Dan Sundheim says D1 Capital manages about $25 billion, roughly two-thirds in private investments and about $10 billion in public holdings.
“the AUM is about 25 billion, about two-thirds private, $10 billion public.”
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Dan Sundheim
1 episodes · 23 quoted claims
Sundheim says private investments are hard to exit, a one-way door, while public-market positions can be sold at will, a two-way door.
“Obviously, private is a one-way door and public is a two-way door.”
In 2018, D1 gave every analyst candidate a case study asking whether they would hold Netflix or Spotify for five years.
“So we said, look at Netflix, look at Spotify. If you had to buy one of these businesses and hold them for five years, which one would it be and why?”
Sundheim says traditional media companies enabled Netflix's growth by selling it content, which Netflix then used to build a content flywheel.
“what happened here is the media companies enabled Netflix by selling them content.”
Sundheim says D1 sold Netflix too early after its media analysts left and he was focused elsewhere.
“we had transitions on our team and our media analysts left and I was focusing on other things.”
Sundheim says D1 typically hires analysts from private equity rather than other public-market funds, and teaches them stock picking.
“We typically hire from private equity. And because then they have the analytical skills, they understand accounting, they understand financial modeling, and then we can teach them the stock picking.”
D1 analysts keep weekly mock portfolios of the stocks they cover, and the results count toward their compensation.
“we take it very seriously. The mock portfolio actually goes into people's comp.”
Sundheim says that in early 2021 heavily shorted stocks rose about 400 percent in two weeks with no change in fundamentals, a scenario his risk framework had not anticipated.
“I've never had in my risk reward framework, nothing happens fundamentally in a stock goes up 400% in two weeks.”
Sundheim says D1 closed out its short positions at the worst moment of the 2021 squeeze to avoid risking the firm.
“we covered everything at the worst time. And I knew it was the worst time.”
After the GameStop episode D1 stopped short-selling for about a year before resuming.
“After GameStop, we took about a year off of short-selling. And then I re-engaged in short-selling.”
Sundheim says D1's shorts shifted from about eight concentrated positions to about 40 smaller ones, with short alpha as good or better.
“you can't be as big, but there's so many more mispriced stocks. that you can have 40 of them instead of having eight of them.”
Sundheim says D1 does not use derivatives, because they amount to leverage plus a view on implied volatility and require predicting timing.
“I really don't use derivatives at all. The problem with derivatives is like, look, at the end of the day when you break down what is a derivative, it's just leverage and implied volatility.”
Sundheim says Rolls-Royce had good jet-engine technology but was poorly managed and had signed unfavorable airline contracts before a new CEO turned it around.
“So Rolls Royce actually had good technology. It was just very, very poorly managed. And they signed a bunch of contracts with airlines that were very unfavorable.”
Sundheim cites 3M as a US turnaround that markets priced in quickly after a new CEO delivered a couple of good quarters.
“3M had been a horrible stock for a very long time. Wasn't well managed. New CEO comes in, puts up one or two good quarters.”
Sundheim says the European market opens at 3 a.m. Eastern time, depending on daylight saving time, which is why he wakes then.
“the European market opens, depending on daily savings time, opens at 3 a .m.”
Sundheim says Booking.com, then called Priceline, grew about 40 percent a year while trading at nine times earnings when he owned it.
“Booking .com, which was called Priceline back when I owned it. It was growing 40 % a year. And it traded at nine times earnings.”
Sundheim says Clean Harbors handles hazardous waste and owns most US hazardous-waste incinerators, which are hard to build more of.
“Clean Harbors, which I like a lot, which is they do hazardous waste, and they own the majority of the incinerators in the United States.”
Sundheim says US electricity demand was flat for 20 years and he expects about 4 percent annual growth over the next 20.
“electricity demand in the United States grew at 0 % for the last 20 years. And so if you think over the next 20 years, I think electricity demand will grow at 4%.”
Sundheim says D1 stopped investing in China about three years before the interview.
“Yeah, we stopped investing in China about three years ago. So, look, everything has a price, right?”
Sundheim says SpaceX may take a larger share of global telecommunications than expected and notes it bought spectrum from EchoStar.
“I think SpaceX will probably capture more of the global telecommunications market than people expect. You saw them buying Spectrum from Echo Star.”
Sundheim says D1 announced it would close its hedge fund at the end of the year, because returns fall as size grows, especially on the short side.
“We announced a few weeks ago that at the end of this year, we're going to be closing the hedge fund.”
Sundheim says D1's first private position was Lineage, a cold storage warehouse company he had owned personally since about 2010.
“I had taken a stake starting in like 2010 in a company called Lineage, which is a cold storage warehouse company that I rolled off of my personal balance sheet into the fund.”
Sundheim says he learned investing partly by reading every stock pitch on the website Value Investors Club.
“there's a website called Value Investors Club and like I just read everything that people pitched.”