Sean Riskowitz
Sean Riskowitz

Sean Riskowitz, the CEO of listed insurance investment group Conduit Capital and a major backer of companies like Taste Holdings and Trustco, has been an enigma to the market. But Riskowitz, who runs Protea Asset Management out of the US as well as the Riskowitz Value Fund, is on a publicity blitz. The FM asked why he’s decided to go more public now.

We think that the investments we’ve made and the companies we invested in are doing cool things, [they’re] good for SA, employees and shareholders. But the dearth of information … in the media and commentary about us just got to the point where we asked: "Why is there such a misunderstanding?"

Sure, but you’ve taken very big bets on companies that not many people would back, like Taste or Trustco.

Trustco is a good example of a company that needs PR — we can’t control their PR messaging. But if you read through the annual report you can build a very strong investment case.

How did you start?

Tyrone Moodley and I started in 2007 as investors in listed companies in SA. We had started reading about investing as 16-year-old kids and the first thing we discovered was this idea of value investing — companies of high quality that are able to compound their underlying intrinsic value — and we grew from there. During university we went to interview at the big investment shops for analyst or intern positions and Tyrone and I came back from that process, independently, with the same conclusion: those are great businesses, but it’s a different kind of business model that we believed in. We [looked] for this type of long-term-orientated value investor and couldn’t find it. So we said this … must mean there is a big opportunity. Out of university we started Midbrook Lane.

Who backed you?

Friends, family and fools. We set out to raise R4m. Of course we raised R400,000. People said: "Come on, guys, you don’t know anything, you’re young." But we sort of just went from there. And as we started our business, we had some good successes and we started to gather some assets. Then in 2009 my green card was approved and the opportunity to go to America was too significant not to pursue. I would tell people what I was doing and they’d say: "This is really interesting … but we can’t invest as American citizens in Midbrook, so why not start a fund in the US?" So that was the Riskowitz Value Fund.

But how are you actually different to any investor?

We try to find companies that meet [certain] criteria. No 1: there must be an exceptional jockey. No 2 is the jockey and the horse. We only have six investments — Taste, Trustco, Calgro, Combined Motor Holdings, Finbond and Conduit. We’ve historically only ever ranged between five and 11 [because] the combination of great horse and jockey is rare. Third is runway: we always said we wanted to be shareholders forever. We’re more like a permanent owner of businesses in the public market.

If you don’t sell, how do you raise capital?

The advantage of the US market is it’s so big and it’s more open to alternative structures. The people on behalf of whom we invest are a very specific niche type of investment crowd. Also, we have a five-year rolling lock-in period. It’s a great filtering mechanism.

Is there vast well of untapped US capital wanting to invest in SA?

We have missed out on about R4bn in the past 18 months in our business. Not because of something wrong with the opportunities. They are not comfortable with expropriation without compensation. They say: "Explain it to us." They ask: "How do we know there’s a disincentive to doing bad things?"

The problem is major uncertainty. Everyone in America is bearish on SA because of the political situation, not because of anything else.

For about six years people have known that Eskom is on the brink — so they’ll ask: "What has been done about it?" And I can’t tell them. So they’ll say: "The government has no plan?" And I’ll say: "The government plans to split it into three parts." And they’ll ask: "What more is there?"

Foreign investors we talk to are relatively sophisticated and they look at who’s investing domestically. So you look at the stats and they’ll say: "Hang on, local investors are not investing." I think about the multiplier effects of that capital in SA: that’s jobs, that’s bigger companies, more companies, and it’s not coming.