Robert Tobin is chief investment officer of Persimmon Capital Partners, a single-family office, where he determines Persimmon’s portfolio allocations and actively manages the private equity and alternative investments. Tobin earned an MBA from Columbia Business School and a BS from the University of North Carolina at Chapel Hill.
Tobin was recently named to Trusted Insight’s ranked list of Top 30 Ivy League Graduate Chief Investment Officers. He graciously spoke with Trusted Insight on Dec. 3, 2015. The following interview has been edited and condensed for clarity.
Trusted Insight: You went to Columbia for your MBA. Can you tell me a little about that experience, how it informed your decision-making process and how it led to your current position today.
Robert Tobin: I chose Columbia for a couple of reasons. Number one: strong finance coursework. I had an interest in finance, investing, but really didn't have a specific view of where I wanted to end up. Columbia gave me a broad set of options, and I was able to leverage the geographic location of the campus to interview, or sit down informally with a number of different types of businesses and executives, which was extremely helpful. That's number one.
Number two: I have a deep interest in travel. I had done a fair amount of traveling prior to business school. The fact that Columbia was very international, with respect to its student base, was also an attraction for me.
To the second or third parts of your question, I think the Columbia network was extremely helpful. It opened my eyes up to not only opportunities in finance, including investment banking, which is what I ended up doing post Columbia Business School, but also the students that I met, who in most cases had much deeper experiences than I did with respect to the finance industry. The friends that I made at Columbia are still close friends now, and they've helped me grow. They already had investment banking or private equity backgrounds and, ultimately, two of my friends became CIOs of family offices and invest directly in businesses, which was another interest of mine.
So over the years, when I transitioned from investment banking into private equity, I was able to continue to leverage the Columbia Business School network to gain a deeper understanding of family offices: the differences in investment styles, the differences between generation one, two, three and four family offices, and how these structures and family needs change investment styles or views. I was able to lean on my relationships from Columbia to really understand these nuances and ask specific questions about an industry in which it can be difficult to diligence. That has led me to become a CIO of a single-family office and afforded me the opportunity to really do what I love in a very flexible manner, which is to invest directly alongside entrepreneurs and founders of businesses, sit on the boards of these companies and work really hard to continue to bolster growth of a fairly wide variety of businesses.
Trusted Insight: Not to say that other schools, state universities for example, aren't represented within industry, but there is an obvious bent toward toward Ivy League graduates by large institutions. To what degree was your Ivy League education integral to your current success and would you be where you are today if you had gone anywhere else?
Robert Tobin: That's tough to answer. However, I can add a few points. I would say that having Columbia Business School, or an Ivy League MBA on your resume, can certainly help get you into a conversation. I think it shows that you have a broad base of skills to have been able to attend that type of program. And I think that employers or potential partners understand that. You were a good student, probably pretty personable, hard-working, interested in building a network, among other intangibles that you bring to the table. So I think having that on your resume may take a lot of questions off of the table so you can get to a more direct and important conversation.
And then I would, again, highlight the fact that I have been able to leverage the Columbia network when I have made a couple of job changes over the last fifteen years. The school’s network has been extremely helpful in making introductions, in taking calls and in writing or speaking on my behalf. That has been extremely helpful over time.
Trusted Insight: What is your investment philosophy and how has that been formed by your time at Columbia?
Robert Tobin: I would say it's growth-oriented with a value basis. I spent a lot of time on value evaluation-based finance classes. This is extremely helpful as a foundation and to be able to layer the entrepreneurialism that I found at Columbia on top of that foundational understanding of a businesses' intrinsic value is how I am focused today. So at Persimmon Capital Partners, I'd call it a mid-stage, definitively growth investment style.
My principal is the founder, chairman and CEO of a company that he has built and taken public, and he continues to run that public company. He is an entrepreneur at heart. It's our goal to build a broad, diversified portfolio of growth platforms over the very long term. I would say that our viewpoint is on entrepreneurialism and growth, with value in the back of our minds. We are not paying up for assets, which was really ingrained in me by Columbia.
Trusted Insight: The portfolio seems to be U.S.-centric. To what degree is that true, and is that a strategic move to avoid currency risk, or is it more a preference for U.S.-based assets?
Robert Tobin: It's more a function of the strength of our networks. That’s myself and my principal being able to leverage our networks. While he runs a global business, much of that business still resides in the United States.
I also think it's a function of being a small family office. We have three employees. I'm the only employee that's focused on Private Equity. We have another gentleman focused on Real Estate. We simply don't have the infrastructure to analyze all the trends, not only in the U.S. but also internationally, the risks, diligence in different businesses across the pond. It really comes down to not only interest level, but also infrastructure, or the lack of resources to focus abroad.
Trusted Insight: The portfolio consists of real estate and private equity. Does private equity include things like venture capital, or is it a strict definition of private equity?
Robert Tobin: No, it's not a strict definition. A single-family office platform allows for flexibility and the ability to be opportunistic. First and foremost, we don't invest in early venture. My feeling is that you're not necessarily paid for the risk being taken. You can invest at a later stage with respect to the scale of the company and still, in certain situations, see outsized returns with lower overall risk.
As an example with respect to venture, we started a company from scratch to focus on this stage of investing. It's called Novus Capital Group. Novus is a venture lending platform that lends $200,000 to $1 million to early-stage, mostly technology-related companies. We feel like the risk-return of the securities and the loans that we're making is interesting. Being senior and secured in early-stage companies, when things do go sideways, is more appropriate in certain cases than taking the equity risk. So that is how we play venture inside of Persimmon Capital Partners.
With respect to the rest of the portfolio, I have led Series A preferred equity rounds. That is more akin to venture than typical private equity. But again, these companies have a certain level of business scale, you know $5 to $10 million, not $1 million in revenue. We started the Persimmon private capital investment business three and-a-half years ago, in May 2012. So we do have companies that are three years old in our portfolio. It's starting to mature a bit. But, as you know, hold periods in this asset class can be fairly long. To date, our portfolio is still young, but seems to be growing well.
Shifting to the more traditional private equity investment, our check size is anywhere between $3 and $10 million. It is difficult to acquire and control an operating business with that type of check size. So I have partnered with a couple of private equity firms on four occasions, to take a minority equity position in control buyout transactions. I am an active investor, take a board seat in every case and have leveraged my network to build those relationships with the private equity firms. So with respect to traditional private equity, this is the investment model inside of our portfolio to date.
Trusted Insight: How do interest rates rising affect your portfolio? Or has that already been baked in? Will that effect be greater for private equity holdings or real estate?
Robert Tobin: Let's start with real estate. We have taken advantage of the low-rate environment over the past couple of years. We have a number of multi-family development projects that we have taken to stabilization levels and then locked in long-term debt financing. We have fifteen-year fixed notes on those projects. In those cases, we feel like timing worked well, and we don't have much interest rate risk since we are long-term holders of the assets to drive cash flow generation for the family. We don't necessarily have to worry about movement in multiples or cap rates on the back end due to a rising interest rate environment.
In our private equity portfolio, specifically the growth companies or non-buyout scenarios, we do not use much debt to finance future growth, so we don't take interest rate risk inside of the company and its cap structure. So I'm not too worried there. We do have three or four specialty finance platforms where we leverage our equity with a syndicate of banks, and then lend out to either consumers or commercial businesses. In certain cases, we know that we are borrowing on a floating rate basis and lending on a fixed-rate basis. We do watch rate movements carefully as this does affect our ultimate spreads. We're not over-levered, and we can sensitize the model to really understand what can happen in very difficult scenarios. We do pay attention to it, obviously. It is a topic of continuous discussion. I really don't foresee the rates moving dramatically at this point, particularly in the near to mid-term.
Trusted Insight: This is a particularly tough time in markets right now, both public and private. Headed into 2016, what geographies and sectors are you looking to for sustained growth?
Robert Tobin: I think continued efficiency is the key. We have a couple of software businesses that drive efficiency into their respective customer bases. And that's both on the headcount side and the harvesting of big data to make better decisions to drive increased revenue. I think these types of software platforms that we are involved in will, in a difficult environment, allow companies to both drive top-line growth and find efficiencies in the bottom line.
Trusted Insight: You touched on this a little bit earlier, but family offices are notoriously reclusive to the outside world, but my understanding is there’s quite a bit of collaboration between family offices. Can you talk a little bit about that?
Robert Tobin: I would agree with everything you said. There's a group here in Baltimore called "The Baltimore Family Office Group," a collection of 40 to 50 family offices that meet on a quarterly basis. Sometimes there's a presentation involved from a third party on a particular subject matter of interest to the members. Other times, the meetings take an open-table format focused on a particular subject matter. As an example, we have had multiple discussions focused on direct equity investing.
There is much information sharing, and a trend toward direct investing in the family office world. I think that's being driven by a couple of items.
Number one: Returns in the public market have been fairly stagnant. Also, fund investing adds an additional layer of expense to the G&A of a family office. So I think folks are starting to turn toward more direct investing.
Number two: I think there is an increased level of talent inside the family office sector, and the view of family offices is becoming a bit more mature and better understood. I think founders of businesses are seeing internal, institutional-quality talent at family offices. They are becoming more comfortable with the idea that bringing a family office into the cap table can be beneficial.
Number three: A family office can provide many positive attributes vis-à-vis traditional funds. For instance, we can hold assets for 25-30 years if that's the best thing to do for the company. We do not have the external forces of multiple outside LPs, which require liquidity in certain time frames. We also do not need to raise the next fund rather have a more permanent capital base. These facts can be pretty appealing to a founder of a business that wants to be sure that his partners' views, either short-term, mid-term or long-term are aligned with his or hers.
Those are some of the inside views on family office platforms and why it's an interesting asset class. To your point about sharing information, in this region at least, there are a fair amount of co-investment opportunities. The clubbing of private family resources and networks can be powerful. This facilitates the sharing of information, ideas and dealflow. I think there's a comfort level between a number of families in the area. We think about things in a similar fashion and have been able to partner together.
Trusted Insight: What's something surprising that you've learned about family office investing that you didn't realize before you joined the industry?
Robert Tobin: I think it's really based upon the family and their principles, views and outlook. What has surprised me to the upside is the willingness to be entrepreneurial, taking measured risks with personal capital and a long-term investment horizon. This is in contrast to investing in structured products or with outside managers with a targeted IRR within a more compressed band, for instance. That's been a little bit surprising and exciting for me. And that gets back to the flexibility aspect of a family office platform.
Trusted Insight: Given that family offices are reclusive, it's hard to find anything out about them, what's the number one lesson that you've learned during your career as an institutional investor at a family office? Let’s say there's a young investor coming up that wants to run a family office one day, what should he or she know?
Robert Tobin: Number one is trust. It's a small office. You're working for one family. You have to trust in each other. So I'd say number one is trust.
And then I think for the institutional investor, it is all about the people that you are investing with and in, especially when you're focused on direct equity investments. Investment horizons are long. Growth is never up and to the right, so there will be difficult situations over many years. Having patience, focus and the ability to make tough decisions are important. It ultimately gets back to trust and to people.
To learn more about the top-tier institutional investors, check out Trusted Insight's list of Top 30 Ivy League Graduate Chief Investment Officers - Part 2.
Tobin was recently named to Trusted Insight’s ranked list of Top 30 Ivy League Graduate Chief Investment Officers. He graciously spoke with Trusted Insight on Dec. 3, 2015. The following interview has been edited and condensed for clarity.
Trusted Insight: You went to Columbia for your MBA. Can you tell me a little about that experience, how it informed your decision-making process and how it led to your current position today.
Robert Tobin: I chose Columbia for a couple of reasons. Number one: strong finance coursework. I had an interest in finance, investing, but really didn't have a specific view of where I wanted to end up. Columbia gave me a broad set of options, and I was able to leverage the geographic location of the campus to interview, or sit down informally with a number of different types of businesses and executives, which was extremely helpful. That's number one.
Number two: I have a deep interest in travel. I had done a fair amount of traveling prior to business school. The fact that Columbia was very international, with respect to its student base, was also an attraction for me.
To the second or third parts of your question, I think the Columbia network was extremely helpful. It opened my eyes up to not only opportunities in finance, including investment banking, which is what I ended up doing post Columbia Business School, but also the students that I met, who in most cases had much deeper experiences than I did with respect to the finance industry. The friends that I made at Columbia are still close friends now, and they've helped me grow. They already had investment banking or private equity backgrounds and, ultimately, two of my friends became CIOs of family offices and invest directly in businesses, which was another interest of mine.
So over the years, when I transitioned from investment banking into private equity, I was able to continue to leverage the Columbia Business School network to gain a deeper understanding of family offices: the differences in investment styles, the differences between generation one, two, three and four family offices, and how these structures and family needs change investment styles or views. I was able to lean on my relationships from Columbia to really understand these nuances and ask specific questions about an industry in which it can be difficult to diligence. That has led me to become a CIO of a single-family office and afforded me the opportunity to really do what I love in a very flexible manner, which is to invest directly alongside entrepreneurs and founders of businesses, sit on the boards of these companies and work really hard to continue to bolster growth of a fairly wide variety of businesses.
Trusted Insight: Not to say that other schools, state universities for example, aren't represented within industry, but there is an obvious bent toward toward Ivy League graduates by large institutions. To what degree was your Ivy League education integral to your current success and would you be where you are today if you had gone anywhere else?
Robert Tobin: That's tough to answer. However, I can add a few points. I would say that having Columbia Business School, or an Ivy League MBA on your resume, can certainly help get you into a conversation. I think it shows that you have a broad base of skills to have been able to attend that type of program. And I think that employers or potential partners understand that. You were a good student, probably pretty personable, hard-working, interested in building a network, among other intangibles that you bring to the table. So I think having that on your resume may take a lot of questions off of the table so you can get to a more direct and important conversation.
And then I would, again, highlight the fact that I have been able to leverage the Columbia network when I have made a couple of job changes over the last fifteen years. The school’s network has been extremely helpful in making introductions, in taking calls and in writing or speaking on my behalf. That has been extremely helpful over time.
Trusted Insight: What is your investment philosophy and how has that been formed by your time at Columbia?
Robert Tobin: I would say it's growth-oriented with a value basis. I spent a lot of time on value evaluation-based finance classes. This is extremely helpful as a foundation and to be able to layer the entrepreneurialism that I found at Columbia on top of that foundational understanding of a businesses' intrinsic value is how I am focused today. So at Persimmon Capital Partners, I'd call it a mid-stage, definitively growth investment style.
My principal is the founder, chairman and CEO of a company that he has built and taken public, and he continues to run that public company. He is an entrepreneur at heart. It's our goal to build a broad, diversified portfolio of growth platforms over the very long term. I would say that our viewpoint is on entrepreneurialism and growth, with value in the back of our minds. We are not paying up for assets, which was really ingrained in me by Columbia.
Trusted Insight: The portfolio seems to be U.S.-centric. To what degree is that true, and is that a strategic move to avoid currency risk, or is it more a preference for U.S.-based assets?
Robert Tobin: It's more a function of the strength of our networks. That’s myself and my principal being able to leverage our networks. While he runs a global business, much of that business still resides in the United States.
I also think it's a function of being a small family office. We have three employees. I'm the only employee that's focused on Private Equity. We have another gentleman focused on Real Estate. We simply don't have the infrastructure to analyze all the trends, not only in the U.S. but also internationally, the risks, diligence in different businesses across the pond. It really comes down to not only interest level, but also infrastructure, or the lack of resources to focus abroad.
Trusted Insight: The portfolio consists of real estate and private equity. Does private equity include things like venture capital, or is it a strict definition of private equity?
Robert Tobin: No, it's not a strict definition. A single-family office platform allows for flexibility and the ability to be opportunistic. First and foremost, we don't invest in early venture. My feeling is that you're not necessarily paid for the risk being taken. You can invest at a later stage with respect to the scale of the company and still, in certain situations, see outsized returns with lower overall risk.
As an example with respect to venture, we started a company from scratch to focus on this stage of investing. It's called Novus Capital Group. Novus is a venture lending platform that lends $200,000 to $1 million to early-stage, mostly technology-related companies. We feel like the risk-return of the securities and the loans that we're making is interesting. Being senior and secured in early-stage companies, when things do go sideways, is more appropriate in certain cases than taking the equity risk. So that is how we play venture inside of Persimmon Capital Partners.
With respect to the rest of the portfolio, I have led Series A preferred equity rounds. That is more akin to venture than typical private equity. But again, these companies have a certain level of business scale, you know $5 to $10 million, not $1 million in revenue. We started the Persimmon private capital investment business three and-a-half years ago, in May 2012. So we do have companies that are three years old in our portfolio. It's starting to mature a bit. But, as you know, hold periods in this asset class can be fairly long. To date, our portfolio is still young, but seems to be growing well.
Shifting to the more traditional private equity investment, our check size is anywhere between $3 and $10 million. It is difficult to acquire and control an operating business with that type of check size. So I have partnered with a couple of private equity firms on four occasions, to take a minority equity position in control buyout transactions. I am an active investor, take a board seat in every case and have leveraged my network to build those relationships with the private equity firms. So with respect to traditional private equity, this is the investment model inside of our portfolio to date.
Trusted Insight: How do interest rates rising affect your portfolio? Or has that already been baked in? Will that effect be greater for private equity holdings or real estate?
Robert Tobin: Let's start with real estate. We have taken advantage of the low-rate environment over the past couple of years. We have a number of multi-family development projects that we have taken to stabilization levels and then locked in long-term debt financing. We have fifteen-year fixed notes on those projects. In those cases, we feel like timing worked well, and we don't have much interest rate risk since we are long-term holders of the assets to drive cash flow generation for the family. We don't necessarily have to worry about movement in multiples or cap rates on the back end due to a rising interest rate environment.
In our private equity portfolio, specifically the growth companies or non-buyout scenarios, we do not use much debt to finance future growth, so we don't take interest rate risk inside of the company and its cap structure. So I'm not too worried there. We do have three or four specialty finance platforms where we leverage our equity with a syndicate of banks, and then lend out to either consumers or commercial businesses. In certain cases, we know that we are borrowing on a floating rate basis and lending on a fixed-rate basis. We do watch rate movements carefully as this does affect our ultimate spreads. We're not over-levered, and we can sensitize the model to really understand what can happen in very difficult scenarios. We do pay attention to it, obviously. It is a topic of continuous discussion. I really don't foresee the rates moving dramatically at this point, particularly in the near to mid-term.
Trusted Insight: This is a particularly tough time in markets right now, both public and private. Headed into 2016, what geographies and sectors are you looking to for sustained growth?
Robert Tobin: I think continued efficiency is the key. We have a couple of software businesses that drive efficiency into their respective customer bases. And that's both on the headcount side and the harvesting of big data to make better decisions to drive increased revenue. I think these types of software platforms that we are involved in will, in a difficult environment, allow companies to both drive top-line growth and find efficiencies in the bottom line.
Trusted Insight: You touched on this a little bit earlier, but family offices are notoriously reclusive to the outside world, but my understanding is there’s quite a bit of collaboration between family offices. Can you talk a little bit about that?
Robert Tobin: I would agree with everything you said. There's a group here in Baltimore called "The Baltimore Family Office Group," a collection of 40 to 50 family offices that meet on a quarterly basis. Sometimes there's a presentation involved from a third party on a particular subject matter of interest to the members. Other times, the meetings take an open-table format focused on a particular subject matter. As an example, we have had multiple discussions focused on direct equity investing.
There is much information sharing, and a trend toward direct investing in the family office world. I think that's being driven by a couple of items.
Number one: Returns in the public market have been fairly stagnant. Also, fund investing adds an additional layer of expense to the G&A of a family office. So I think folks are starting to turn toward more direct investing.
Number two: I think there is an increased level of talent inside the family office sector, and the view of family offices is becoming a bit more mature and better understood. I think founders of businesses are seeing internal, institutional-quality talent at family offices. They are becoming more comfortable with the idea that bringing a family office into the cap table can be beneficial.
Number three: A family office can provide many positive attributes vis-à-vis traditional funds. For instance, we can hold assets for 25-30 years if that's the best thing to do for the company. We do not have the external forces of multiple outside LPs, which require liquidity in certain time frames. We also do not need to raise the next fund rather have a more permanent capital base. These facts can be pretty appealing to a founder of a business that wants to be sure that his partners' views, either short-term, mid-term or long-term are aligned with his or hers.
Those are some of the inside views on family office platforms and why it's an interesting asset class. To your point about sharing information, in this region at least, there are a fair amount of co-investment opportunities. The clubbing of private family resources and networks can be powerful. This facilitates the sharing of information, ideas and dealflow. I think there's a comfort level between a number of families in the area. We think about things in a similar fashion and have been able to partner together.
Trusted Insight: What's something surprising that you've learned about family office investing that you didn't realize before you joined the industry?
Robert Tobin: I think it's really based upon the family and their principles, views and outlook. What has surprised me to the upside is the willingness to be entrepreneurial, taking measured risks with personal capital and a long-term investment horizon. This is in contrast to investing in structured products or with outside managers with a targeted IRR within a more compressed band, for instance. That's been a little bit surprising and exciting for me. And that gets back to the flexibility aspect of a family office platform.
Trusted Insight: Given that family offices are reclusive, it's hard to find anything out about them, what's the number one lesson that you've learned during your career as an institutional investor at a family office? Let’s say there's a young investor coming up that wants to run a family office one day, what should he or she know?
Robert Tobin: Number one is trust. It's a small office. You're working for one family. You have to trust in each other. So I'd say number one is trust.
And then I think for the institutional investor, it is all about the people that you are investing with and in, especially when you're focused on direct equity investments. Investment horizons are long. Growth is never up and to the right, so there will be difficult situations over many years. Having patience, focus and the ability to make tough decisions are important. It ultimately gets back to trust and to people.
To learn more about the top-tier institutional investors, check out Trusted Insight's list of Top 30 Ivy League Graduate Chief Investment Officers - Part 2.