Episode 21: Asher Edelman - Founder of Edelman Companies

0:01This week, I sat down with none other than Asher Edelman, one of the first and most legendary corporate raiders in Wall Street history. Known for his aggressive and strategic takeovers in the 1980s, Asher helped define a new era of shareholder activism and famously served as one of the inspirations for the character Gordon Gekko in the famous movie Wall Street. After beginning his career in 1961 at Halland-Sleeglitz, he went on to found Edelman & Company, leading bold corporate battles that shook the financial world. Astro didn't stop with finance. He later became a professor at Columbia, teaching corporate rating, The Art of War, using Sun Tzu's The Art of War as his textbook.

0:38He also built a second career as a major player in the art world, running galleries and advising top collectors. His multidisciplinary life has been power, strategy, culture, and conviction. In our conversation, we talked about his early life on Wall Street, the tactics and psychology behind takeovers, the crossover between art and investing, and the lessons he's learned from... lifetime of bold moves. I really enjoy this conversation and I hope you guys do too. Thank you, Asher, for joining me. I really appreciate it. My pleasure. So I'm going to start off where I usually do. Your kind of early life, your teenage years.

1:21And what I see in your teenage years is you were fascinated by art and finance at a pretty early age during your early teenage years. what drew you to both of them and how did you pursue your interests in both art and finance as a teenager art was something natural the the pictures in my parents house and my grandparents house were kind of second-rate impressionism um the somehow or another i moved away from that And when I was 12 or 13 years old, actually 12, I began to go to the Met and I bought books in the Met. I still have some of them. And it became an evolution. By the time I was 18 or 19, I was buying student art and some other art drawings and prints and so on.

2:16And so it really became the driving, the driving cultural part of my life. the music dance and etc were part of it as well our part of it as well there was no light bulb moment

2:38it just evolved the finance side is pretty simple

2:49one I like math very much I didn't study finance, though eventually I taught at Columbia Business School. But the challenge of looking at numbers and seeing how things worked hit me as a kid. My grandparents and granduncle were friendly with someone called Bernard Baruch, who was a famous investor in those days. And he arranged for me to work from when I was 14 on during the summers at a brokerage house where I did such spectacular things as figure out when it was raining how you walked under the buildings to deliver the bonds and the stocks to other buildings. I kind of got a little bit into the analytics of shares with some of the people there.

3:49And so that was a start. But it was not automatic that I was going to go into the finance world. When I finished college, I was supposed to go on for an advanced degree. And I was asked by a friend's father if I might want to come down and work on Wall Street. and as I thought, I wanted to be a teacher, but I also was a little tired of living on student budgets and working in a bar and so on. So I took the job. Eventually, I got to be a teacher, but it was far away from the subject that I was interested in, which was developing countries. But anyway, there we go.

4:54Can you kind of take us a corporate radar? Just kind of like the evolution of your career on Wall Street. Yeah, I started out with a firm called Halley and Stiglitz, which was an international arbitrage firm and was with them. for two or three years. And then I went to a firm called Carter, Belind & Weill, which eventually became Citibank. But on the process, it became Lehman Brothers and American Express and a whole bunch of other things. And for them, I went to live in Belgium. And I developed a network, which eventually became Lehman Brothers, part of Lehman Brothers Network, And I did that for about five years and I came back and set up my first owned firm and ultimately it evolved into the arbitrage and mathematical ends of arbitrage and so on in my second owned firm.

6:01And eventually that evolved into converting certain forms of arbitrage into acquiring companies. A lot of my listeners and a lot of people in the 60s and a lot of people today don't know, didn't know what the environment looked like in the 60s. So can you kind of paint a picture for me? The beginnings of computerization of Wall Street. The computers would take up a room the size of probably the room you're sitting in. And all they would do is sort out cards and print up statements. the ethics morality and club-like atmosphere of Wall Street was quite different. In the 60s, if you made a trade with someone on a telephone and it turned out that you lost whatever, 10 ,000, 20 ,000, whatever amount, either you would simply give it to the person or he would say, okay forget it I forgive you and by the 70s that trade would be in writing and nobody would forgive anything nor would the guy who lost the money be interested in paying and by the 80s it all became what can we say?

7:23It all became a zoo and the idea of ethics and morality and the club became a cocaine users club at the end of the day and it really got to be pretty disgusting. It's actually when I left Wall Street.

7:43and what drew you to doing taking companies and arbitraging and what drew you to kind of corporate rating um and activism uh from your throughout your career on wall street um so it all started out well first harry markowitz worked for me when he was doing his beta theory which won the nobel prize eventually and we developed various hedging arbitrage techniques. And in fact, in the first part of the existence of the CBOE, we were the biggest traders on the CBOE, bigger than some of the houses who now control all of Wall Street. At the same time, I was always a value player in terms of investments.

8:32So we had an arbitrage, a merger arbitrage department, and sort of two things happened. I began to realize that I'm taking the risk for the companies who are buying other companies. And basically, we're helping make those transactions happen. But we're taking the risk that if they lose interest or anything, or governmental problems, et cetera, we're the ones who are going to lose. and so I thought well what do you do about that well what you do about that is you become the person who perhaps doesn't take the risk and the arbitrageurs and the rest of the community can take the risk and and and you move into that place but the next thing that happened was a company called canal randolph um I got a call because we ran a desk you know we were more really in the trading world and the numbers world.

9:33And I got a call from someone who said, you know, we have X number of shares of Canal Randolph for sale. And it really looks to be a very interesting company. It's got, and I was doing over-the-counter options and so on as well. They wanted to do an option transaction to do this trade. and what they said was it's in the auction business. It auctions cows and pigs and sheep and it's a very interesting business. So I said, okay, well, I'll take a look and I took the file home on the weekend and it wasn't in the auction, it was in the auction business but that had very little to do with the business it was in.

10:19It was basically a real estate holding company kind of hiding behind an auction business. And it was selling in the low 20s. And my analysis, my back of the envelope analysis was, it's worth in the 80s. And so I thought that was kind of interesting. And so I hired a company called East Dill, which was a specialist in real estate. And I said, I saw this thing and it doesn't make any sense. can you take a look? And they came back with a similar number. And because in those days, shares didn't sell against their hard assets at all. And they still don't really. Shares sold on their earnings and their cash flow and their growth.

11:11And this was a very quiet company. In any event, so I bought the block and then I decided, well, okay, you've been following all these arbitrages. Why don't you move ahead and do something about this company? Well, it was quite a war. And at one time, I virtually had to risk all of the rest of my money to get control. And it was quite a hard decision for me because it isn't my nature. But we won the war. And eventually, actually within about a year, we distributed. And our average cost was in the high 20s. We distributed 90 some odd dollars in the first year on liquidating the real estate and then continued to run the company until we could take it down to a complete liquidation, which probably worked out to around 110.

12:04So that was my first foray, though I had bought sizable positions in companies that were undervalued, including oil companies in those days and so on. But I had never been active in making something happen. Yeah, I get to know the management and see if we could be helpful to them. So I was a kid, so nobody paid too much attention to me. But anyway, so then I thought, well, this was a nice thing. So why don't I go out and look for some more? And I found many more. And some of them worked very well. Some of them worked OK. And a couple of them didn't work at all. But in general, it was kind of a wonderful adventure.

12:52Getting into the 1980s, it became institutionalized. To start with, it was Kravis. it was Icon, it was me, and those guys were bigger than I was. But then it became very institutionalized and it became a bit rapacious and the whole of Wall Street began to interest me less. So I stopped. And what qualities does it take to be an effective corporate raider or corporate arbitrager in your mind? Well, I mean, they're two different things. So to effectively buy companies and make money on them, I think you have to understand what yourself really, what it is that you know better than everyone else or think you do about companies and focusing on that part of the companies.

13:54are you in a situation where it's undervalued for one reason or another. Like in the case of Pruhoff, they had developed a technological breakthrough in brakes for trucks. And there was enough value there to support the company's price without the breakthrough. But the breakthrough was really very interesting. And so that was the focus. I mean, they had other things, but the focus was what's this about and what's this going to be about? It's almost a stock pick. So many of the other companies looked to be computer companies. And it wasn't particularly because I liked computer companies, but a lot of them had a lot of inactive assets.

14:50They had accumulated land to build more buildings and so on. And so we were able to get into the companies and liquidate the unused assets. The thing that I found was that, in my case, the concept of managing operating companies was not my bag. and so I had to figure more or less a way out of that side which which wasn't always easy and and the companies that we ended up with the operating so we got we made money out of them before we that happened but the companies we ended up with the operating side you really had to change a corporate culture etc and that was not what I did so I found some other people and and eventually got out of most of the ones that required that.

15:48And you mentioned the class you taught at Columbia Business School, Corporate Rating, The Art of War.

15:57Why did you believe The Art of War was an appropriate textbook for that class? Oh, I think The Art of War is an appropriate textbook for life. And I believe The Art of War is something that one needs to read every month. And I don't do quite that anymore, but certainly whenever I'm embarking in a difficult position of one kind or another, not difficult but challenging, I reread The Art of War, because there are lots of levels to The Art of War. And at one time, I was probably, maybe anyway Walter Cronkite thought so the only non-military person who was deeply into this book and in fact he did a 13 hour television production of people who knew the art of war and I was I guess one of them all the others were generals and people of war.

17:06I was a man of peace. So, but anyway, the art of war, it teaches you absolutely everything you have to know for, certainly for taking over a company, because it's all the things, it's all the strategies that you would have to spend a lifetime learning, but they're all in the book. and, you know, simple things like a spy. Well, what does that mean to a businessman? He doesn't probably think of it, but maybe it made sense for him to have someone in management who wasn't necessarily giving him any inside information, but who liked him, and that's effectively a spy. And what about when to withdraw and when to move forward?

18:00Well, those things are pretty evident in the art of war. Or what about fighting wars and winning, but you've won them in such a way that there's nothing left? Is that a war you want to fight? And if not, what should you do with the transaction or whatever? So certainly it was useful in the class. Probably what was most useful in the class, it was a small class of 15 people, to that and really bright people. One of them I'm still very close with and have done business deals with, but really very bright people. And what was really interesting is that the class was a seminar class and the students would come in and they would present a case and the other students would battle with that case, so to speak, and would look for the holes in it and how they would defend it.

19:05And so it was very practical. It was very realistic. And it was also extremely informational because they had this guidebook, so to speak, of the art of war. And then they had to look at the other pieces, the assets, the businesses, and they had to look at the management, the psychology of the management. How would they hit these people to get them either on their team or to get rid of them?

19:38Yeah, I wish I was a part of that class. It sounds fascinating. And the fact that only 15 people got to do it. Yeah. It was a lot of fun. During your, I'm wondering, during your days on the street, what skills did you see separate from those who just survived and from those who thrived?

20:05It's so different now. I mean, it's a matter of evolution, really.

20:15I mean the people who survived and thrived in the 60s it was about them and their personalities and relatively a little bit about their capabilities um the people who thrived in the in the 80s it was really about their capabilities and the and the ones who survived which is following most people by the 80s just followed everyone else around in the 60s there was some some level of independence of thought when there was thought there was less thought but by the 80s every transaction that one one person or one leader did the whole of that in that part of the industry followed those transactions and did the same type or the same transactions and it was pretty uncreative.

21:09So the ones who could maybe be creative and the first into the transactions that made sense, I think were the ones who succeeded. The ones who really failed are the ones who were drinking buddies and nothing much ever happened except they did either what they were told or what the other person did. yeah i find that i find that interesting and seems that there's been a lot of cultural change i think cultural change has been kind of the biggest change in wall street over the past from what i've heard and people have interviewed over the past 50 year or so years what i'd like to ask you is there's a lot of people who call themselves activist investors out there today are there any you admire

21:57I'm not really active enough to think about who that might be. I mean, and I sort of think about the negatives a little bit, which I shouldn't do. I don't like to do that. I mean, for example, I would say that Dan Loeb is among the most older people who have succeeded in the industry.

22:24And so I don't admire him. And I don't admire how he does it. I don't admire what he does. And I don't think it's really very solidly based, but it works. I don't know.

22:41It becomes a very heady business. And to start with, I mean, I've had a lot of people come, young people come to me and say, kind of help me a little bit and coach me a little bit. And if I can, I do. But the minute someone seems that someone starts to succeed in this business, they really become very caught up in themselves. And that doesn't really turn me on.

23:14Yeah, yeah. Especially with people that are more public facing. You can see a lot of examples of it. But what I'd like to do is I'd love to shift a little bit into art. Some may know you for your career in art rather than finance. You told us a little bit about how your art journey began, but how did it evolve through your career on Wall Street and also after Wall Street? Tell us a little bit about it. Well, I mean, like most people who are serious collectors, I I really didn't like very much any kind of commercialization of the art world. And this goes to the 60s. In the 70s, it changes a little bit in that I became a lender to some of the, a secured lender to some of the galleries like Leo Castelli and Mary Boone and some of the more active galleries of those days.

24:15but it still really for me was about art I supported some galleries who I thought were special and I still didn't like the idea of commercialization of art I left that to the auction houses and galleries and it wasn't something I was interested in doing I was interested in building a collection and ultimately running a museum, etc But, and it was not a museum in my personal collection, by the way.

24:50But as time went on, I changed my mind. I thought, well, what's really wrong with being a lender into the industry? I mean, lenders make more money than galleries, they make more money than collectors, well, not all collectors, but most. and why not do that and then I began to look at other parts of it financial parts I was very early into guarantees and very early up of guarantees

25:29and I began to look more and more at art as an investment and as you probably know we run now the certainly by numbers of paintings and artists dealt with the largest fractionalization company in the world. And, and yeah, and it's, and it's really fun. And we try to identify in a number of different ways, emerging and re-emerging artists who could become successful financially for investors. We also try to help them, the artists, because giving them, it essentially helps them have a stake at these moments in their lives where it's becoming something important. And helps the galleries too, who would like to support them, but can't sell enough now.

26:22And it helps us too, because it's a profitable business. And we do something that's a lot of fun, which was certainly my whole life in art as a non-commercial person, which is we're close with and in touch with the artists. We try to help them develop, especially after we place their work. We try to help them develop. We try to help them find additional galleries. We try to help them get publicity. We try to help them get into museums. So we have a whole active afterlife of these investments that we've placed. And that's really the fun part, of course, of business is to make some money. And we certainly, it's a profitable business.

27:07Even it's the one we have, we've just set up really what the business is. We were doing it ad hoc before. But the one we've set up in the last year, its first year, was profitable immediately. And will become much more profitable this year. But, and that's fun. But the real, the personal fun for me is the continuous contact with the art and the artists. and the need to pay attention to help these people succeed and therefore the investments succeed. I like that. It's compelling and something everybody in the team, in my team, is interested in and kind of a nice part of it. And I have kind of two questions for you along those lines, one that I'm interested in and one that I mentioned someone when I was interviewing to you, someone close to me who's a large art collector and he was interested in this.

28:07So first question, which artists are you excited about right now that you'd like to mention? And second of all, what are a couple of museums you recommend anyone visit in the world? Recommend anyone what? Visit museums? Yeah. What are a couple of art museums that you recommend everyone that people should visit at least once in their lives if they have the means to?

28:35Maybe Pergamon in Berlin, which is an antiquities museum, perhaps the best in the world. Although they stole all the things, but that's life.

28:50It's not life, it's not right, but anyway, it is what it is. and