If you are an international business at the top of your class in an obscure field, you’ll probably be hearing from Peter Zaldivar. With his partner Marcel Houtzager, the principal and cofounder at Kabouter Management has built an internationally successful investment firm by focusing on small cap investment opportunities that require deep digging, long-haul investment, and a commitment to bringing camera-shy businesses out into the daylight. Kabouter’s strategy is, in itself, a differentiator.
Kabouter will invest in a French company that is the world’s only global call center or a Taiwanese firm that is the biggest tester of cell-phone chips in the world—not only because the businesses have functioned so well as to almost hold a monopoly in their field but also because they haven’t been actively pursued by the stock analysts at Wall Street’s biggest banks.
Why? “Most investors or investment firms focus on larger companies because that’s where most of the investing capacity is,” Zaldivar says. “You can make the most money through the least amount of effort by investing in large companies.”
Zaldivar’s former boss, legendary former Acorn Fund investment manager Ralph Wanger, was the prototype small cap pioneer, and Kabouter has endeavored to extend his legacy of focusing on smaller international investment. The past seventeen years have proven both Wanger and the partners at Kabouter correct, but the multiethnic-founded company wasn’t built overnight.
Zaldivar’s journey has helped shape the soft-spoken Argentine American into a powerful motivator who leads with virtue, not volume.
Always the Outsider
Zaldivar is used to feeling like the outcast. “My parents were part of the generation that really wanted to assimilate,” Zaldivar says. His parents had emigrated from Argentina in the 1950s, and they went to great lengths to try to become the “real Americans” they thought they should be, finally settling down in Oak Park, Illinois. “My parents tried joining all of these clubs that were primarily Anglo people, but they just weren’t fully accepted anywhere.”
The youngest in his family, Zaldivar grew up in two worlds, a natural translator for his parents but also able to “turn off” his Hispanic identity when he felt it was appropriate. It created a difficult catch-22 for him later in life when he went to live in Argentina after college. “In America, I was considered Argentinian. In Argentina, I didn’t really get credit for being an American or an Argentinian.”
“In America, I was considered Argentinian. In Argentina, I didn’t really get credit for being an American or an Argentinian.”
Later, when Zaldivar moved to Asia and was asked where he was from, he would start first with Chicago. However, that answer only seemed accepted once he mentioned his parents were from Argentina—as if he didn’t look American enough. “In the end, it just made me think that I guess I should just take advantage of this,” Zaldivar says. “There had to be a business where I could use this to my advantage and bridge an international gap.”
A motorcycle accident in Hiroshima would set Zaldivar’s final course. After being laid up in a Japanese hospital for weeks, he asked his friend to get him a study guide for an MBA. His friend brought back the only English study guide the bookstore had: the Princeton Review LSAT study guide. “So, I studied it,” Zaldivar says, chuckling. He then went on to graduate from Harvard Law. Quantitative investing gave way to the introduction of small cap investment, and the rest sorted itself out.
A Class of Its Own
Zaldivar says part of what accounts for the success of Kabouter is the interplay between him and his partner, Marcel Houtzager. “We have similar backgrounds but in completely different ways,” he says. “Marcel is Dutch but he moved to Nigeria as an infant, attended high school in Brazil, and then college in the States. I feel like it’s so important to have a partner you understand but isn’t your carbon copy. It’s really important that we just started right out with a diversity of ideas.”
That diversity, though, is rooted in the quantitative investment and forensic accounting backgrounds of the founders. And that concentration on quality has meant that despite focusing on fewer big-name businesses, Kabouter is currently managing billions of dollars.
“If you can interview a company directly, it’s really easy to get straight to the point of whether or not it’s a company you want to invest in.”
“It helps in establishing relationships with smaller foreign companies when we call up and say, ‘We’d like to talk with you for a few minutes about your business,’” Zaldivar explains. “A lot of other investors don’t get the opportunity to talk to companies directly. If you can interview a company directly, it’s really easy to get straight to the point of whether or not it’s a company you want to invest in.”
An investment from Kabouter comes with an extremely beneficial kicker that, again, sets it apart from almost any other small cap firm. “We also act as friendly activists,” Zaldivar explains. That means everything from reconfiguring investment presentation materials—in some cases, simply translating them to English—to helping companies raise their environmental, social, and governance (ESG) scores (oftentimes, businesses flat-out haven’t responded to a questionnaire because they didn’t know it was essential in establishing ESG scores). Kabouter will put companies on a US roadshow, a sort of debutante ball for businesses that have no idea how to make public headway into investment capital.
What’s most evident in an hour with Peter Zaldivar is that he believes in the businesses he’s investing in. Kabouter isn’t about pipe dreams; it’s about helping already successful international businesses take it to the next level. You just haven’t heard of them . . . yet.