- Private equity will continue robust
- “What is the worst-case scenario?” helps guide investments
- Invests in healthcare, energy, ride-sharing, AI
Christopher Zook is chairman of CAZ Investments, a Texas multifamily office. He previously managed portfolios for wealthy individuals and institutions at Zook Group, part of CIBC Oppenheimer.
Zook started CAZ Investments with a capital pool from Texas families in 2001. Through a mix of investment strategies, CAZ managed $956 million as of Dec. 31, 2017. The firm invests in public and private markets. In its PE portfolio, CAZ makes direct and co-investments. It also invests with private equity firms.
What are your themes for 2018?
We believe that demand for private equity will continue to be robust. As an example, U.S. pension funds are underfunded by almost $6 trillion and private equity can help them achieve their actuarial assumptions.
In a low-interest-rate environment, combined with a very expensive stock market, it is hard for institutional investors to believe they are going to get the returns they need from a traditional stock and bond allocation. They are going to be forced to accept less liquidity on a portion of their portfolio in order to deliver the results their plans are going to require.
The reduction in the U.S. corporate tax and the opportunity for capital to be repatriated to the U.S. will lead to record mergers and acquisitions in the next few years. Those managers who focus on announced transactions will have the opportunity to deliver good, consistent, returns without taking undue risks.
Marketplace lending and other forms of private debt will continue to rise. Cash flow continues to be difficult to obtain from traditional fixed income. Investors will likely continue to pursue new avenues to generate the yield they are looking for.
We think the growing Hispanic population will increase demand for new products and services that cater to their styles and tastes.
One easy example would be how they are a major media buyer and enjoy the music and art of their heritage. That need is not met, in a significant way, by traditional media sources. Another would be how real estate will continue to be a growth area for this segment of the population as they continue to increase their home purchases, etc.
There will be a suite of companies that will address these consumption patterns, and we want to invest in those businesses.
Which sectors interest you?
Energy and healthcare investing are big for us — they are such long-term secular trends. Technology is also a sector that requires significant attention, as is transportation. Cloud-based computing, cybersecurity and artificial intelligence are all interesting sectors for us as they are literally changing the way we all operate on a daily basis. In transportation, we think ride-sharing is set to grow dramatically over the next decade. We have invested in Didi Chuxing in China, Lyft here in the U.S., and Grab in southeast Asia.
We have a philosophy that we will invest in anything, anywhere, at any time. That provides us with the ability to pursue opportunities wherever they exist, with the ability to stay very patient until we find truly unique situations. We have investments on every continent except for Antarctica.
What is your investment philosophy?
We approach investments with a simple philosophy. “Is the wind in our face? Or is the wind at our back?” Ultimately, investors can make money in spite of headwinds, but there is less margin for error and it is an uphill battle. As thematic investors, we really prefer to have a tailwind that will allow us to benefit from the trend, along with the skill brought forth by the management team that we are partners with.
When it comes to risk we have a very simple philosophy, “What is the worst-case scenario?” We obsess on that question. If we can live with the worst-case scenario, the upside will take care of itself. To be clear, we don’t mind risk, we just have to be convinced that we are going to be paid extremely well for taking on the downside.
Ultimately, investing doesn’t have to be complicated. We look for situations that line up well with our world view — where someone has found a need, has a well-thought out plan to fill that need, and will be paid very well for doing so. Our mantra internally is, “find a need, fill the need, get paid…” That permeates our thought process.
How much time do you take to make investment decisions?
That depends. There was an opportunity that we turned around in 24 hours, and another that took a year of deliberations and due diligence. Usually, though, it is about three months. We will take as long as it takes for us to make an investment where we believe strongly that we have an edge.
Are there any family office communities you are part of? Why?
No, we are not part of any formal communities. That said, we are constantly in dialogue with a very large network of family offices, institutional investors and industry specialists. We love sharing ideas, challenging theses, and co-investing together.
We have the ability to write very large checks, which provides us with significant deal flow. That means we evaluate more than 500 potential investments a year, but we certainly don’t see every single opportunity. So, we are always searching for that unique situation, that takes advantage of a specific inefficiency in the market.