Peter DeCaprio: independent research, patient capital and the willingness to be early

The short version

Peter DeCaprio has spent roughly three decades in investment management, and the shape of that career is easier to describe by its habits than by its titles. Today he is a Member of Emerald Coast Holdings LLC, the private investment firm he works from in Fort Lauderdale, Florida, and he keeps a second base in Boston, Massachusetts, the city where his earlier firms were built. The lanes he works in are narrower and more demanding than a general mandate: lower middle market companies, venture debt, distressed credit, private credit, closed end funds, high yield research and the telecommunications sector, with utilities as a secondary interest. He follows public equities and the broader capital markets as well, partly because credit and equity keep explaining each other.

If there is a single thread, it is underwriting. DeCaprio treats every position, private or public, as something to be underwritten rather than a story to be believed, and he does his own research before he trusts anyone else's. The habit has left him comfortable in the places where consensus is thin, which is where he tends to find the work most worth doing. What follows is the longer version.

Boston, and building firms

The Boston years set the pattern for everything that followed. DeCaprio founded Crow Point Partners there and led it, and later he founded and led FlowPoint Partners in the same city. Both were investment firms built around his own research rather than inherited from anyone, which meant that everything a firm needs, from the investment process to the way it explained itself to the people whose capital it managed, had to be worked out from first principles and then defended.

Running a firm is a different education from working inside one. The founder is the person who signs off on a position and the person who answers for it afterward. In DeCaprio's case that produced two habits that never left him. The first is underwriting discipline: a refusal to size a position before the downside has been mapped, and a preference for investments whose thesis can be checked against documents and cash flows rather than sentiment. The second is independence. An investor who does his own reading does not have to wait for the sell side to notice something, and can hold a view through the stretch when it looks wrong.

The weight of the work was the third lesson, and it had less to do with method than with temperament. Other people's capital concentrates the mind. It makes patience less a virtue than a requirement, and it turns the question of when to sell into one that has to be answered honestly rather than comfortably.

During the Crow Point years, The Wall Street Transcript interviewed DeCaprio on the firm's investing strategies, and the conversation set down at some length how he framed value and risk at the time. Read now, much of it would not sound out of place in a conversation with him today.

Emerald Coast Holdings

The present chapter is Emerald Coast Holdings LLC, where DeCaprio is a Member. The firm is private, and that matters more than the word suggests. A private investment firm can hold an illiquid position for as long as the thesis needs, can take a concentrated view without a marketing department objecting, and can do work in corners of the market that are too small, too complicated or too unfashionable for a large allocator to bother with.

Those corners are where DeCaprio spends his time. Lower middle market companies, the businesses that have outgrown a bank branch but are nowhere near the syndicated market, often need capital structured with more care than a template allows. Venture debt sits alongside that work: lending to growth companies where the underwriting rests on contracts, runway and the quality of the equity behind the loan rather than on a long operating history. Distressed credit and private credit round out the lending side, and both reward the same thing, which is reading the documents more closely than the other side of the trade.

On the public side he continues to research high yield, to follow closed end funds, whose discounts and structures create opportunities of their own, and to track the telecommunications sector, with utilities as an adjacent interest. Telecom is a sector in which capital intensity, technology cycles and balance sheet structure all bear on value at once, which is exactly the kind of problem that suits an analyst trained in credit.

The common denominator is that a private firm lets the research decide the mandate rather than the other way around. That is an arrangement a founder learns to value, and it is the one he has now.

How he works

DeCaprio's method is easier to see in what he avoids than in what he does. He avoids crowded positions, not out of contrarianism for its own sake but because a crowded trade has already priced the good news and left only the bad. He avoids a thesis that depends on a single number being right. And he avoids selling because a position has become uncomfortable, which is a different thing from selling because it has become wrong.

The positive version is a contrarian temperament tempered by patience. He is willing to be early, which in practice means being willing to look mistaken for a while, and he holds positions long enough for the underlying value to assert itself rather than trading around the noise. Holding periods of that length only work if the original underwriting was thorough, so the two habits reinforce each other: research earns the right to be patient, and patience is what makes the research pay.

The third habit is involvement. In the lower middle market and in private credit the investor is rarely a passive holder, and DeCaprio does not try to be one. He takes an active interest in the companies Emerald Coast backs, in the operating questions behind the numbers as well as the financing, on the view that a capital provider who understands the business can add something beyond the capital. It is a more demanding way to invest, and it narrows the number of positions any one person can responsibly hold, which he treats as a feature rather than a cost.

Temperamentally, this is someone who would rather be right slowly than fashionable quickly, and who is at ease with the silence between the time a thesis is formed and the time the market agrees.

In print and on air

DeCaprio has written and spoken about markets throughout his career. He is a columnist and author at Entrepreneur, where he writes for an audience of founders and operators, and The Wall Street Transcript interviewed him on Crow Point Partners' investing strategies during that firm's years. His commentary has also appeared in Thrive Global, Vocal and TechBullion.

On air, he is known for market commentary that does not soften an unpopular view. The best known example is his CNBC appearance discussing a short thesis on Tesla, an argument made against a stock the market loved at the time. The specifics belong to that moment; the method behind it is the one described above, a view built from his own research and stated when it was uncomfortable to state.

The pieces that can be read online, with links, are collected on the In the Media page.