opportunity investing

Williams and Callan worked together at Drexel, Burnham, Lambert in the mid 1980’s. During that period, they were exposed to evaluating and dissecting company balance sheets and business plans while working in the Private Client Group. During that period, America was experiencing a boom in deal financing, lead by Drexel, that focused primarily on using high yield bonds as leverage to purchase businesses by so-called corporate raiders. Drexel-financed debt typically had three covenants to protect bondholders: restrictions on dividends, change of control provisions, and debt to equity requirements.

HOF has used these covenants as guiding principles in determining in which companies to invest or to loan money. Our ability to assume control of a company should it be unable to meet its objectives is paramount to making an investment decision.

The Fund looks to take a bottom up approach to the business, and once we think we like the business, create the mechanism whereby HOF can take control if it is determined to be necessary to protect the partners’ investment. We tend not to focus on particular industries; however, we may overweight if we think a particular area has been oversold or overbought. In other words, we are opportunists and look to take advantage of turmoil in a given market, industry, or company.

In public investments, we look to companies that have a product or service that has barriers to entry. They need not be the market or industry leader, but have carved out a serious market share that would require competitors to expend significant time, effort, and money to unseat them from that competitive position.

Finally we look at management. While certainly celebrity managers have come and gone leaving destruction and bankruptcy in their wake, we do look for managers whose skill and leadership have the potential to take their companies to a different level. Conversely, in the case of a bankrupt or distressed company, if we see an investor, creditor, or debtor with experience in taking companies out of Chapter 11 and realizing recoveries for their other classes, we view that as an opportunity to co-invest alongside.