competitors, run asset-light businesses, and have consistent free cash flow.

"The fund essentially grows out of the work that I've been doing over the last couple years, mapping out dominant companies in the distribution of stock market returns," Tepper says in an interview. Tepper is the author of several books on how dominant companies behave in free markets and what it means for their investment returns. His work at SAC and Bank of America also informs his trading strategy. "It became very clear to me that a few stocks drive almost all the returns and they are not in sectors of the economy that tend to destroy value." The fund invests globally in these hard to enter industries like freight or global logistics, where new entrants would have to spend years if not decades ......................

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