Thread by @NeckarValue

Love the story of the Chandler brothers, Richard & Christopher, who turned $10mm into $5bn.

They hopped the globe searching for value facing off with CEOs and oligarchs. It’s a wild sequence of concentrated bets from Hong Kong to Brazil, from Korea to Russia.

The brothers grew up in New Zealand where their parents built Chandler House, a leading department store. The kids learned about business early on.

"We are great believers in the idea of having audacious goals, breaking out and doing something out of the ordinary."

Richard wrote his thesis on corporate governance and the gap between owners and managers.

They sold the family biz for $10mm and started their investment firm, Sovereign Global in 1986.

"We said, 'Let's do something that we love to do, not just something that we are good at."

Their first bet was Hong Kong which was reverting back to China. Real estate was down 70%. They bought office buildings at a 5% cap rate, invested in renovations, tripled rents over 3 years.

"We had read the treaty and it promised the status quo for 50 years. We believed it."

When they sold in 1991, their net worth jumped to $40 million.

They had also invested in HK’s property-heavy stock index with futures. But they got stopped out in the ’87 crash. Lesson learned: no more leverage, no more index bets.

Next: Brazil in 1991, struggling with hyperinflation.

The Chandlers got approval to invest $30mm before the market opened up to foreigners. They valued Telebrás based on telephone lines - $200 vs $2,000 in Mexico and a $1,600 installation cost

When Brazil’s president was impeached in 1992, the market crashed. The brothers held on.

"As far as we were concerned, the shock was external to the fundamentals of the company. Telebrás had simply gone from extremely undervalued to outrageously undervalued."

In 1993, they exited for a 5x return - $150mm.

"We learned to build our emotional muscles, helping us make it through major market falls and grind through the trying times without losing our equilibrium.”

They had worked out their strategy: go global for deep value. Push for better governance.

"We are value investors with a sense of responsibility, not activists."

They looked for the transition economies or distressed sectors where standard metrics didn’t apply.

"The market gives you the opportunity to arbitrage what the emotional investor will pay or sell at versus the fundamental value of a company, but you've got to pull the trigger promptly without hesitating."

But no small caps: "If you are invested in big companies in big countries, that means there is a ready audience of benchmark-following investors who must buy the asset. By buying big -- going narrow and deep, as opposed to diversifying – you maximize your success."

Investing their own capital gave them flexibility: "Money managers have to account for their actions to their shareholders, which means they have an undue fear of underperformance. We invest only our own money. Our investment decisions are driven by optimism, not fear."

In post-Soviet Russia, the Chandlers bought into utilities, steelmakers, oil companies. With nearly $200mm they were one of the largest foreign investors.

When they found management siphoning off profits, they mounted an activist campaign at steelmaker Novolipetsk Steel (NLMK)

Despite owning 25% they were prevented from attending the annual meeting by armed guards

After a court victory the company retaliated by diluting shareholders. The Chandlers pulled the plug on the campaign and sold their stake.

(picture are not the actual, uh, guards)

They sold other Russian stocks at large gains and rolled the money into a 5% stake in Gazprom worth $1bn.

In 1998, Russia defaulted on its debt and shares got devastated.

The brothers stared at a paper loss of $800 million!

"I could have said, 'I'm a bad investor, I got it wrong. Instead, I said, 'We got in a bit early, but the value is still there.' Just because the market deserted Russia, it did not mean that Gazprom was a bad company. It was a great company supplying 25% of Europe's gas."

Gazprom’s management was also enriching insiders. The Chandlers tried to install the first independent director and oust Gazprom’s CEO.

In 2000, they and their allies succeeded in electing a director (whose dog was later poisoned😥). And a Putin associate became Gazprom’s CEO.

The Chandlers exited in 2003.
"If we were in it simply for the money at Gazprom, we would have just taken the money. But it was not about the money. In Russia we believed we could change a culture of fraud by going after the big fish, and that was Gazprom."

They also tried their hand at activism in Korea, challenging a chaebol, a family-run conglomerate

In 2003, they bought a 14.9% stake in SK Corp, a major petrochemical player, after an accounting scandal. Its CEO was briefly imprisoned but returned to the company.

But the secretive Chandlers were unwilling to compromise and unable to gain a lot of public support. They got one board seat. Frustrated with the company, they sold their stake in 2005 for $900mm, a five bagger.

Dire sentiment attracted the Chandlers to Japan. They even avoided visiting because “the despair and despondency of the place could have distorted our long-term view, even though that kind of distance is conventionally considered foolhardy."

They invested a billion into Japanese banks struggling with loan losses that were “priced for a wipeout.” By 2006, the investment had turned into $3bn with a large stake in Mizuho.

"Japan illuminates the way we invest, the principles we adhere to and our contrarianism better than any other investment we've made. There was no research, no price-earnings ratios, basically no standard road map or GPS for investors. The scientists were lost."

They were unknown until 2006, when Richard agreed to be interviewed.

They saw themselves as a Buffett-Munger type pair. "I do the analysis and develop the concept. Then I take the concept to Christopher and ask him, 'Hey, is this crazy or not?'”
institutionalinvestor.com/article/b150nr…

“A sense of value ultimately comes down to being able to project a future and see where a business case really goes in five or ten years. No one I know is better at that than Christopher.”

"I think Asia is the best place to be for the next 20 years," says Richard (in 2006)

2006 was also the year in which they split, each creating their own family office (now Legatum and Clermont)

"This evolution is a natural consequence of the uncommon success Sovereign has enjoyed, and will facilitate the continued development of each of the founders' interests."

This write-up has some awesome charts:
macro-ops.com/the-chandler-b…

Richard Chandler now runs Clermont Group. Still focused on governance and impact. But got burned by buying into Chinese fraud Sino-Forest.

Published “The Goodness of Business. How Creativity, Business and Good Governance Build National Prosperity”
clermont.com/download/The%2…

Also, there was a third brother, George, now a “retired accountant” in Canada while his siblings made billions with homes in Monaco and Singapore.
Can you imagine😲