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David Barse of XOUT Capital: “Resilience means setting a goal, fixing yourself on what that goal is and doing whatever is necessary no matter the cost or time to complete that goal”

For me, resilience is never giving up. Success in business is all about resilience. I define it as setting a goal, fixing yourself on what that goal is and doing whatever is necessary no matter the cost or time to completing that goal. Of course, the goal must be a practical one. Surprisingly to me, […]

For me, resilience is never giving up. Success in business is all about resilience. I define it as setting a goal, fixing yourself on what that goal is and doing whatever is necessary no matter the cost or time to completing that goal. Of course, the goal must be a practical one. Surprisingly to me, there are few people in business that have the characteristics to be resilient. Many participants have great ideas; maybe the ideas are not well thought out, but most of them will not succeed because they don’t have the inner strength to do what it takes to complete the goal. Resilient people develop a mental capacity that allows them to adapt with ease during adversity, allowing them to bend to what is in front of them instead of breaking. Resilient people can see every challenge not as a threat but as an opportunity to gather their own internal resources and surround themselves with crucial support in order to persevere.


Ihad the pleasure to interview David Barse.

David is the Founder and Chief Executive Officer of XOUT Capital™, an index company specializing in identifying companies to ‘XOUT’ or remove from an index. Previously, he was the CEO of Third Avenue Management for 25 years, a pioneer in fundamental, bottom-up deep value investing. Under his leadership, Third Avenue grew its assets and broadened its product offerings to include mutual funds, separate accounts, sub-advised portfolios and private partnerships, without sacrificing its disciplined value investing strategy.

Outside of XOUT, Mr. Barse is the Founder of DMB Holdings, a private family office with a diverse investment portfolio, and serves as Director of Covanta Energy Corporation, a global leader in the energy from waste industry. He also serves as a Trustee of Brooklyn Law School, a Director and member of the Executive Committee of the City Parks Foundation and a board member of the Big Apple Gold Chapter of the Young Presidents Organization, based in New York City. Lastly, he is a member of the EQM XOUT U.S. Large Cap Index Committee. Following in his father’s footsteps, Mr. Barse earned his J.D. at Brooklyn Law School and holds a bachelor’s degree from George Washington University.


Thank you so much for joining us! Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’?

After graduating law school in 1987, I went to work for a law firm that specialized in Creditors’ Rights in bankruptcies. When the stock market crashed in October 1987, many companies experienced financial distress and investors developed an expertise in using the bankruptcy process to gain control of a distressed company. One of my clients, Martin Whitman, offered me a general counsel job at his financial services firm, MJ Whitman. Shortly after joining the firm, I became president of the company and grew our asset management affiliate, Third Avenue Funds. Over time, Third Avenue created multiple funds and distribution channels both in the U.S. and abroad.

As assets under management grew to multiple billions in 2003, I orchestrated a sale of a controlling interest in the company to Affiliated Managers Group. A few years after the sale in 2007, the assets under management and the firm grew to 31 billion dollars. However, as the financial crisis set in, the firm suffered significant redemptions in 2008 and 2009. As a result, Third Avenue launched a distressed credit fund to offset the losses suffered to the equity funds. From 2009 until 2015, the credit fund grew assets to 3.5 billion dollars and the equity funds stabilized. However, in 2014 and 2015, the credit fund suffered from poor performance and redemptions. I left Third Avenue in December 2015 after deciding to liquidate the credit fund. I have spent the last few years building my private family office and developing the XOUT index strategy.

Can you share with us the most interesting story from your career? Can you tell us what lessons or ‘take aways’ you learned from that?

One of my favorite stories is the acquisition of Covanta Energy Corporation out of Chapter 11 Bankruptcy. Through one of Third Avenue’s investments, we controlled a publicly listed insurance holding company called Danielson Holding Corporation. This company wrote workers compensation insurance in California but also had a one billion dollar net operating tax loss carryforward. Danielson was able to use its public stock and cash to acquire Covanta for 30 million and the assumption of debt as a result of the ability to utilize its tax attributes to outbid others in the bankruptcy proceeding. Danielson, which changed its name to Covanta after the acquisition, is now one of the largest energy-from-waste businesses in the U.S. and the UK, having a market cap of approximately two billion dollars. I am still a Covanta board member today.

This acquisition, as well as any corporate transaction, reminds us all that no deal is easy. Deal making requires hard work, strong financial acumen and, perhaps most important, perseverance. Also, do not underestimate the importance of tax strategy — make sure you have great tax advisers in every transaction you engage in.

What do you think makes your company stand out? Can you share a story?

After years in the asset management industry and deal making business, my experience of trying to pick winners and outperform the market or your peers was very difficult. XOUT stands out because we have flipped the paradigm of the asset management business and found that it is easier to simply exclude losers than pick winners.

For years, Third Avenue, like most active asset managers, had been unable to outperform the large-cap index, the mid-cap index or the small-cap index. We even sought to compare ourselves to the MSCI All World Index in order to give us the broadest index to outperform. It is hard to appreciate the degree to which indexing has fundamentally reshaped the asset management industry. So, the insight I took from this experience is that in the new information age of the investment landscape and the drastic change in capital flows into index/low-cost funds, it is more important what you leave out of your portfolio than what you put in. In addition, technological disruption is impacting all industries — not just the technology sector. Indeed, technological disruption is occurring at a faster rate than the market can fully appreciate. Accordingly, market prices, while clearly impacted by the efficient market hypothesis, are not reflective of how fast disruption is impacting all companies in all industries. The most prolific example of this phenomenon is General Electric. Not long ago, General Electric was one of the top 10 market cap companies in the large-cap index. There were many analysts covering General Electric, lauding its former CEO and the company as one of the most innovative conglomerates ever to exist. How is it that its market price did not reflect the true value of the business? Even as a premier activist investor had moved into a significant ownership position in the company and secured a board seat, how, as an insider, did they not see the impact that technological disruption was having on its value?

XOUT’s story is not to try and outsmart the smartest people in the business. Instead, we are simply excluding companies that can’t keep up with the rapid pace of technological disruption. If you can eliminate the losers, the winners will take care of themselves and create real alpha in a broadly diversified portfolio.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story?

There are too many people on this list, but I will share a personal story. When I was in law school, my father was diagnosed with stage four stomach cancer. I had always planned to graduate from law school and go into private practice with him. With his life in jeopardy, I turned to one of my law professors for guidance. Professor Michael Gerber, who wrote the legal text on business reorganizations, guided me to clerk for a bankruptcy judge and steered me into a field I knew nothing about nor intended to get into. As a result, I learned the Bankruptcy Code, obtained a position at a premier New York City law firm, participated in some of the largest bankruptcy cases after the stock market crash of 1987 and parlayed the experience into an asset management job. For this reason, I sit on the Board of Trustees of Brooklyn Law School and Professor Michael Gerber remains my mentor.

Ok thank you for all that. Now let’s shift to the main focus of this interview. We would like to explore and flesh out the trait of resilience. How would you define resilience? What do you believe are the characteristics or traits of resilient people?

For me, resilience is never giving up. Success in business is all about resilience. I define it as setting a goal, fixing yourself on what that goal is and doing whatever is necessary no matter the cost or time to completing that goal. Of course, the goal must be a practical one. Surprisingly to me, there are few people in business that have the characteristics to be resilient. Many participants have great ideas; maybe the ideas are not well thought out, but most of them will not succeed because they don’t have the inner strength to do what it takes to complete the goal. Resilient people develop a mental capacity that allows them to adapt with ease during adversity, allowing them to bend to what is in front of them instead of breaking. Resilient people can see every challenge not as a threat but as an opportunity to gather their own internal resources and surround themselves with crucial support in order to persevere.

XOUT is an example of resilience. Launching a new index strategy upon which an ETF can be listed is not easy. I was rejected more times than I can count but never gave up in reaching my goal.

When you think of resilience, which person comes to mind? Can you explain why you chose that person?

Tiger Woods. As a golfer myself, I have always been a fan of Tiger Woods’ golf game. His resilience to return to the game after suffering multiple injuries and play at a level to win again was amazing. It is why his victory at the Masters in 2019 was considered one of the greatest achievements in sports history.

Has there ever been a time that someone told you something was impossible, but you did it anyway? Can you share the story with us?

I was told that it was going to be impossible to sell Third Avenue. There were many reasons why selling the company was going to be impossible. Because Third Avenue was family owned, it was considered a family jewel. And no one wants to sell a family jewel. However, after carefully studying the market for buyers of asset management businesses, I was able to convince the family to consider some offers. Once I was able to secure interest in our business, I had to let outsiders inside the company. Professional buyers are serious people and conduct significant due diligence. Passing the scrutiny of such diligence was another step in the “impossible” journey that had to be overcome. Then there was the negotiation. There were numerous parties in interest: the buyer, the selling family, the minority employee shareholders, the employees and the management. All interested parties needed to be satisfied. Then we had the most important constituent to contend with: our investors and clients. In the asset management business, there is an understandable concern with boutique asset management firms that sell to corporate buyers. However, we were able to show our clients that it was in everyone’s best interest to sell to AMG. In August of 2003, we closed the transaction against what was told to me were “impossible” odds.

Did you have a time in your life where you had one of your greatest setbacks, but you bounced back from it stronger than ever? Can you share that story with us?

When I left Third Avenue in December of 2015, the media reported on my departure without my ability to comment on the circumstances surrounding the event, as I was contractually prohibited from speaking to the media. The stories written were not favorable to me, which was both a personal and professional setback. However, as time elapsed and I was able to re-enter the asset management business through the creation and launch of XOUT, it made me even more confident in my capabilities to achieve my goals.

Did you have any experiences growing up that have contributed to building your resiliency? Can you share a story?

The most significant event for me was losing my father to cancer when he was only 58 years old. As stated above, I always wanted to be a lawyer like my father. I went to Brooklyn Law School, where my father graduated. After he got sick I had to find my own path it, which was likely the most significant contributor in giving me the strength and drive to succeed.

Resilience is like a muscle that can be strengthened. In your opinion, what are 5 steps that someone can take to become more resilient? Please share a story or an example for each.

Resilience can be evaluated as follows: 1) Set a goal; 2) Map out the path toward achieving the goal; 3) Recognize that there are always going to be obstacles toward achieving your goals, so staying calm under fire is important; 4) Anticipate the unanticipated; and 5) Keep working until your goal is achieved and, once you achieve your goal, set a higher goal in order to keep achieving. Don’t forget that celebrating success should be a consequence of achieving goals.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

My “movement” would be to inspire people to spend more time in our city’s parks. The New York City Parks Foundation is dedicated to invigorate and transform parks into dynamic, vibrant centers of urban life through sports, arts, community building and education programs for all New Yorkers. I know first-hand how impactful parks can be for all people. Parks don’t discriminate; they simply make people feel good, which is why I am proud to be the incoming Chairman of The New York City Parks Foundation. If I could convince every New Yorker to spend just one hour a week to take a walk through a park, I am certain it would make them feel good. And when people feel good, it becomes contagious.

We are blessed that some very prominent leaders read this column. Is there a person in the world, or in the US with whom you would love to have a private breakfast or lunch with, and why? He or she might just see this, especially if we tag them 🙂

Michael Bloomberg. I would have picked him even before he announced his intention to run for president. As a successful entrepreneur and former mayor of New York City, he has always inspired me. His motto of being a problem solver is what I would like to spend most of my time talking with him about, as it is a valuable skill to have.

How can our readers follow you on social media?

Readers can connect with me on LinkedIn or through www.xoutcapital.com.

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