Idea Brunch with George Hadjia of Bristlemoon Capital
Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview George Hadjia!
George is the Founder and Chief Investment Officer of Bristlemoon Capital, a Sydney-based global long/short fund that’s launching in mid-2024. Prior to Bristlemoon, George was a Partner and Research Analyst at Montaka Global Investments, and an Investment Analyst at Private Portfolio Managers. George is also active on Twitter (@GHadjia) and shares detailed ideas at bristlemoonresearch.com.
George, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Bristlemoon Capital?
Hi Edwin! Thanks for having me. My passion for investing started during high school when my dad and I would watch Inside Business every Sunday morning, an Australian business and investing TV program. But it was when I finished high school and read The Snowball, Alice Schroeder’s biography of Warren Buffett, that I knew without a doubt that I wanted to be an investor. There was never a consideration of any other career option. That book sent me down the path of reading every value investing book I could get my hands on. During my university studies, I did unpaid work experience 1-2 days a week at a Sydney-based investment firm called Private Portfolio Managers for a number of years, which converted into an investment analyst role when I graduated university.
My dream, however, was always to work in New York, so early in my career I reached out to dozens of New York-based funds. Just one replied. It wasn’t looking good, so I ended up printing off stacks of my resume and some research reports I’d written and flew to New York. I was running around Midtown delivering these documents to funds. Despite the long journey from Sydney to New York, I was having close to no success with getting through to these funds. Most of the time I was stopped at reception, stopped from proceeding to the fund’s office, and they instead directed me to drop off the documents to the mailroom in the basement. However, I did manage to get up to the office of Omega Advisors, Leon Cooperman’s hedge fund. I got chatting to a Partner there who put me in contact with one of his Australian mates, Andrew Macken, who was just about to start a hedge fund: Montaka Global Investments.
I met with Andy and he brought me on as the first analyst shortly after the fund launched in 2015. Three years in, I moved to New York where I helped start the fund’s New York office. I was based in New York for five years, before moving back to Australia in mid-2023 to start Bristlemoon Capital.
I had always wanted to start a fund of my own. I would say the goal of starting a fund stemmed from my desire to create a vehicle that would allow me to compound my own capital, and to have control over that process. I also wanted to build something. I wanted to create a firm where I could continue my compounding journey alongside smart, driven, admirable individuals. I’m incredibly lucky that I’ve found a career pursuit that I’m passionate about, and I’m the happiest when I’m analyzing businesses and picking stocks. Bristlemoon will hopefully serve as the platform for me to continue this pursuit for the rest of my life, and to do so around inspiring people.
The long/short equities space is very crowded and under increasing pressure over fees and performance. What are some of the ways Bristlemoon will differentiate itself from the crowd?
One thing I’d say is that despite being based in New York for five years, I chose not to launch Bristlemoon there. While the city no doubt has a ton of capital, there’s also a lot of competition. There are hundreds of hedge funds in Manhattan alone. Australia, on the other hand, still has large pools of capital but relatively less competition, particularly as it relates to global long/short strategies.
Our investment approach is fairly straightforward: we are looking for high-quality businesses that for one reason or another have been mispriced by the market. These are businesses that can reinvest a large chunk of their earnings back into the business at high incremental rates of return, and to do so sustainably for years to come. So we are basically looking for situations where we can underwrite a strong growth trajectory for a company’s free cash flow per share, and to do so with a relatively high degree of confidence. Investing in quality businesses, ones with some form of durable moat, helps us build conviction in the sustainability of that growth profile.
There are a few things I’d note where we might differ from other managers. I’m 33, which is a relatively young age to be launching a fund in Australia. I think starting out at a younger age is beneficial as we are hungry to prove ourselves as investors and have the energy to grind hard to find the best investment opportunities.
There are also benefits to being a manager with smaller amounts of capital. We can be nimble and opportunistic and can invest in relatively smaller companies that might be overlooked by mega funds, with their need to deploy many billions of capital imposing size constraints on what they can invest in. We are market cap agnostic and can invest across sectors and geographies. We pivot to where the opportunities are and are obsessed with producing the best possible returns. And we eat our own cooking. We will have all our investible wealth invested alongside clients in the funds, so producing strong risk-adjusted returns is our north star.
I’d say we also approach shorting differently from some other funds – we are not using funding shorts to gross up our longs. We don’t have a standing short book and we don’t target any sort of through-the-cycle net exposure. Rather we are opportunistic with our short book and flex it based on the opportunity set in front of us. Each short needs to stand up on its own and be capable of being a positive P&L contributor. Most of our time is spent on our long book where we can generate the most P&L dollars.
More broadly on the question of how we’re different, and it’s something we get asked a lot by prospective investors – it’s not a question with an answer that lends itself to brevity. What you’re really selling as a fund manager is superior judgment in underwriting business outcomes. That’s difficult to convey briefly and to answer it properly involves an exploration of a manager’s investment process. I think that’s a big reason why we have chosen to be relatively open and transparent with our investment research.
You are pretty open with sharing your research and ideas on Twitter, Substack, and podcasts. What benefits have you seen from sharing your ideas online and will you continue this after your fund is launched?
I took a view when mapping out the path to launching the fund that the benefits from a high level of transparency greatly outweighed closely guarding our IP. If I was to get into the shoes of a prospective investor who was meeting me for the first time, they’d want to assess my aptitude and whether I would be a good steward of their capital. The newsletter has been a way to fast-track that process of investor education and to do that at scale. It’s changed the nature of conversations with prospective investors as it has allowed them to read our analysis and get comfort that there’s a great deal of thought that sits behind each investment decision. We’ve been pleasantly surprised by the response to the newsletter and we’re now starting to get inbounds from investors looking to invest with us which is encouraging.
Another benefit of the newsletter is connecting with and building a network of sharp, like-minded investors to exchange insights and ideas. I’ve met some incredible people who have reached out after reading our research. This network has become incredibly valuable in terms of flagging incremental insights for stocks we’re interested in, idea generation, and receiving constructive pushback on our views.
We plan to continue writing the newsletter once the fund has launched. There is tremendous value in writing down an investment thesis and putting it in the public domain. By exposing our thoughts to public scrutiny, it forces us to think very deeply about our analysis and conclusions. We seek to only publish content if it is of the highest quality, so we plan to just keep chipping away at it and doing our best.
One sub-sector you’ve talked a lot about is dating apps and Match Group (NASDAQ: MTCH) specifically. Can you tell readers a little about the dating app landscape, the businesses, and your views on Match?
Absolutely. Match Group was the first company we published a report on, and subsequently I did a Business Breakdowns episode to discuss the business. If I can distill our thoughts down to one takeaway, it’s that dating apps are much harder to scale than what many investors appreciate. Anyone can start an app, but nowadays it is far more difficult and expensive to build user scale from scratch. If you look at the history of Tinder and Hinge, both of which started in 2012, they were scaling when the mobile dating app category was still nascent. It was novel and this created user interest that supported viral, low-cost, organic growth. Tinder’s CAC was next to nothing. You can’t do that today, and you certainly can’t recreate the college campus recruitment push Tinder used in its infancy.
You can think of it this way: Tinder and Hinge were able to achieve significant user scale due to a specific set of circumstances that can’t be recreated today. We love finding businesses that achieve scale due to irreplicable circumstances. Those businesses only achieved the scale they did because they were scaling during a fortuitous window in time that has since closed. How many globally scaled dating apps have been created in the past 5 years? None. And when you trace the history of scaled dating apps, it seems highly improbable that a scaled dating app that could rival Tinder and Hinge, Match’s two largest apps, will be forthcoming.
The problem with scaling a dating app these days is that you’re not benefiting from word-of-mouth growth with users entering the mobile dating app category for the first time. Rather you now need to steal users away from the big three incumbents: Tinder, Hinge, and Bumble. This would be terribly expensive to even attempt. The avenues for differentiation are also fairly narrow in this space unless you’re targeting a niche, and that by definition constrains these upstarts to a smaller market. Worse still, VCs are basically allergic to the dating app category because of the inherently high user churn rates, with people deleting and redownloading the apps as they enter and exit relationships.
Funding becomes a gating factor for that scaling process. You can’t monetize a dating app until you’ve reached a minimum level of user liquidity, and that’s likely to take years. Tinder and Hinge went for three years without any monetization of their apps. People forget that while Hinge is a wonderful asset today, it very likely would have gone bankrupt due to a lack of funding if Match hadn’t acquired it.
So while Match has problems with Tinder payers declining, there are discernable reasons for the decline and in our assessment there’s a path to stabilizing and growing the number of Tinder payers and users. The company trades on an almost 9% forward FCF yield and is aggressively buying back stock at a depressed multiple. We could be wrong, but we do view the opportunity as asymmetric as the low valuation protects on the downside but there’s upside potential from the Tinder product being refreshed, buyback accretion, App Store fee relief, and the potential for R&D and dating app portfolio optimization that could stem from Elliott’s involvement as an activist.