Investment Sponsor Spotlight: Eagle Point Capital

Written By: Daniel Gleich

Key Points 

• Eagle Point Capital Funds invests in public and private companies through a committed fund. Their latest achievement – the hybrid fund – grants investors the opportunity to invest in a fund that owns both a public portfolio and private companies, thereby allowing them to curate a more diversified portfolio.
• Principal team members Matt Franz, Andrew Hakim, and Dan Shuart share a passion for the investment realm, implementing their enthusiasm into their company’s overall structure.
• They invest their own money alongside their clients, utilizing the adage, “Why would we recommend something we don’t own ourselves?” into their practice.

Eagle Point Capital and its sister company Eagle Point Capital Funds tie together to cultivate an attentive lineup for those seeking investment offerings. Eagle Point Capital, LLC is a registered investment advisor, working alongside clients solely investing in public markets. Eagle Point Capital Funds, LLC incorporates private sectors into their scope of opportunities. Let’s take a deeper dive into their firm and get a better understanding of their mission. 

Following the Fire in Their Belly

All the partners entered finance in a similar fashion: by formal educations in engineering, followed by a sudden spark of moxie. Towards the end of their college careers, they were “bit by the investing bug.” 

The numerical and quantitative aspects of investing came naturally, but it was the psychological part that rendered investing’s appeal. How businesses, or even the entire stock market, could swing wildly in any direction; the concept of putting down a dollar and baking in a potentially large margin of safety.  

Prior to the creation of Eagle Point Capital, Shuart worked in private equity, and Hakim as a consultant, eventually transferring to private equity as well. Franz was an options trader and quantitative analyst. These former positions gave them experience to develop Eagle Point Capital, allowing things to pan out with their distinctive and unique approach. 

What Makes an Ideal Client at Eagle Point Capital?

Generally, EPC is looking for candidates who possess what they refer to as a “business owner’s mindset.” These investors, aside from being largely interested in both public and private investments, consider their investments as businesses as opposed to daily changing numbers. Ideal investors are typically focused on the long-term. Their current investors range from only a few months old (through custodial accounts) to retirement age.  

The Ways for Investing with ECF

There are three primary types of investments Eagle Point Capital pursues, with some being more relevant to the public markets:

Compounders

These are usually rare investments that hold an identifiable and continual competitive advantage. They typically grant investors good returns on their capital. These businesses can retain cash and take their generated profits to reinvest back into their business to accrue the same high rates of return.

Legacy Moat & Returning Capital

Similarly to compounders, these also have a competitive advantage, but are generally more mature. Since they cannot retain cash that they produce to reinvest into their business, they distribute the cash, or return the rest of it to their shareholders. This is usually performed by way of dividends. They may also decide to repurchase shares, thereby decreasing the share count and increasing everyone’s ownership of said company. This provides a combination of growth and yielding. 

Special Situations

This occurs when a large corporation has an unrelated, smaller division which is spun off to shareholders into its own publicly traded company. These tend to be neglected business segments, which results in indiscriminate selling. Owners sell these to modify their portfolio and artificially drive down the price of this newly created stock. This method can allow a business to pursue growth that wasn’t accessible under the larger corporate umbrella.

Additionally, in Q4 2023 Eagle Point Capital Funds had the first close on their public-private fund. This long-term investment partnership is a unique investment offering since it provides exposure to investments in both public portfolios and private companies. The structure allows cash generated from private investments to be re-invested into the public portfolio, or additional private investments. The structure will behave like a mutual fund.

The newly created fund is in the process of purchasing land, where it will build and operate a franchised express car wash. The fund will also own a public portfolio. The group plans to replicate the approach across multiple car washes in competitively advantaged areas. The free cash flow from the car wash(es) will be deployed across the public market, through a tailor-made strategy designed by Hakim, Shuart, and Franz. The members of EPC are particularly passionate about this distinctive endeavor. 

Their Personal Investing Doctrine

Shuart acknowledges his admiration for Giverny Capital and creator Francois Rochon. They believe that all investors should take into consideration his “Rule of Three.” It states: One out of every three years, the stock market will experience a substantial correction of about 10% or more. One out of every three investments are likely to not work out as we expect. Lastly, in one out of every three years, we’re likely to underperform against some sort of benchmark. 

While they’re not saying this will necessarily happen in accordance with the number three, it’s meant to instill as a reminder that investing tends to be a more joyous experience for those who practice patience.  

Eagle Point Capital Funds holds so much faith that they invest all their money alongside their clients, causing them to share identical portfolios. The way their structure is set up, they earn little to nothing if they do not regularly perform to certain thresholds. Their motto: “Why would we recommend something we don’t own ourselves?” 

Common Mistakes Witnessed

The team at Eagle Point Capital Funds has watched some individuals invest impulsively without performing due diligence, or who choose to chase trends instead of considering what might harbor potential for longevity. It’s considered good practice to thoroughly research prospective investments. Shuart nods to history, studying financial panics and financial crises from as early as the 1900’s, allowing him to generally distinguish and understand their patterns. 

Potential Prosperity for the Years Ahead

Eagle Point Capital Funds aims to persistently offer solid alignment with their investors. They aspire to execute the same fundamental, successful approach for a long time to come. Their objective is to keep their strategy uncomplicated and ensure that their clients trust that they will make rational decisions with their money. 

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This content is for educational purposes only and is not an endorsement.