Letter #243: Jamie Keenan (2024)
Partner at IGSB and Founder of Keenan Capital | Creating Value: Balancing the Short and Long Run
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Jamie Keenan is the Founder of Keenan Capital. Prior to starting Keenan Capital, Jamie was a Partner and Portfolio Manager at the Investment Group of Santa Barbara. Jamie started his career in investment banking at Montgomery Securities.
Today’s letter is the transcript of an interview with Jamie conducted by Leslie Jennings Rowley for Roads Taken (a podcast inspired by Robert Frost famous poem). In this interview, Jamie shares who he was when he was in college and who he thought he would become, whether he knew he was destined for the business world, meeting Reece Duca and Tim Bliss, recruiting for jobs, getting into investment banking, choosing a lesser known bank (Montgomery) over a better known one (Lehman) because he wanted to be on the West Coast vs East Coast, joining Reece and Tim and IGSB, immediately being handed a portfolio to manage at just 24 (if you recall lessons from Letter #137, IGSB gives new investors immediate responsibility), moving back from San Francisco to Santa Barbara and back to San Francisco, investing in retailers and consumer brands rather than tech throughout the tech bubble, how Dodd-Frank forced him (and the other IGSB PMs) to strike out on their own, starting his own fund and how it allows him to spend more time with family, some of his mistakes, the importance of taking long-term views, and more!
I hope you enjoy this conversation as much as I did! This was a particularly fun episode because Jamie is being interviewed by a college classmate, someone he’s known for decades, allowing him to open up more and share his candid thoughts on everything from school and work to life and family. We also get a few nuggets from his time at IGSB.
[Transcript and any errors are mine.]
IGSB
Transcript
Host: Today I'm here with Jamie Keenan, and we are going to talk about where we think we might go, getting there, not getting there, and getting places that we might not have been able to imagine. So Jamie, thanks so much for being with us today.
Jamie Keenan: Absolutely.
Host: So when I get together with my guests, I asked them two questions, and they are these: When we were in college, who were you? And when we were getting ready to leave, who did you think you would become?
Jamie Keenan: Great. All right. Starting out with when I was in college, who was I? I played club water polo all four years. I had an ambition to play tennis at Dartmouth, but quickly realized with a walk-on tryout that I wasn't good enough. So I pivoted and ended up playing club water polo, and had a fantastic experience doing that. Ended up being the president of the club the last couple years. I was a history major. Loved that major. It actually was interesting preparation to become an investor later--just kind of a similar research process. I love diving into topics and kind of creating an original history as--sort of progressed through the more advanced history classes and the papers were a little more original. And a French minor. I went, like so many people, studied abroad and had a wonderful experience in Leon, France, actually, with Doug Asano, and a number of other classmates. And then I was in AD, and I had a really good experience in my fraternity. It was just my last two years I was in AD, junior and senior year, and lived in the house, and some of my closest friends to this day are Alpha Delts.
Host: All right, so, history major, water polo. It's funny that you used the word "diving" kind of into topics. So there's a depth to history, and then this broadness--often like what, at least novices in water polo viewing, would say, there's a symmetry to that with your sport, that you had to kind of be broad and deep. Did you always think this is just an academic pursuit and I'm going to do something in the business world? Or what were your thoughts as you were kind of finishing up a history degree?
Jamie Keenan: Yeah, I had a very early interest in the business world, starting from, literally, when I was a kid. The primary reason for that is my dad is a real estate developer here in the Bay Area, and he sort of talked to me as an adult from very early on and brought me into his world. And I was fascinated by what he was doing. He was developing office buildings, partnering up with home building companies here in the Bay Area. And he was creating things. And then really got into the architecture of these creations. And so I was fascinated by that. And he had a really good friend, this guy, Reece Duca, who's a very talented investor and early venture capitalist from the 70s. And I was fascinated by what Reece did. So going into Dartmouth, even though I knew it was a liberal arts experience, I had a pretty strong notion that I'd end up in the business world. Where exactly, I didn't know. But I had that notion. Actually, I was in touch with Reece Duca while I was in college, and his partner Tim Bliss, about how could I possibly become a venture capitalist or an investor. And they didn't have great near term answers, but they did give me a reading list that focused on some of the great investors of the sort of modern era, including guys like Benjamin Graham and Phil Fisher, who were the two primary mentors of Warren Buffett--and then lots of reading on Warren Buffett. And so, again, I had this notion I wanted to potentially either get into the investment world or perhaps the real estate development world that my dad was in, but wasn't sure exactly how I'd get--particularly into the investment world. That's a harder nut to crack.
Host: Yeah. So did you take leave terms and internships to kind of investigate that early, or did you go a roundabout way to get in there?
Jamie Keenan: Yeah, I tried to track down an internship, in particular my junior year. I was pretty focused, starting between junior and senior year. It turns out it's really hard to find internships with investment partnerships, whether it's venture capital, public equity, private equity. Probably a little easier nowadays in private equity because it's become such a big industry. But I remember interviewing, actually, with a Dartmouth alum, a guy named Bob King, who is a very successful investor out here. And felt like the interview went well, but it was a partnership of five or six people, and so they just, they didn't do interns. It was more of an informational interview. So the suggestion I got from the good family friend, Reece Duca, was, Why don't you pursue investment banking or consulting? That might be a good avenue to at least launch your career, learn the language of finance, since I had no background as a history and French major. So that's where I focused my guns junior year into senior year. I had no clue about the corporate recruiting process. Actually, a good friend, John Cocoziello, who unfortunately passed away way too early, he was on top of that process. He probably was thinking about getting an investment banking job while he was in high school. And another good friend, Roger Vincent, also, was very much on top of the process. So through them, I learned the importance of internships and grades. Didn't realize that grades actually mattered when it came to getting a job. I thought grades were important for grad school, and I really had no intention of becoming a lawyer or a doctor, so I was more interested in having fun than focusing on my studies.
Host: Did you get the grades memo a little too late, or did you have enough time?
Jamie Keenan: Three of the four years were okay, but freshman year was not great in that department. So, yeah.
Host: We care about the trajectory, right?
Jamie Keenan: That's right, yeah. That was the story I pitched.
Host: Exactly, exactly. All right. So then you've got the taste of corporate recruiting internship. Now you're probably well versed, you have a bit of the language as we're leaving. Was that a successful pivot right after graduation?
Jamie Keenan: Yeah, so I was able to get a job with a regional investment bank located in San Francisco by the name of Montgomery Securities. And I was an analyst for a couple years. I worked in their retail and consumer product group, working with growth companies, typically earlier stage companies that were IPOing or potentially post-IPO but--in thinking about mergers and helping them with that kind of analysis. But it was an amazing learning experience. I did thoroughly learn the language of finance--and I met my wife there, which was a massive bonus.
Host: Yes, totally. And back home, right? So you're a West Coaster, Bay Area guy. Was that part of the calculation or just good luck?
Jamie Keenan: That was part of the calculation. I had an offer from Lehman Brothers, actually, in New York, and chose to go home. It actually was a little bit of a tough decision because so many of my fraternity brothers and classmates were moving to New York or Boston. But I just--I'm a softy West Coaster. I like the weather out here, I love the outdoors. And so I chose to come home. I also had a notion that I wanted to work with these growthier stage companies. That was more interesting to me than working with big established industrial or real estate companies or what have you. So that was interesting. It turned out to be really true. I mean, I've been investing in growth companies for the last 25 years now.
Host: Yeah. And that was the time to be in growth companies in Northern California, Silicon Valley, for sure. So you were never wooed away to the kind of tech side? It was always gonna be on this investment side?
Jamie Keenan: No, I was more interested in the sort of academic study of business rather than potentially getting into the operations. Yeah, so I didn't hear that call to go work for one of the notable companies around here.
Host: So when you were either at Montgomery or later, did--it seems like you had an early kind of homegrown MBA with your reading lists from your mentors and that sort of thing. Did you go onto that track? Or did you need it?
Jamie Keenan: So midway through my experience at Montgomery, the same man I mentioned earlier, Reece Duca and his partner Tim Bliss got in touch with me and said, We're thinking about hiring a couple younger guys, and we'd like you to come down and interview with us. That was music to my ears. It just worked out really well that their partnership had had a couple of big successes. They were inclined to hire a couple younger guys to continue investing their capital--they actually don't have any outside money--in the same manner that they had invested it over their career. And there was a very specific strategy. They weren't comfortable farming their money out. And so it was just very fortuitous that that timing worked out. I interviewed with Tim and Reece, ended up getting a job offer. And it was an unusual offer in that they gave me a fund to manage right from the get go. Age 24, I had two years of investment banking experience--I did not expect that. I was excited about it--I was also quite intimidated, because I'd done a little bit of investing on my own, but not much. Both of them feel you learn the investment process most thoroughly by being thrown into the deep end and having to make decisions right from the get go. So that was the offer I was given. And it took me about 9-12 months to actually put any capital to work and start actively investing. In that time, I was working very closely with Tim Bliss in particular, who I always describe as half professor, half investor. So I was super, super fortunate to have him as my primary mentor. Whenever I talk to folks that want to get into the investment business, I always tell them to focus 120% on the mentor you might work with, and discount how much money you might be offered, etc. Just find someone super talented that is a good teacher, and that'll take you a long way.
Host: Yeah. Wow. Great advice. I hadn't really heard it that way, but probably not just in investment. That's a really good strategy. Do I dare ask how did that first fund do on the short term or long term, or however you want to talk about it?
Jamie Keenan: Yeah, it was a really interesting time. So I started in October of '98 with Investment Group of Santa Barbara was the name of the partnership. I moved to Santa Barbara for the job, reluctantly, because my now wife was in San Francisco, as were all my friends and family.
Host: I've never heard anyone say reluctantly moved to Santa Barbara. But that's a different story.
Jamie Keenan: It's a sleepy town when you're 24. If you're in college, it's perfect. If you're 60 and retired, it's great too. In between, it's a little sleepy.
Host: Got it, got it.
Jamie Keenan: So I moved down there. Jeremiah Thompson, unfortunately another classmate who passed away way too early, was my roommate down there. He was in the theoretical physics PhD program at UCSB, which happens to be a top five program in the country. You'd never know it, but it is. So anyways, it took me a while to put some capital to work. And that was right in the middle of the dot bubble period, the dotcom bubble period. And it was confusing in that I had this background looking at growth retailers, consumer brands. I'd spent years sort of getting to know my dad's business, which was very like, fundamental-based real estate investing. And the dot bubble was something else. There were a lot of stories and not a lot of numbers that made sense. So the fortunate thing is, I didn't invest in any of the dotcoms, the pets.coms of the world that went public. And I ended up investing in the companies that I had covered at Montgomery Securities, which were growth retailers and consumer brands, like an Abercrombie & Fitch or a Children's Place or a K&G Men's Center--Decker's was another company I invested in, that owned the Teva, Simple, and Ugg brands. And these companies were super out of favor in that time period. So they were very cheap on a metrics basis--real metrics--cash flow and earnings that I could relate to and understand. When the dot bubble burst in the public markets--the NASDAQ was down like 38% in 2000--those companies revalued in a really meaningful. And so my fund did really well in 2000, 2001. It was up 30% in 2000 and 26% in 2001 when the NASDAQ--I was just looking at the stats last night--was down 39% in 2000 and 21% [in 2001]. So I got off to a really good start. And there were lots of lessons that I sort of learned through that period. There's so much psychology in investing. It's a huge part of the profession. And so just understanding these cycles of fear and greed--there's a lot of greed associated with the dot bubble. And then I don't know if it was fear--but there was a little bit of fear associated with, like, oldline retailers, as an example--ecommerce was going to take over the world, so why would you ever invest in a bricks and mortar based retailer? And sort of taking a contrarian view on what's happening ended up playing out really well those first couple years. So I was lucky and my career got off to a good start in the investment world.
Host: Yeah, so I think I know where we're gonna go. You're gonna start your own firm--something. Does that happen soon?
Jamie Keenan: No. I was with the Investment Group of Santa Barbara for almost 14 years, managing a partnership there, or a fund.
Host: Managing that--eking everything you can out of that mentorship relationship, because that's how you're growing. And then, though, there does come a day where you say, Huh, I wonder if I could do this? Is that how it happened?
Jamie Keenan: A little bit. But there was actually a regulatory change as a result of the Great Recession that forced that partnership to reorganize. So with the Dodd-Frank regulation, for one reason or another, they focused on family offices and what it is to be a family office. The Investment Group of Santa Barbara was technically a family office because there were no outside investors. But what had happened is, over the years, my family became a family. As I was sort of accumulating profits in my fund, I became a family within that partnership--and effectively, there were six families. And with the Dodd-Frank, they said, in order to stay within the family office exemption from SEC registration, it had to be a single family. I didn't intend to leave Investment Group of Santa Barbara--it was an amazing organization, great mentors. But with this regulatory change, there were three of us managing funds within the partnership, and all three of us spun out for slightly different reasons. But that was the catalyst. So I spun out--and initially--that was sort of early 2012--was continuing to invest my my own family's capital and thinking about what I wanted to do next. I primarily invested in public equities at Investment Group of Santa Barbara. I'd also done a few venture financings. So investments in private companies. I'd done a seed stage investment, so, very, very early stage investment. I'd invested in Facebook and Alibaba, which were very late stage private investments. And I wasn't sure if I wanted to focus on public equity investments or venture investments. I came to the conclusion that I'd focus a little more on public equity investments--I had more of a track record of success there. And then midway through 2012, decided I wanted to actually raise some outside capital and form my own partnership. So as part of that, I started working with a couple of folks that I thought might be interesting partners in that endeavor, and came to the conclusion that my now partner Sean Carroll was a really good fit. And so we got together in late 2012, then raised some outside money in early 2013--which I'd never done before. It was really challenging. It took a lot of time. And a few months into it, I sort of turned to Sean and said, We may not have a large fund to launch with, but whatever we have as of May, we're going to launch with, and we're going to stop spending so much time on trying to raise capital. Just focus 99% of our time on investing. So we launched with a $62mn fund. There were 11 outside investors. And that was the beginning of Keenan Capital.
Host: And that was 10?--
Jamie Keenan: 10 years ago. A little over 10 years ago. May of 2013, I think, is when we officially launched.
Host: Yeah. And has the size of the organization, like, who's investing with you and all those sorts of things, grown as well?
Jamie Keenan: Somewhat. It's still pretty small. So Sean is still with me. A guy named Kyle [Zipfay (ph)] joined us five years ago out of Stanford Business School. And then there's two other folks on the operational side of the fund. So it's just the five of us.
Host: Yeah, that makes sense. Because you said that you were really more attuned to the academic pursuit of this rather than the operational of either a business--external business--or, I can imagine, your own. Like, this is really about kind of--I don't mean this in a pejorative way, but like playing the game, rather than, like, setting up the board and doing all the stuff, right?
Jamie Keenan: Yeah, no, that's right. That's right. I enjoy the investment process a lot. I don't think I'd enjoy managing a large organization. And I certainly wouldn't enjoy being on a treadmill where I was really focused on raising lots of dollars. So we sort of relied on word of mouth capital raising, really. I always believe that in this business, the returns sort of attract capital more than any story you can pitch. You have to be very consistent about your process and your your story, but it's really about generating returns--and that's proven to be true in terms of attracting capital.
Host: Yeah. And where in this trajectory did you come back to the Bay Area?
Jamie Keenan: So that's interesting. 2001, actually, while I was still at Investment Group of Santa Barbara. My wife and I did the long distance thing for three years, and it was getting old. It's hard. So I was happy to move back to the Bay Area, close to friends and family, and just work remotely. I was an early remote worker--in the investment business, it's relatively easy to do that.
Host: And did that afford kind of more family time, either with your own nuclear family, and/or with your parent's family--your original family?
Jamie Keenan: For sure, for sure. Initially just with my own nuclear family, my wife's family, and our good friends. We had a really great community of friends that we'd sort of accumulated since graduation in the Bay Area. And so it was great to be close to those folks again. Big part of life, in my view. And then, just generally, the profession has afforded me lots of time with my kids. I feel very lucky in that though the market really never goes away, I control my hours. So I've been able to coach my kids' sports teams, which I've found really rewarding as an experience, and cook them breakfast most mornings, drive them to school, that kind of thing. So, yeah, I feel very lucky in that regard.
Host: Yeah. Do you think they would reflect back and say that dad opened up his business world to us, like we understand what he does, and kind of that--the underlying mechanisms kind of like your father did for you?
Jamie Keenan: I think so. I think so. My oldest son is a junior in high school. He's very curious, and so he'll ask lots of questions. And I try to bring him into my world a bit. And my younger son, to a certain extent as well, who's a freshman in high school. So they have some interest, and I don't know if either one of them will end up pursuing a career in investing--I think it takes pretty specific skillset and sort of innate psychological wiring, frankly, to deal with the ups and downs. So anyways, we'll see. We'll see where life takes them.
Host: Yeah. And as you said this is a lifestyle that affords you time, it seems--and you're somebody I can ask this because I don't know--but it seems like this is also something that you could do, dare I say, forever. Warren Buffett's still doing it, and it's been forever. So is that kind of how you see the next chapter? Like this is--it's going to be a continuation with this. It might grow or ebb or do these things, but this is kind of--this is it for now?
Jamie Keenan: Yeah, I think so. I had time to reflect on what I wanted to do next in between Investment Group of Santa Barbara and forming Keenan Capital. And I just frankly couldn't come up with something more interesting to do. So yeah, I suspect that I'll be investing until my faculties fail me. I really enjoy it. Maybe in a slightly different form. At some point I might not have outside investors in the partnership. But that sort of process of taking deep dives on companies and coming up with my own original mosaic of what I think is both happening and what might happen in the future--I really, really enjoy that process.
Host: All right, so... mistakes. We've all had them. It doesn't sound like you've had many--but tell us the mistakes. How does that--where did that play out?
Jamie Keenan: Any investor who tells you they haven't made mistakes, they're full of shit. It's a business where you're constantly learning--you probably learn more from your mistakes than--in some regard--from your wins. But whether it was actual company mistakes which I've made--and it's typically underweighting some weakness within a given company--or just experiencing the cycles of the market--like '08, '09, was brutal. My fund was down 38%. It took me three years to get back up to the high water mark. Or more recently, last year. My fund was down 32% as growth stocks sold off. Really, really hard. So again, when I say there's a huge psychological component to investing, I really, really believe that. You've got to be able to sort of persevere through those tough years, learn from mistakes, and hopefully continuously improve.
Host: Yeah, and really have that--not the myopia of I got to get this right right now. It's the longer term--like, there are going to be down years, there are going to be things that come out of the blue, but you do need dinner tomorrow. How do you balance that, like, I want to get this right now, but I have to be looking longer term--when you have a family--and all those things! Like, that's tricky.
Jamie Keenan: My mentors schooled me on the importance of thinking about a five year horizon in making any investment--at least. A minimum of three years, hopefully five years, hopefully longer, in trying to invest in companies that could stand the test of time that had real competitive differentiation. So it's not easy is the short answer to your question. And most investors do focus on the short-term because of those short-term pressures. But it's really, really hard to outperform the market if you don't have a longer duration view.
Host: Yeah. And actually something I wanted to ask you: So you at 24 were given this huge responsibility for virtually someone else's money, and then later you have your money, which is tied up into someone else's money too, but it's really your money--and I guess the earlier one was your money and... but is there a difference, psychologically, as you say, between investing someone else's money and investing yours? And which is harder? They both seem gutting to me, like I don't want any part of it.
Jamie Keenan: Yeah. Because the Investment Group of Santa Barbara, my partnership, I was managing the capital of the founding partners, I've actually always managed other people's money. And there is absolutely a responsibility that goes with managing outside capital. So I don't find it too too different. I take managing other people's money just as seriously as managing my own capital. And in a lot of ways, my interests are super aligned with my investors because I do have a very significant stake in my partnership.
Host: Yeah, yeah. That makes sense. Yeah. I don't know how you do it. It's just too scary to me.
Jamie Keenan: It definitely takes--it takes a little bit of a toll. And there have been studies done on, I think, gambling and investing. And humans feel losses, like, exponentially more than they feel gains and wins. And so that's just a hard part of it.
Host: Yeah, yeah. A lot of ulcers. Well, Jamie, it's been a delight to talk to you and kind of see this road--maybe not as winding as you might have imagined when you like, could not figure out how you'd get in. It must be tough and all of this, but once you were in, you've really, I feel like, found a path that just not only was the right one for you, it just seemed kind of fated. So I wish you the best of seeing where this goes for you, and thanks so much for sharing.
Jamie Keenan: Absolutely. Thank you for doing all these podcasts. It's super fun listening to our classmates' stories.
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