From analyst to hedge fund founder in six years


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Interview by Jodi Glickman, contributorDecember 28, 2010: 9:50 AM ET


FORTUNE — At just 30 years old, Cara Goldenberg is at the top of her game. She is the founder and managing partner of Permian Investment Partners, a New York City-based hedge fund she launched in 2008.

Goldenberg began her career at Morgan Stanley (MS, Fortune 500) as an analyst in the investment banking division. Her strong quant skills quickly funneled her into the private equity group, a move that allowed her to circumvent the traditional analyst-associate-business school route that many of her peers would follow.

Less than two years into her stint at Morgan Stanley, Goldenberg was one of the first young investment bankers to be picked off by the hedge fund industry. She left to work for Highbridge Capital Management. Brahman Capital’s management team was so impressed with Goldenberg’s questions during an investor meeting, that they recruited her away from Highbridge.

Fortune recently spoke with Goldenberg about her impressive rise to the top. Here’s an edited transcript of the conversation:

Fortune: What has been the driving force for you as an investor?

Goldenberg: I was trained early on to focus primarily on management quality. If you follow brilliant management teams, it will lead you to brilliant investment ideas. It’s pattern recognition.

At Highbridge, I was able to hit the ground running because I was hardwired to look at things the way they did. I was looking at a universe of European companies that were mismanaged and had depressed earnings. They had cost-cutting and capital allocation opportunities that were far better than their U.S. counterparts. But their share prices didn’t reflect that potential. We knew that the right management teams could turn these companies around. And no one else was terribly interested in them.

What was your big break?

Brahman. The European team at Highbridge left so I started looking at European Special Situations. That’s how I met the founding partners at Brahman. I knew Europe reasonably well and spoke French and Italian. So when Brahman hired me from Highbridge, they said, “Go invest in Europe.” That was really the beginning.

Originally, I was the only one looking at European opportunities. I was focused on a different geography and I had real autonomy. Within two years, approximately two-thirds of the fund’s assets had shifted to Europe and I had hired several analysts to help me.

They didn’t give me a budget, it wasn’t “here’s ‘x’ dollars.” It was, “find the best ideas and we’ll figure out how to prioritize.” I am very grateful to them for taking a chance on me.

The first idea of real magnitude was Fiat. When we launched Permian in 2008, a famous hedge fund manager gave us money because, he said: “You had the guts when you were 23 to look at a company that no one else did. That’s why I believe in you.”

How did you get to Fiat?

Sergio Marchionne, the new CEO, was a guy with a track record for creating value in Switzerland. He spent time in GE (GE, Fortune 500) and made his mark at a Swiss quality control company. He came into a company [Fiat] whose reputation was tarnished and whose brand equity had been decimated. But philosophically smart people choose smart businesses. Marchionne saw the opportunity, and we saw Marchionne.

We were likely the only investors outside Italy interested in Marchionne at the time. After some begging and pleading, he granted us a meeting.

Marchionne joined Fiat with a mandate to do whatever was necessary to fix the company. We bought some shares. He confirmed what we surmised. He had full support of the board and its new chairman. If auto was worth more dead than alive, he’d kill it.

Fiat was the biggest employer in Italy at the time. He took on the labor unions. He was fearless. He had real skin in the game and his incentives were aligned.

Marchionne saved Fiat. He got $2.25 billion to cancel a legacy agreement that Fiat could “put” itself to GM (GM). No one thought it could happen — there’s no way this debt-laden, cash strapped Italian company will win in an international court of law. But Marchionne walked away with $2.25 billion of cash and Rick Wagoner [then CEO of GM] was fired shortly thereafter. This was half of Fiat’s market cap.

We exited the position in the mid-teens and made a lot of money. It was the biggest profit generator in Brahman’s history.

Were you surprised by your early career successes?

Was I surprised? No, it wasn’t like I opened the door and there was Ed McMahon. The day Rick Wagoner parted with $2.25 billion, I was blown away. But no, I was never surprised by the success. I just became more and more convinced of the process and realized what a competitive advantage it was. This management-driven philosophy allowed me to follow the most intelligent, successful and capable people in the world. It allowed me to be contrarian. It made me excited to work harder and expand the team.

Tell me what differentiates Permian from other hedge funds.

Most of our investments are a product of what we’ve learned from working with and investing behind really great management teams. We’re very isolated. We’d rather spend our time learning from successful operators and investors. CEO’s making strategic decisions every day — they are essentially investors themselves — allocating capital in the most shareholder-friendly way. This approach keeps us independent and it keeps our portfolio unique.

We have a network and investor base that is totally different from most hedge funds. Our reference list is our management teams. People say, “can you give me your list of references?’ And we send a list of CEO’s. And they say, “No, we’d like to speak with your investors.” We say, “Those are our investors.”

What would you say is your competitive advantage?

I can get a management team to articulate an idea that will cement an opportunity that other colleagues perhaps can’t get. It’s communication, but it’s stylistic. I think it stems from meeting with hundreds of CEO’s year after year and really listening to, and learning from them. And asking the right questions.

We recently met a Finnish guy who spent 18 years at P&G (PG, Fortune 500) selling laundry detergent and Sunny Delight. He’s now running a sporting goods conglomerate in Finland — with totally different products and different distribution challenges.

Instead of saying, “What the hell do you know about a sporting goods company?” We looked at it the other way. We asked, what did it take for him to step out of eighteen years at P&G, where he had $25 billion of revenue. What did he see?

I asked him, “How many opportunities did you turn down before you took this one?” The answer was over 20. But when I asked, “Why did you take this one?” It was totally obvious.

There were brands in this portfolio. Wilson for instance, with 2% market share. Not 20% like you might think. Wilson had tremendous market power that hadn’t yet been realized. There’s enormous brand equity there.

Our investment had nothing to do with the business, per se. We didn’t even identify a market opportunity. We just knew enough to talk to a guy who left P&G after 18 years. To top of page

Cara Goldenberg, 30

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