For this edition we welcome Jack Pailing, Founder and Portfolio Manager of Colebrooke Partners.
Colebrooke Partners are quality-led value investors in UK-listed businesses.
(Disclaimer: This interview is for informational and educational purposes only, and should not be seen as investment advice. Please do your own research before investing in any company mentioned).
Thanks so much for taking the time to do this interview.
Can you please tell readers about your background, and how you got involved in investing?
Sure. Firstly though, thank you for the opportunity to share our story and what we do. It’s a privilege to be asked.
I grew up in Blackpool, a faded seaside town in the north of England. It regularly tops poverty indicator league tables and so is not somewhere people often discuss investing, but it’s entrepreneurial in its own scrappy way, and I was thinking about businesses a lot from a young age.
I did well at school and managed to get a place at Oxford to study History, which really changed the course of my life. After university I became a lawyer because it seemed the obvious thing to do and I thought it would be interesting. It wasn’t.
While practising law I started to get interested in investing as a hobby. I have a mind that when I get interested in something I get really interested in it.
Before long, I was spending every evening and weekend teaching myself everything I could about what we might call ‘value investing’ and managing my own small portfolio.
I then had a sliding doors moment when the law firm I worked at went into insolvency, which law firms shouldn’t really do. Rather than go with my team to a different firm, I decided to take an 80% pay cut and start my own firm, which became Colebrooke Partners.
Can you provide readers with a brief overview of Colebrooke Partners?
I have managed money ‘professionally’ since 2018, when I quit my job as a lawyer, but the firm as it is now really started in January 2023, when we switched to focus exclusively on UK-listed businesses.
We launched our Cayman-domiciled fund in September 2024, which is also when my business partner Sam joined the firm. I do everything related to investing and he does everything else.
Currently, all our partners are entrepreneurs, but we are looking to partner with institutions for the first time, as our portfolio has become more liquid as we’ve naturally gravitated towards larger companies and we now have capacity to take larger investments.
Our style is that of quality-led value investors. We look for companies that are hard to compete with, have predictable cash flows, and are run by good people. We buy them when they are available at significant discounts and then hold them for a long time. As I said above, we focus on businesses that are headquartered or listed in the UK.
I often think our strategy is best defined by what we don’t invest in. We don’t invest in banks or lending businesses, anything where deep academic subject knowledge is an advantage such as biotech or pharma, or minerals and exploration.
We look for fairly simple businesses that we can understand, by which I mean we think we have a reasonable chance of knowing what they look like in 5 years.
It’s perhaps an overused phrase, but we apply the mindset of a private investor acquiring a large stake in a business, or indeed the whole business.
That means we spend a lot of time talking to customers, former employees, suppliers and studying the business and management team.
As an historian and lawyer, that’s the only way I know how to make probabilistic decisions; have a very wide information funnel and then ruthlessly sift for what really matters and what you need to form an opinion on.
I believe at present you have 8 positions in the fund.
Is it part of the strategy to be this concentrated, or will the fund become more diversified as opportunities present themselves?
Yes, very much part of the strategy!
We have a high bar for investments, and I believe strongly that long-term shareholders should behave like owners, which takes up time and headspace (for example I chair the board of one of our holdings that is undergoing a transformation).
That combination means we’re fortunate to have 8 businesses that we want to own at one time. I could see us owning 10, maybe 12 at the very most, but not more than that.
At present there are many decent public companies in the UK that are trading at attractive valuations - and we see many companies being snapped up on the cheap by private equity.
Why is the UK so neglected at the moment, and what could reverse this?
Good question.
I don’t spend very much time thinking about what markets are doing, but I do think there’s a reflexivity to these things and prevailing narratives get reinforced, until they reverse.
There are good reasons why the UK is cheap versus say the US or to invert it, that the cost of equity capital is higher here.
For example, we have a lower societal tolerance to personal bankruptcy and corporate insolvency. We also have a much lower share of the population that own equities.
Capitalism is a small part of the UK’s history, built on top of centuries of feudal government without a revolution to break the line, while it’s nearly all the US’s. That mindset and narrative then gets reinforced by the divergence in performance and capital flows.
The UK has been cheap for a long time and throughout that time, at a market/passive ETF level, you’d have been much better off investing in the US.
In terms of what reverses it, I don’t know. But I do think that drawing attention to the value of some of our quality businesses and away from the market can help.
I’m trying to do that in my own small way with The Shareholders Board, a platform which I built to be the best place to discuss UK stocks.
If I had to bet, given people tend to make decisions relatively, what will reverse the dynamic is a break in the US market and the cessation of the reflexive narrative loop I mention above.