The Investor Who Left the Rat Race to Build a $100M Fund | Ep 225 with Sam Chipkin the Founder & CIO of 5AM Capital

0:00So Sam, it was great just chatting about when somebody feels that they're in a chaotic state like Wall Street in New York City, moving to somewhere like the beach like Bondi beach in Australia. Australia which seemed like two completely different places could shape their entire business what was that experience from you because I think a lot of people are in what they would call the rat race and they want to get out of that and they want to move to a place that might be more quiet but still really inspires them and gets the juices going for business yeah so it's a good starting coin thanks thanks for having me Daniel so I spent uh almost a decade in New York working in global finance and that was everything you'd expect, fast-paced, demanding, filled with really talented people.

0:49And it was also really formative. I met my wife there. She's Australian too. And while we both loved New York, I think we had this sort of quiet understanding that Australia would be home one day and we weren't really sure exactly when, but we did know that when it came time to raising a family, we wanted to do it in proximity to nature, to community, a place where life could be a little slower and more grounded. So I moved back from New York in 2014, a bit over 10 years ago, before we had kids and my three kids all been born in Australia. And I think looking back, and so the point that you raised there is that the decision to move sort of set the foundation for not just our family life, but then for 5FM Capital, being away from this like constant market chatter, the daily noise of Wall Street, the financial media and, you know, the 24-hour news cycle and the, you know, being here created the space to think a bit differently.

2:00In Bondi, as I'm saying, we're not commuting through midtown jammed into a subway like Cydines and with CNBC on the interactive skyscraper there. I'm walking the coastline. I'm spending time with my family and community and thinking deeply. And then this becomes a key differentiation about long-term capital allocation. And I think that that distance, both physically and mentally, it helps keep focused on what really matters for us in our investment strategy, backing in during businesses, managing risk really carefully, compounding wealth thoughtfully through decades. And we've tried to build 5N Capital to reflect that philosophy.

2:52Recently, we had a doctor on that was talking about how stress was like the number one factor of causing aging for people like their biological marker and their biological age. I imagine Wall Street has to be one of the most stressful jobs or places. At least, you know, that's what I see on TV. That's what I hear. But what did you learn when you were in that type of environment that you brought into business that has helped with success? I think stress, particularly at the wrong point in your life, when you're not in a way to be able to cope with it, can be really problematic and cause real issues for people.

3:34I think stress at the right time in your life can be really beneficial. And for me, it was. I think it sort of allowed me to push myself. um also you know a decade spent there is is almost you know more than a couple of decades of experience elsewhere and so i wouldn't i wouldn't change that for anything i think also you know i was probably working um you know double shifts equivalent for for most other jobs so you know it it brings you up the the curve drastically you're you're you know in the flow of really in important dynamics working with with great people so you know learn a lot from competency is learned a lot from you know that they that the like building my own sense of perspective on intrinsic valuations and managing dynamics but i think as i started to approach you know family life i i knew that i i needed to change change a little bit now there's a lot that i learned from my my time in new york uh not happy to go into different aspects what one thing that did I think really impact our philosophy was that um in my in my sort of first decade I've had a couple decades of investment experience but you know the first decade was investing in in unlisted businesses so only owning the whole of a business and these were typically monopolistic things like airports or telco towers and so you know you had to bring a real rigor to to to the the approach because you're holding these assets for a long time and you couldn't just sort of unwind an incorrect decision.

5:18You had to think carefully about the cash flows, the durabilities, the long-term profile. And so that was very formative in parts of the philosophy that we've got at a 5N Capital where we invest in monopolistic businesses in the listed space so the public equity markets, but we're bringing that sort of unlisted mindset where we're identifying great, great businesses and happy to sort of go through the network effects of scale, the economies of scale, the IP, the things that we look for. But the point is that we take a very deep research analytical. We don't own 100 companies. We just own 25. and we study them inside out.

6:09And if we wouldn't feel comfortable owning the whole business for like 10 plus years, we don't want to own a single share of it. And that strategy has helped deliver some great returns, results for our clients, results for us. 30 % annualized in my prior CIO role before setting up 5M Capital and then 19 % annualized since setting up 5M capital. And, you know, I think a lot is attributable to that mindset of like the discipline, only investing in a business when we really understand it, you know, the long runway for compounded growth and, you know, that mindset of bringing that sort of unlisted to the listed space, It gives us conviction when volatility hits, when there's Trump tariffs and trade wars and headlines.

7:08We're able to know really clearly what we own, why we own it, and that clarity helps us avoid some knee-jerk reactions that plague most public market investors. I imagine knee-jerk reaction is the definition of 2025 so far. When you think about what makes a successful company, so if you're looking at a company and you say, these are the factors that make it successful, or this is a company that has potential, what are you looking for? So we're really focused on long-term, durable, high-quality businesses. And to have conviction over the long term, you need to have a very strong, sustainable, competitive advantage.

7:55And a lot of that then falls under what we loosely refer to as monopolies. It's sort of funny. Monopolies often get a bad rep, but in the right reputation, but in the right category with the right dynamics, they can be incredibly beneficial for their customers, their employees, their shareholders, sort of the whole trifecta as long as sort of that the North Star is aligned correctly and it can create great outcomes to everyone over an extended period of time. What we look for is the businesses that dominate their categories, is not through brute force, but through unique competitive moats, you know, things like strong network effects where, you know, they've got, you know, the supply and the demand meeting and they're able to sort of hold court in the centre of that.

8:54Scale economies whereby, you know, their sheer infrastructure, um um you know that their logistics chains that their entire systems provide such benefit that they can then you know offer things more cheaply um and and you know more more accessibly than than their other competitors and it creates like a self-fulfilling dynamic where it's still good for the customers you know ip regulatory positioning you know something of irreplaceable Valley where it's very been difficult to dislodge these great businesses and they can earn a very high return on capital for a very long period of time such that competition is almost irrelevant because of these great structural advantages.

9:45Would you look at these founders or C-suites? because I heard I know it's different than maybe other types like VC investing or things like that. But I know from them, they always say they're really investing in the founders, which might be totally different. But when you look at either the founders or C-suite, because these might be much larger companies, what do you think or what do you see in terms of traits that these people possess that maybe other companies that haven't reached publicly traded or reached anywhere near the revenue markers that these companies are reaching? Oh, look, it's a really good question.

10:23So we're definitely on, you know, not the VC side. We're on the latter side where the businesses have great, you know, economics and profitable. You know, VC companies, almost by their definition, aren't investing in profitable businesses. We like cash flows. We like seeing the strength of that business being unleashed. But many of them within our portfolio do have very strong founders or founders that have been very important in setting the North Star, the overall dynamics for the business trajectory. And that's really, really important for us. And I think one of the most defining characteristics there is patience.

11:09They're not just looking for like an immediate short-term win. They're looking for like great long-term outcomes, building over decades potentially, you know, potentially more. No, there's certainly great examples on the bigger end of, you know, people who are well-celebrated like Jeff Bezos where, you know, they were reinvesting everything back into the business to make it better for their customers. They had this like customer obsession from day one and they didn't care about like the short, short term. They're thinking about how do you build the business to the best it can be over an extended long period of time.

11:49And we've got other ones in Europe where it's like networks of laboratories where these family founders have been building really disciplined ways, looking to strengthen, not taking undue risk. When it's got that founder mentality, it can be really, really different compared to some businesses where there's just like a hired CIO who then tries to feel that they need to make their stamp on the business and they do some destructive M &A or something just to try and feel like they're making a change because it needs to happen in their tenure, their short tenure as CEO. So we like founders that have that incredibly long perspective and that aligns with our thinking.

12:33So I don't know exactly what is the mindset of an investor in terms of what is the return or how does the return even work? So with what you're doing, you as the investor, what are you hoping to gain? And then what does an investor gain when they invest? And the reason why I ask is like you're saying, I know that different types of investors. Some are looking long-term, some only want an exit, you know, someone different, you know, a variety of reasons. But for you, when you're looking to invest, what is it, what is important that you understand, you know, you'll return your money or whatever that looks like for you?

13:11How do you, how do you need? We're really focused on compounded, durable, repeatable, risk-adjusted returns. You know, it's some stability to it. we want to do this over a long period of time this isn't a strategy where you know vc can be a bit like uh you know let's pick 10 and you know or even like way more but you know let like a lot of them are going to go bankrupt and then you're hoping that one or two shoot the lights out and then that sort of returns overall for everything and it's like quite a you know like maybe portfolio aggregated i'm not trying to like slam that environment at all it's just very different to the way that we think about it, where we expect all of our businesses to contribute, maybe some of them not as compounded as quickly as others because some of them might have reached some stability already, whether it's like an airport or an online classified or an essential B2B business software or a testing and certification business, all these different monopolistic modes.

14:13We're looking for what we would say is teens plus returns. So each year, you know, the value of your investment with us grows, you know, more than teens. And we can do that through cycles. That's going to create terrific compounded wealth for our clients. It's this balance of what we say is capital preservation and capital generation. And I think that's sort of something for us there. I think, you know, when we think out, like, what do we want to be doing over 10 years? We want to, you know, we're ambitious, absolutely, as a team, but we're very, like, risk tolerance, really, focused. We've got all of our own investable capital in the fund.

15:02We've got capital of our respective families or our teammates have invested their own capital. But also, you know, we are very much aligned, you know, this alignment is a marketing slogan. It's a lived reality. And I think that changes that behaviour. We treat risk differently. We're not optimising for just total size of like growing to a behemoth. We're asking ourselves, is this investment good enough to protect and grow the wealth of the people that we care deeply about, our families and our clients that are incredibly important to us. So we've also got now and been going for about three years, we've got about$100 million under management and that's been some good trajectory off the back of some really good returns and good top-ups by committed clients and we've got a firm cap at$750 million because it's not that we lack ambition because there's some very, very large funds out there and you say, why are you trying to be boutique and small?

16:15But it's because from our perspective, we believe that performance and scale have a tipping point that beyond a certain size, the flexibility to how you invest starts to erode and we would rather be the best-in-class boutique than like a massive sprawling asset manager. We've got very deep personal relationships with a select number of our clients. We care deeply about the team and our culture. We're thinking in generations, not quarters, sort of back to your point of how you're thinking. It's not just like, do you do an outstanding job this quarter? We're talking about over the long term where it's like about transparency, accountability, consistency and and you know our team is is tight knit we challenge each other we trust each other we're pulling in the same direction and and i think uh the the culture doesn't like scale that that easy easily and that's sort of the point we want to just make sure that we get these great consistent returns for our our capital base over an extended period of time without getting to a point where we're seen with many others where they almost get too big and they start to then almost implode.

17:33We want to stay within that sweet spot. That could be an amazing lesson, right? I know a lot of people that saw some very fast success, but their business ended up imploding because of that versus maybe a little bit slower and steady. And I'm just shocked that a lot of these other models even exist. Like you said, they might have to invest in 100 companies and only one hits, hoping, knowing that 99 will never go anywhere. It always fascinates me. But besides this lesson of going at this rate to ensure success and not growing too big, is there another lesson where you look back, it could even be in your personal life, that you would say every founder, every executive needs to hear this?

18:18Oh, look, I think that that's a good question, one that I did some research before starting, but I still wasn't quite prepared for it. I think that's probably where you've got to have patience and tenacity. You sort of knew that. But one of the things that really hid me, particularly going from a larger corporate and, you know, like you know wall street type dynamics where you know there's lots of back office and ops and everything to to do you know a lot for you and and when you're going out and building a business all of a sudden you realize um how many hats you have to wear at any you know point in time um and and that's you know that that's sort of difficult like yes intellectually i sort of knew that starting a firm will be demanding and but i just i think i really underestimated how how fragmented my intention would be you know one moment it was like deacon investment analysis and then the next i'm choosing like what type of accounting systems we need for our group and then managing compliance and then onboarding staff and evaluating like tech solutions and and all of that whilst trying to like reach out and build a client base from from scratch and that i mean that constant uh constant context switching you're being pulled in so many different directions it's some more taxing than I expected.

19:45But fast forward three years, we're in a very different place now. We've got a very strong foundation, systems that work, a lean and high-quality team and a culture that's deeply aligned. So as someone approaching and building a business, there's always going to be distractions and there still will be. But now I'm sort of fortunate that we've got the right infrastructure, a rhythm and scale to build the business with focus and integrity. But it was a lot harder, and it still continues to be harder than I'd anticipated. That's an amazing point. We do think, oh, I just want to do sales or marketing, but you don't realize you have to do all that, and then you have to do customer service, and then you have to send emails, and you have to do many things that you never thought you would have to do and you have to do all of it until you can obviously hire team and i mean that's a whole another complexity there but sam this has been great if you want to get in touch with you and they want to find out more how can they our website's a good starting point five am capital dot com dot au and uh you know we have lots of materials that we're happy to share with people some good information on our mailing list.

21:03We're happy to connect with people globally. Absolutely, we've got an international client base, part of the name there, 5M Capital, where up early it's the time to think clearly, but also then connect with global parts of the world. So please feel free to reach out. People always tell me, you work a lot because I'm always working at 5 a.m. but they don't realize that I stop working in the day but I love to work at 5 a.m. so I appreciate that and I can appreciate the name. By the way, Sam, this has been great having you today and thanks for joining us on Founder's Story. Thank you, Daniel. Thanks for having me.