Interview #111 : Jonathon and Arvind (KMF Investments)
Pay-for-Performance Value Investing Partnership
For this issue we have the pleasure of interviewing Jonathon Fite and Arvind Mallik from KMF Investments.
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Hi Jonathon and Arvind, thanks so much for taking the time out to do this interview.
Can you please tell readers about your backgrounds, and how you both got involved in investing?
Jonathon: Thanks Jon for the opportunity to participate in the Capital Employed newsletter. You have built a strong substack offering and we are among the community of value investors who appreciate your efforts.
Arvind and I met some 25 years ago as strategy consultants at Andersen Consulting, the global management consultancy now known as Accenture. We worked on a number of projects over the course of our 10 years together spanning some of the largest Mergers and Acquisitions efforts in the early 2000s, doing pre-merger due diligence and post-merger integration.
We also had the opportunity to help our clients design and launch new services and build globally integrated supply chains. Toward the latter years of our tenure at Accenture, we developed some large “white-space BPO” offerings – applying scale synergies to sales and operations processes that were not the typical IT, call center, or transaction processing offerings that were highly commoditized at the time.
I was hired into Andersen/Accenture out of grad school. While I grew up in southern California as a child of the 70s and early 80s, I spent my high school years in central Illinois – the land of corn and soybeans and lots of snow, but not much to do with it but shovel it. For college, I headed south, back to warmer climates and found my way to the University of Arkansas where I earned my undergraduate and graduate degrees in Industrial Engineering.
Northwest Arkansas is the home of Walmart and JB Hunt, and the IE curriculum at that time was shifting away from traditional optimization of manufacturing environments to optimization of service ecosystems and global supply chains. That served me well as Supply Chain strategy consultant at Accenture. Arvind is an engineer by training as well, but sports a fancier pedigree than me.
Arvind: Thanks Jonathon. A little background about me. My family and I are from northern India, but I spent most of my childhood in Kuwait. My dad worked in the petrochemicals industry there and it was a great place to grow up. That is, of course, until the invasion by Saddam Hussein which led to the first gulf war. My family and I emigrated to the Houston area where I finished high school.
I went to Cal-Berkeley for my undergrad degree in Chemical and Bioengineering and then to MIT for my masters in Chemical Engineering. Yet, even with all that technical background I too wound up at Accenture, back in Texas, where I eventually began working with Jonathon.
Jonathon highlighted some of the consulting areas we focused on, but through it all, we took an operational lens to all our projects. Yet, some of these initiatives were so large they rose to they level of C-suite and board discussions.
Some of the projects impacted the client’s capital structure, long-term earnings and growth prospects – and so our sales efforts were steeped in how these projects would impact shareholder value. That led us to blend our operational perspectives with financial market analyses, which we carry forward to our investment process today.
Why did you decide to launch KMF Investments? And whom do you manage money on behalf of?
Jonathon: We were at Accenture when the firm transitioned from a private partnership to a public company. That event created a lot of wealth for legacy partners. But, several years after the move to public markets the culture began to shift for those still working their way up the ranks.
A close friend of ours was promoted to “partner” only to find the ladder he had been climbing to the top of was just replaced with a longer more bureaucratic ladder. The “partner carrot” was not what it once was.
Arvind: In a parallel we began brainstorming what type of business we could buy or start where we could apply the skillsets we had developed. We were very much steeped in a high-performance, up-or-out culture and wanted to create something where our compensation wasn’t a “rate x hours” business model; a business where the power of a great idea could scale.
Over dinner one evening with one of our clients, we began talking about the markets, what we were doing with our personal investing portfolios and she asked if we would be willing to manage her portfolio. We had helped her professionally, now she wondered if we could help her personally.