Idea Brunch with Vincent Lo of Kathmandu Capital
Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Vincent Lo!
Vincent is currently the chief investment officer of Kathmandu Capital, a value-oriented, small- to mid-cap-focused, concentrated global equity hedge fund founded in October 2022. Before launching Kathmandu, Vincent worked as an equity analyst at Irvine Company and was an associate at Ladenburg Thalmann. He is a second-year student in Columbia Business School's MBA Value Investing Program and a CFA charterholder.
Vincent, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background, why you decided to launch your fund, and the story behind the name Kathmandu Capital?
I grew up following my mother to the local stock brokerage in Taiwan, which sparked my early fascination with investing. When my family moved to the U.S. at the age of 14, my mother opened a brokerage account for me as a welcome gift. Without speaking a word of English, I began investing independently, teaching myself the language by reading 10-Ks and 10-Qs.
Shortly after, the Global Financial Crisis struck, nearly wiping out my portfolio. It was a humbling yet invaluable lesson as it helped me understand the importance of identifying undervalued assets with high margins of safety over succumbing to speculative trends and market noises. This experience introduced me to the principles of value investing, which resonated deeply with my personality and shaped who I am as an investor and human being.
The crisis also brought my family to the brink of bankruptcy. Following the advice of a real estate agent and investor, we placed the last of our hopes in the distressed real estate market. This decision allowed me to witness firsthand the power of compound interest, as it later financed both my sister’s and my college education. More importantly, it instilled in me a profound respect for fiduciary duty in any profession and the sacred responsibility investors bear in stewarding capital responsibly.
My journey to Wall Street was far from smooth. Coming from a non-target school, I faced a family emergency that disrupted my early recruiting efforts. But determined to break into the industry, I took two-year-long career gaps to immerse myself in investing, including an internship at First Pacific Advisors while living off the McDonald’s dollar menu.
At my lowest point during the job search, I traveled alone to Kathmandu, Nepal, and secluded myself in a temple to reflect deeply on my life and its purpose. It was there that I realized how profoundly investing had shaped my life and made a solemn vow to establish a hedge fund that would prioritize investor interests and embody the timeless principles of value investing.
After I came back from Nepal, I worked 80-hour weeks as a management consultant, completed my CFA exams, and managed two investing-related side jobs. After enduring 1,200 rejections, I finally broke into the sell-side, working alongside a top Wall Street analyst covering the cannabis industry. I later transitioned to the buy-side, joining a real estate billionaire’s family office as an equity analyst. Six years after my journey to Nepal, Kathmandu Capital was born.
Looking back, the capacity to suffer has shaped who we are as investors and played a critical role in developing Kathmandu Capital’s patient, long-term focus.
Can you tell us a little more about your research and investment process? What makes you different than other funds?
Our investment approach is defined by a deep comfort level with companies or markets often overlooked or avoided by investors due to biases or misunderstandings. Our process is underpinned by rigorous due diligence, local insights, and a flexible mindset that enables us to think broadly about opportunities rather than restricting ourselves to a specific style box or investment framework, even though we identify ourselves as value investors.
Strategically, we target inefficiencies in small and mid-cap companies and unconventional markets that are often overlooked or under-resourced by larger institutions due to mandate or liquidity constraints.
Behaviorally, our strength lies in competing primarily against retail investors, achieving outperformance through the depth of our research and long-term focus. This enables us to uncover opportunities where others may perceive risk or succumb to biases. Our process emphasizes a deep understanding of businesses and robust downside protection. Through proprietary screeners, a consistent research framework, our expert networks, and historical case studies on industry or stock behavior, we ensure comprehensive knowledge and a repeatable investment process.
With a concentrated portfolio, we focus on maintaining at least a 3:1 payoff ratio and applying a highly selective process to identify the best investment based on fundamentals. Most importantly, we are driven by a mission rooted in integrity. Inspired by Buffett’s partnership model, we adopt a 0/6/25 fee structure and have invested all of my net worth alongside our partners, aiming to set a minimum bar built on integrity, transparency, and long-term value creation for the next generation of investors in the East. Our goal is to highlight the Western philosophy of long-term investing and the importance of fiduciary duty, introduce compelling opportunities from the East to Western investors, and bridge the gap in understanding of the hedge fund industry.
Two years into running your fund how has the launch been? What have been some of the positive surprises or unexpected challenges so far?
I am profoundly grateful and deeply humbled by the unwavering support of my investors. While we had an excellent first year, we have since faced a significant drawdown, underperforming our benchmark by a considerable margin. Despite this setback, I have not received a single question or expression of concern from any of our partners. On the contrary, during my quarterly communications with them, all of them reaffirmed their trust in me and their commitment to supporting the fund for as long as it exists.
The challenges we currently face are similar to those encountered by most startup fund managers—scaling up during the track record-building stage. I understand that many individual investors and institutions may be hesitant to invest with us at this point, particularly given our recent drawdown. That said, our portfolio is intentionally designed to experience periods of drawdowns, which, in our view, will be accompanied by the potential for even larger upswings.
Nevertheless, I see this challenge as a valuable learning opportunity. As my professor at Columbia Business School’s Value Investing Program, Shayan Mozaffar, wisely noted, the key to successful investing lies in achieving bigger average gains than losses, with downside risks being more manageable. This period offers an excellent chance for me to deepen my understanding of risk management, move beyond the traditional buy-and-hold or "catching the falling knife" value frameworks, and refine our approach to trade execution. I believe these lessons will yield immense benefits, enabling us to deliver the best possible returns for our partners in the long run.
Which international markets are most interesting to you today? How do you get comfortable with the management teams in developing countries?
Kazakhstan is a market that greatly interests us today. Its economic prospects are often mistakenly overshadowed by ongoing geopolitical tensions in the region. This misperception overlooks the country's strong economic fundamentals, with abundant reserves of oil, uranium, and other critical natural resources combined with a reform-minded central government., Kazakhstan has also emerged as a key trade corridor between Asia and Europe, catalyzed by regional conflicts. As Europe diversifies its natural resource dependencies away from Russia for national security reasons, and Asian countries seek new avenues for trade due to Russian sanctions, leading to our view that Kazakhstan's strategic importance is poised to grow significantly driving foreign interest and investment.
Southeast Asia is another region we find highly compelling. It boasts a large, young, and growing population, along with an expanding middle class, in contrast to many more developed neighboring countries grappling with aging populations. Over the next 10 to 20 years, as these aging economies become increasingly reliant on labor imports, we expect to see a significant uptick in labor mobility and income levels across Southeast Asia. In the short term, the decision by international companies to diversify their supply chains away from China, driven by rising geopolitical tensions, serves as a powerful catalyst for the region’s economic growth.
We rely on our research, data, and analysis of historical management decisions to guide our thinking, rather than placing undue reliance on conversations with management teams. While these discussions can provide valuable information, we remain cautious and avoid taking their statements at face value. Instead, we corroborate information using third-party data sources such as import statistics or web traffic and conduct field research by engaging local experts and customers who actively use the company’s products or services. Furthermore, we rigorously evaluate management teams’ historical capital allocation and strategic decisions to determine whether they prioritize investor interests and make sound choices to drive sustainable business growth, rather than throwing good money after bad.