How Su Chen Tan Built a $2B Investment Firm: Insights from We Study Billionaires

In this episode of "We Study Billionaires," host Clay Fink interviews Su Chen Tan, founder and president of Discerene Group. With an impressive background, including roles at Deccan Value Advisors and Baupost Group, Su Chen shares his journey of growing Discerene Group from $100 million to over $2 billion in assets under management (AUM). This episode delves into his disciplined value investing philosophy, the importance of long-term investments, and the unique strategies that differentiate Discerene Group from other investment firms.

Key Takeaways:

1. Starting Discerene Group Post-Lehman Collapse: Su Chen founded Discerene Group in 2010, shortly after the Lehman Brothers collapse. Despite the challenging economic climate, he saw an opportunity to invest in undervalued assets, leading to the firm's remarkable growth.
2. Strict Value Investing Philosophy: Su Chen's approach emphasizes investing only when a deep margin of safety is provided. This discipline has resulted in an 82% batting average for Discerene's investments, far surpassing the 60% threshold that would earn an investor a spot in the investment hall of fame.
3. Long-Term Investment Horizon: Su Chen's commitment to a generational investment horizon sets Discerene apart. He believes in owning businesses through full economic cycles, which means holding investments for decades, not just years.
4. Contrarian Approach: Being contrarian is crucial for Su Chen. He looks for opportunities when others are fearful, providing liquidity to forced sellers. This approach has allowed Discerene to acquire high-quality assets at attractive prices.
5. Global Investment Mandate: Unlike early Buffett, Su Chen embraces a global mandate, exploiting inefficiencies in capital markets around the world. This strategy helps Discerene find undervalued businesses globally, which many local investors overlook.

Detailed Insights and Practical Advice:

1. Identify Underserved Markets: Su Chen's decision to start Discerene Group post-Lehman collapse highlights the importance of identifying and capitalizing on underserved markets. During the financial crisis, many investors were fleeing the markets, but Su Chen saw an opportunity in the depressed asset prices and economic uncertainty. He recognized that the fear and uncertainty surrounding the financial crisis created a unique opportunity to buy high-quality assets at a discount. By focusing on identifying these undervalued assets, Su Chen was able to build a successful investment firm that has thrived over the past decade.

To apply this principle in your own business, look for markets where there is little competition or where others are avoiding due to perceived risks. Conduct thorough market research to identify gaps and opportunities that others might have overlooked. By entering these underserved markets, you can establish a strong market presence and build a competitive advantage.

2. Offer Low-Cost Entry: While not directly mentioned by Su Chen, his focus on providing liquidity during market downturns aligns with the principle of lowering barriers to entry. By entering markets when prices are low, investors can achieve significant returns. This approach is particularly relevant for entrepreneurs looking to attract new partners or franchisees. By offering a low-cost entry point, you can attract a broader range of entrepreneurs who may not have the capital to invest in a more expensive venture.

To implement this strategy, consider offering flexible financing options, discounts for early adopters, or other incentives to lower the initial investment required. This can help you attract a diverse group of partners who are committed to the long-term success of your business.

3. Ensure High Margins: Maintaining high-profit margins is a key principle in Su Chen's value investing philosophy. By investing in companies with a strong margin of safety, Discerene ensures the sustainability and profitability of its portfolio. High margins provide a buffer against economic downturns and allow companies to reinvest in growth and innovation.

For entrepreneurs, focusing on high margins means carefully managing costs and pricing strategies to ensure profitability. This can involve negotiating better terms with suppliers, optimizing operations to reduce waste, and continuously improving products and services to justify premium pricing. High margins not only improve financial stability but also provide the resources needed to invest in future growth.

4. Build a Strong Distribution Network: Su Chen's global mandate underscores the need for a robust distribution network. By tapping into global markets, Discerene can diversify risk and capitalize on opportunities that local investors may miss. A strong distribution network allows companies to efficiently reach a wide customer base and respond quickly to changes in demand.

Entrepreneurs can learn from this approach by developing a distribution strategy that includes multiple channels and markets. This might involve partnering with international distributors, leveraging e-commerce platforms, or establishing a presence in key regions. A diverse distribution network can help you mitigate risks and take advantage of growth opportunities in different markets.

5. Embrace Long-Term Thinking: One of the core tenets of Su Chen's investment philosophy is the importance of a long-term investment horizon. He believes in owning businesses through full economic cycles, which means holding investments for decades, not just years. This long-term approach allows Discerene to benefit from the compounding growth of high-quality businesses and avoid the pitfalls of short-term market volatility.

Entrepreneurs can apply this principle by focusing on building sustainable businesses that can thrive over the long term. This involves making decisions that prioritize long-term growth and stability over short-term gains. Invest in building a strong company culture, developing innovative products, and establishing solid relationships with customers and partners. By thinking long-term, you can create a business that can weather economic cycles and continue to grow and prosper.

6. Develop a Strong Team and Culture: Su Chen emphasizes the importance of building a strong team and culture within Discerene Group. He has succeeded in creating an environment where bright, talented, and ambitious individuals can thrive and grow their careers. This long-term commitment to team development has been a key factor in Discerene's success.

Entrepreneurs should prioritize building a team that is aligned with their vision and values. This involves hiring individuals who are not only skilled but also share the same commitment to the company's long-term goals. Invest in training and development programs to help your team grow and succeed. Foster a culture of collaboration, innovation, and continuous improvement to keep your team motivated and engaged.

7. Leverage Partnerships and Networks: Su Chen's approach to leveraging partnerships and networks has been instrumental in Discerene's growth. By co-opting LPs to be part of their team and using their networks, Discerene has been able to punch above its weight and achieve significant success.

Entrepreneurs can benefit from building strong partnerships and networks with other businesses, investors, and industry leaders. These relationships can provide valuable resources, insights, and opportunities that can help your business grow. Invest time in networking and building relationships with key stakeholders in your industry. Collaborate with others to share knowledge and resources, and leverage these partnerships to achieve your business goals.

8. Maintain Discipline and Integrity: Su Chen's commitment to maintaining discipline and integrity in his investment approach is a cornerstone of Discerene's success. He has structured the firm to avoid the asset liability mismatch that plagues many investment firms, allowing them to maintain strict investment discipline.

Entrepreneurs should adopt a disciplined approach to business management, setting clear goals and adhering to them. Maintain high ethical standards and integrity in all your business dealings. This will not only build trust with your customers and partners but also create a strong foundation for long-term success. Discipline and integrity are essential for building a reputable and sustainable business.

Conclusion:

Su Chen Tan's journey with Discerene Group offers valuable lessons for entrepreneurs and investors alike. By identifying underserved markets, ensuring high margins, building a strong distribution network, embracing long-term thinking, developing a strong team and culture, leveraging partnerships, and maintaining discipline and integrity, you can build a successful and sustainable business. For more insights like these, subscribe to our weekly newsletter and join our community of savvy business owners today!

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Listen to the full podcast episode on Spotify.