Invest Like the Best with Patrick O'Shaughnessy

Eric Mandelblatt - Investing in the Industrial Economy - [Invest Like the Best, EP. 266]

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Mar 1, 2022

Eric Mandelblatt, founder and CIO of Soroban Capital, shares his insights into the industrial economy, focusing on underappreciated sectors and the future of commodities like copper and nickel amid decarbonization. He explores the challenges and opportunities in energy markets and discusses the complexities of commodity investments influenced by geopolitical factors. Furthermore, he highlights the profitability potential of railroads and the importance of strategic mentorship in finance. This engaging conversation offers a fresh perspective on traditional investment approaches.

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INSIGHT

Hedge Fund Concentration

Hedge funds are overly concentrated in growth and tech sectors, with minimal exposure to energy and materials.
Soroban Capital differentiates itself with significant investments in these underrepresented sectors.

INSIGHT

Decline of Energy and Materials

Energy and materials sectors have significantly declined in market share over the past decade due to underperformance.
This decline stems from factors like excess capacity in China, the shale boom, and slow industrial production growth.

INSIGHT

Commodity Cycle Dynamics

Commodity cycles are driven by supply and demand dynamics, with long lead times for CapEx projects.
This cycle differs due to inelastic supply growth, influenced by decarbonization pressures and investor hesitancy.

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My guest today is Eric Mandelblatt, founder and CIO of Soroban Capital, a $10 billion investment firm. While many of my conversations focus on technology and emerging industries, Eric has deep roots investing in the industrial economy, which made this conversation a fun change of pace. We discuss why energy and materials represent such a small share of the market today, how the global push towards decarbonization could have massive impacts on the industrial economy moving forward, and how Eric evaluates this dynamic opportunity set. Please enjoy this deep-dive discussion with Eric Mandelblatt.

Editor’s note: This conversation was recorded on February 15, before last week's invasion of Ukraine.

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

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Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.

Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.

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Show Notes

[00:03:01] - [First question] - Soroban’s history and why Eric is qualified to discuss industrial and commodity sectors

[00:04:37] - Overview of what their portfolio looks like today

[00:05:49] - How much of the commodity exposed equity sectors are owned by hedge funds

[00:08:03] - The key history points that makes industrials more interesting today

[00:11:17] - Commodity cycles, what drives them, the role CAPEX plays and how this world works

[00:17:38] - Thoughts on natural demand and the societal push towards decarbonization

[00:22:32] - How deeply one needs to know commodities in order to hold them

[00:23:57] - Big categories to explore as decarbonization becomes more accessible to consumers and the lack of nuclear investing

[00:28:50] - The resurgence of industrial production in the US

[00:32:21] - Rail networks writ large and if we can expect new ones in the future

[00:36:17] - The market gap between rail and technology businesses

[00:41:38] - Commodities and the ways they differ from railroads

[00:43:47] - Comparing the differences between businesses within the commodity industry

[00:46:52] - Walkthrough of Alcoa’s business and how things like a carbon tax might affect an individual business

[00:52:55] - What is the portfolio manifestation of the fact it's impossible to forecast commodities historically

[00:56:08] - His view of the world in its current state and big things that matter

[01:00:25] - Thoughts on inflation as an investor in the commodity space

[01:01:42] - Utopian to dystopian takes on what growth looks like for the world

[01:04:28] - Juxtaposed positions in big tech against the industrial story

[01:08:45] - The kindest thing someone has ever done for him