James River Capital is an alternative investment-focused investment firm based in Manakin-Sabot, Virginia. Paul Saunders, the founder and managing partner has managed James River Capital since 1995 and served as its Chief Executive Officer for over 25 years. Originally the alternative investments department of Kidder, Peabody & Co. Inc., James River Capital was renamed in 1995 when Paul and his business partners acquired the firm from Paine Webber.
Drawn to alternative investing due to its advancement on the basis of merit rather than on the basis of progression through a corporate structure, Saunders has made strategic investments in alternative investments for over two decades to add diversity to a portfolio of traditional fixed income and equity investments.
James River Capital is the recipient of the 2014 HFM’s U.S. Hedge Fund Performance Award and an Invest Hedge Award in the GSM $500 million to $1 billion category. James River Capital was also recognized as a Corporate Live Wire Winner from Global Fund Awards, and an Investors Choice Award in 2015.
Saunders, who earned a bachelor’s degree in economics from the University of Virginia in 1977 and an MBA from the University of Chicago in 1979, sat with us and answered a few burning questions:
How did you turn the idea of James River Capital into reality? How did the idea for it start?
There were two critical reasons behind starting James River Capital – one was the fact that I always wanted to run my own company without the bureaucracy that comes with a large international firm. With James River Capital, I was able to achieve that through the buyout and relocation of the business. The second reason was that my partner and I simply wanted to live somewhere warmer than New York City. After heading up the alternative asset division at Kidder Peabody and Co., my partner and I decided to buy the division in the 1990’s and move the company to Richmond, VA.
How do you remain productive and how do you turn ideas into reality?
A healthy body maintains a healthy mind. I have begun my days with an early morning workout for as long as I can remember. Working out gives me energy, carries me through the day and puts me in the right mental state to optimize my productivity so that I can more easily take on and process complex challenges and decisions while effectively maintaining my work relationships.
When it comes to generating new ideas and bringing them to life, I leverage my experience and business acumen that give me a good sense and gut feel for whether a business idea has a chance in reality or not. I am also the head decision-maker at James River Capital, and this enables us to be quick and nimble about deciding whether or not to pursue an opportunity and make it happen. That is another reason why I love owning my own financial firm.
What gets you excited about James River Capital versus trends at other companies?
The team that I have put together at James River Capital is made up of great and diligent individuals who are productive regardless of where they work from – whether that is their home offices or another location. Because of this, I am excited by the trend of employees working from home, though I recognize that the reason for it is less-than-desirable. With the use of technology, our interface is as seamless as if we were physically co-located, and I enjoy being able to offer and knowing my employees are experiencing a better quality of life. This is because I believe that happier employees are more engaged and do better work, and this is at the heart of why I love this trend of remote work. At the same time, I remain cognizant of the importance of social engagement and its central role behind a company’s well-being and corporate morale. Overall, while the flexibility and enhanced work-life balance that remote work offers, I believe that a mixture of working in-office and home will provide a great balance when possible.
As an entrepreneur and leader, what advice would you give to the younger generations who are aspiring to pursue a similar career path?
Being younger gives more energy and an increased ability to take advantage of every opportunity that comes along. This has young individuals who are aspiring entrepreneurs and leaders running a million miles a minute and loving the action, the travel, and growing their business. That is all great but with such an attitude and such an active schedule, one fails to stop and smell the roses. I know this well because I was just like that. However, in hindsight, my advice would be to run hard, as I did, but try to focus more on the moment and appreciate everything that you have at that time. Otherwise, you run the risk of not really appreciating or remembering as much as you wish you had. This is a difficult habit to learn but definitely worth it in the long run.
What is one point of view that has gotten you the most criticism?
I have always been a firm believer in the fact that money can’t buy you happiness. I actually believe that money has the opposite effect – having a lot of it is probably a negative indicator of happiness. Of course, there is a limit up to which money provides financial security, but beyond that I believe that it can become more of a hassle than a joy. Pure happiness comes from our loved ones – family and friends. The rest is just material stuff that can create more stress than joy.
From your experience, what is the most indispensable quality in a leader and how does it translate into success?
When it comes to goals, quality trumps quantity. Having many goals may sound good and seem opportunistic, but you may run the risk of spreading yourself too thin. The risk with doing too many things at once is that you may lose focus and the ability to attain the goals or complete them effectively. In other words, do not move to the next project unless you have finished what you are working on at the moment. This will not only ensure better quality of your work, but this approach will also minimize stress and exhaustion. While it is not always easy, I am actively practicing this at James River Capital.
As an entrepreneur and leader, how do you take your own advice within James River Capital?
In my investments, I have always focused on the best slugging ratio, or the ratio that measures the amount of money we make on our largest investments. The fund of hedge funds I manage at James River Capital has been fortunate in that the largest investments have generally had the largest percentage return amongst all the managers in our fund. This has been because I am always willing to take the right kind of risk when the opportunity presents itself. This means that there has to be a willingness to make an outsized investment when the opportunity is great. On the other hand, while the risk has to be as high as possible in the right context, it should never be so high that, when wrong, you are taken out of the game completely. Overall, taking risks and scaling your investment size properly is critical.
Can you elaborate on a time when things did not go as planned and how did you power through and overcome it?
Over the course of my career, while I’ve been fortunate to have more winners than losers, I have had many bad investments. They have largely revolved around where I have put my focus on when deciding how to invest. Generally, my losses have been driven by focusing on the idea of product rather than the management team. For example, when selecting hedge fund managers, I would not really put too much focus on what they did but rather how they did it. It was not until I started focusing on the management style as well as the actual product itself that I started seeing better outcomes. Since switching gears in that direction at James River Capital (and even before), I have had much more success in my private equity investments.
Which book has had the most profound impact on you and why? And what about a quote that defines you?
Vishen Lakhiani’s “The Buddha and the Badass” was a paradigm shift for me because is a book about using spirituality and mindset to optimize success in business. At this point in the current business and cultural climate at James River Capital, these lessons are invaluable.
When it comes to a quote, Marcus Aurelius said that, “If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.” This quote speaks so poignantly to the power of thought and how you can control your entire ecosystem based on how you choose to perceive it. In other words, Aurelius nicely elaborates on the idea that we are all the masters of and have the ability to control our own happiness.