Welcome Letter

Dear Partner,

Welcome to Levered Insight LLC!  We are very excited that you’ve chosen to entrust us with a portion of your hard earned capital.  This letter hopes to give you a clearer understanding of my background, reasons for launching the fund, and long term opportunities that will become available in the securities of distressed assets.

I have been a securities analyst for almost 30 years, beginning during my MBA program in 1988 at First Florida bank, graduating to Wachovia Investment Management for an indelible five years, and finally at Sterling Capital Management for the last 21 years – where we grew the firm from $1 billion to $54 billion in assets under management.  I have had wonderful mentors and colleagues who have shaped my views on investing and how to manage a successful investment operation.  To paraphrase Isaac Newton, “if I see further than others, it is by standing on the shoulders of giants.  The obvious giants include Benjamin Graham- the father of value investing and Warren Buffett, his most famous student.  A lessor known giant, Al Guenthner, served as my research director at Wachovia for those very formative years, and crystalized the concept of normalization for me. 

For almost my entire career I have invested in smaller companies, namely securities with market capitalizations under $3 billion or so.  I have watched many of these companies employ various strategies to grow, to acquire, to shrink, to recapitalize, to liquidate – all in the name of shareholder value.  I have also taken notes on general investor perceptions of these securities in different scenarios – their greed, their fear and their general unease with smaller cap securities.  Levered Insight will be the culmination of both my passion and experience in investing in this often neglected part of the market.

In September 1981, the U.S. 10-Yr Treasury peaked at 15.3%.  As I write this letter in late November, 2016 it now stands at roughly 2.3%.  The 10-Year Treasury is the “800 lb. gorilla” in the pricing of long term securities such as equities and longer term subordinated debt. Fundamentally, government interest rates should reflect [real growth + inflation expectations + risk premium]. Current expectations would suggest a yield for the 10-year around 4%.  There are literally thousands of publicly trades companies whose securities will be affected by higher interest rates which will create many opportunities, both long and short, to participate in security revaluations that will occur in the process.

I promise to be transparent to you with respect to our investment successes and failures in the partnership and seek to continue to earn your trust and loyalty in the journey.

With Great Enthusiasm,

Eduardo A. Brea