Generating Alpha Returns in Asymmetric Markets

Omiros, please introduce us to Brookstreet.

Brookstreet is a unique, commercially motivated and flexible Private Equity/Venture Capital (PEVC) investment group supporting companies which experience transformational growth. Our mission is to be the leading investor and partner for innovative, profitable, high-growth and extrovert small-cap (SME) out-performers. Based out of London (the bridge of the world), we outreach USA, Europe, the Middle East and Asia. We seek opportunities in asymmetric (emerging and developing) markets, and private deals, where we have a distinct competitive advantage to apply Anglo-Saxon models of growth and expansion. Currently, we are very active in Southeast Europe.

You talk about asymmetry. Please expand on this concept.

In public and developed markets information is easily accessible and available. This is why economists believe that the market is “always perfect”. The efficient-market hypothesis (EMH) in financial economics states that asset prices reflect all available information. A direct implication is that it is impossible to “beat the market” consistently on a risk-adjusted basis since market prices should only react to new information. The opposite is true in asymmetric markets where information is scarce and you need to do your own research. Asymmetric investing means the probability or outcome of trade has an imbalanced profit/loss potential, depending on your preparation. In effect, for us, we believe the upside potential could be greater than the downside loss if you are able to read the market and the company with diligence. The opposite is true if you rely on materials that are sponsored by the vendors, consultants and brokers. In effect, you need to be a market maker to gain a ‘supernormal’ α (alpha) profit.

What does asymmetry mean in a private equity and venture capital setting?

It means that you need to invest time and money to originate your own proprietary deals around investment themes that you develop in-house and then shape the market.  Some invest randomly in spray-and-pray portfolio models, typically following trends, losing money in 99 deals to find 1 (hopeful) unicorn that will pay for all the losses they incurred. Others tend to invest and flip, making returns by leveraged buyouts (financial engineering) that do not necessarily have a commercial impact.  Meanwhile, a lot of firms are run by families that are concerned more about their control than the company’s growth. These issues create market bubbles based on superficial valuations (in VC), and unhealthy, leveraged, companies (in PE). The industry is built around the mega LPs (pensions, sovereigns) which care more about capital allocation than performance.  None of that is true to the vision of George Frédéric Doriot (the founder of Venture Capital) who believed that you should invest in situations where you have a clear competitive advantage doing (asymmetric) trades in deals that no one else can do by institutional limitation (banks cannot finance) or understanding (complex concepts for angels).

Asymmetric investing means the probability or outcome of trade has an imbalanced profit/loss potential, depending on your preparation.

Where do you invest these days?

We are a thematic investor; we develop concepts and go after the best firms and markets we can find in these ‘target’ areas. It takes a long time to identify them, meet them, understand them and convince them to partner with us. Then, we scale them up and position them for exit e.g. the perfect next-stage buyer with maximum synergies. We see the world as a global market of opportunity. We try to avoid the bubbles of mature ecosystems where the competitive advantage has been lost, albeit liquidity is high. We go to markets where we have the right team, in the right place, at the right time, to mine the ecosystem under-the-radar and then strike when the iron is hot.

Which markets do you invest in?

We like markets and situations that have an asymmetric capital ecosystem either because i) other funds have their hands tied by limitations of their LPs (type, situation, size, instrument), ii) the banks are not liquid (systemic issues), and iii) the market is experiencing a perfect storm. These situations are where we have an asymmetric advantage for a brief period of time. We enter just before the U-turn and by the time we complete the composition of our portfolio, we are experiencing a market recovery where everyone joins “the game”     at this time, we are ready to sell. A perfect example of this is Greece at the moment.

Who else invests in this market at the moment.

Greek investments started, both for Funds (KKR, CVC, Brevan Howard, Third Point) and Corporates (Philip Morris, Tesla, Ticketmaster, Samsung, Daimler, Puig) supported by pioneers like Elon Musk, Daniel Loeb and Bob Diamond. Landmark deals are happening under the radar. Our Partners were involved in the No 1 cross-border sale of a Greek innovator to the leading American, NYSE listed firm in the sector (Tickethour to Ticketmaster, Livenation). The country exited the EU’s austerity programme on the 20th of August 2018. EU’s Moscovici highlighted that “investors can now trust Greece”. This is creating a flow of international investors in Greece and it is creating that U-turn momentum we talked about earlier.

What is your process?

We are heavily hands-on with our portfolio, not just when it comes to the Board and Strategy, but also in relation to providing structure, people and processes and getting our hands dirty on all aspects of the business. Our deal flow process is based on analysis and primary research (site visits, supply chain interviews, management/owner discussions). We do not use brokers. We aim to understand, first hand, the motivations of each stakeholder. We research the best ideas and utilise in-house expertise in financial and commercial analysis. We have a complete end-to-end process starting with proprietary origination, moving to detailed due diligence (financial, commercial and operational), an investment committee with internal and external members, and then a portfolio support platform which monitors progress, risk management and exit reviews.

We have a pragmatic and commercial DNA.

What is your criteria?

Brookstreet’s deal criteria include scalability potential, fundamental growth, management team quality, and a clear value creation and realisation (exit) plan.

Do you have a specific advantage?

We work very hard to develop deep and trusted relationships with our portfolio, by being commercially active and fighting their corner. We have taken great care to compile a platform of talent and tools which includes “magic circle” suppliers (MOFO, KWM, Goodwin), a first-class administrator (Alter Domus), bankers world-wide, budge-bracket deal makers, McKinsey-alumni, unicorn founders, Chairmen of Banks, Funds, Big 4, Corporates and extraordinary leaders from all walks of life (Sports, Media, Business) that support our portfolio CEOs with pearls of wisdom, global resources and networks.

What makes you unique?

We are 100% private, so we do not have institutional limitations artificially imposed on us. Therefore, we can structure any deal we like with instruments that are suitable for the cause. We have a hands-on team that goes deep into scaling up reforms and we have an exclusive proprietary model of origination. Above all, we have a pragmatic and commercial DNA and we like to get deeply involved in the operations of a business in order to improve its processes. Brookstreet offers the only dedicated international small-cap fund focusing on offering both equity capital and commercial support together with an international platform with a clear relocation and exit strategy.

Tell us about your recent investments.

We invest in innovative leaders and national champions that can transform into global players. Our companies are exporting products and services in over 80 countries worldwide and are growing by up to 400% a year in their respective fields.

Terracom is a globally-installed software technology firm which has developed the Quick Response Patrol (QRP), integrated security workforce management cloud-based software-as-a-service platform. QRP’s clientele includes Ivy league universities (Yale), police forces (British Transport Police), security firms (GS4), hospitality chains (Hilton, Marriot), aviation providers (Emirates) and airports (Heathrow), to name but a few. Security workforce management is a multi-billion-dollar market growing exponentially. Our funds will drive business expansion and best-in-class product development using artificial intelligence (AI), machine learning (ML) and augmented reality (AR) technologies.

Gizelis Robotics (GRobotics) was established in order to offer state-of-the-art automation solutions to the Industry 4.0 market (estimated to reach $150+ billion by 2022), with vertical applications in pharmaceutical, agricultural, food construction, chemical and logistics industries. GRobotics brings to market innovative Robot-as-a-Service solutions which are a game-changer and is expected to grow 4x by the end of the year.  They just won the Gold 2019 Manufacturing Excellence Award for designing an end-to-end, fully-automated, smart 4.0 factory.

We bridge the gap between domestic expertise and global networks, best-in-class people and processes and hands-on management.

NanoPhos is a nanotechnology performance coatings manufacturer which innovates and develops smart materials (e.g. thermal insulation for buildings, performance enhancement for photovoltaic panels, anti-drift for ships, antibacterial protection for hospitals, anti-corrosion and anti-fouling for maritime uses).  NanoPhos has received over 15 awards to date, for Innovation (Bill Gates, GAIA Dubai, Artibat France, UKTI Award in European Business), Exports (Shanghai World Expo) and Technical Achievements (Green Award, Lloyd’s List Greek Shipping Awards).  Clients include some of the most prestigious Shipping Firms, Palaces, Museums and 7-star hotels.

It is our vision, that the aforementioned assets can also be used together – imagine a smart city project built with NanoPhos materials, using Industry 4.0 automation by Gizelis and security managed by Terracom.

How does the market perceive you?

Brookstreet’s commercially-driven offering is unique in the region (pure-play private equity, active support on a day-to-day basis). For investors, we offer a differentiated asset-class (operational PE in the last U-turn market in Europe) with professional standards. Our target audience is profitable firms that do not want (just) financing but international, commercial and financial partners. We bridge the gap between domestic expertise and global networks, best-in-class people and processes and hands-on management.

Moving from Brookstreet to you – tell us a little bit about you.

Coming from a line of Greek Minor Asian entrepreneurs, I admired the art of deal-making and entrepreneurial leadership from an early age. I worked at my father’s factory from the age of 13 and started investing in the stock market at 16 and venture capital at 20. I went to international schools and then continued my studies in England and America. I was fortunate enough to have parental support to start with but I’ve also supported myself through scholarships, grants and studentships. I then gained experience in the dynamic industries of management consulting, M&A and investments and worked around the world, including cities like London, Zurich and New York.

You are a Liveryman of the City of London. What is the Livery?

The Livery companies of the City of London comprise London’s ancient and modern trade associations and guilds. Liverymen retain voting rights for the senior civic offices, such as the Lord Mayor, Sheriffs and City of London Corporation. It is an ancient municipal authority with extensive local government powers.

How did you end up in the Livery?  

Being in M&A, I was nominated to the Worshipful Company of International Bankers (WCIB). Liverymen of the Worshipful Company of International Bankers include former Lord Mayors and Bank Chairmen such as Sir Roger Gifford, Peter Estlin, the late Sir Brian Pitman, Sir William Pures (CBE, DSO), Sir Paul Newall (TD, DL) and the late Lord George of St Tudy. Lord Mayor Peter Estlin, who was the Master of WCIB back then, kindly nominated to spearhead a Committee as Chair – a role I currently serve.

Business-wise, I am most proud of our people.

Did you come from a privileged background?

I was the first of my family to have an international education and career, but my parents taught me the value of hard work, setting goals and making sacrifices to achieve them. Great lessons for life.

Are you involved in the community?

In the UK, I channel my efforts via the Livery, where I serve as Events Chair and Head of the Charity and Education activities for our prizes at 20+ universities and our nation-wide Lombard Prize competition. Internationally, we currently act as Corporate Ambassador for The Hellenic Initiative (THI) economic revitalisation movement in Europe and America (which includes people from Bill Clinton to Princess Tatyana). Where possible, I act as a coach or judge for PE/VC summits (e.g. Wharton’s Private Equity Case, UC Berkeley Global Social Venture Capital Competition, UNC’s Venture Capital International Competition) and support female leadership for the Global International Women Awards (GIWA). I also mentor the Lord Mayor’s Mansion House Scholars and act as EIR for Harvard Alumni Entrepreneurs (HAE).

Do you have a daily habit?

A Greek proverb says, νους υγιής εν σώματι υγιεί, which means ‘healthy mind, healthy body’. I try to get some exercise (even if it’s a brief walk in the park) early in the morning and learn something new every night.

What motivates you?

I am amazed and inspired every day by the developments of our portfolio CEOs, the success of my partners and the amazing achievements of my Brookstreet colleagues who give it their 101% on a daily basis.

What are you most proud of?

Business-wise, I am most proud of our people. A lot of my former employers, colleagues, clients and advisers have joined us either as investors or as a part of the team. It is a vote of confidence that I value deeply, and I am here to serve them with a duty of care. On a personal level, I admire the social values of the younger generation (through the eyes of people like Greta Thunberg and my daughter Anastasia), and the strength of working mothers (including my own, and my wife, Tatyana, who is an extremely successful real estate investor in her own right) and females around the world who stand up for their rights (the #MeToo movement). I am also very inspired by social impact and entrepreneurs that create wealth through “good business”. The first mission of Harvard Business School was quoted as “to educate leaders who make a decent profit—decently” and in the WCIB Livery we have the code of business ethics of “Lord George Principles” which we follow at Brookstreet and in our lives. I am extremely grateful for the role models that surround us and the values that inspire us.