After building and running Blue Sand Securities for about six years, I was introduced to a man who would lead me into one of the most interesting businesses of my career. His name was Andrew Barroway, a class-action securities litigation attorney from Philadelphia.
An unusual law firm
Andy had built something remarkable. His firm grew from two original partners into roughly three hundred lawyers, and it practiced a very particular kind of law. They had no paying clients in the ordinary sense. Instead, they represented institutional investors in securities litigation against companies that had committed fraud, mishandled mergers, or otherwise caused investors to lose money. They would represent an entire class of investors and pursue litigation to recover damages on their behalf.
He was exceptionally good at it. By the time I met him, his firm had just settled the Tyco litigation for 3.2 billion dollars, at the time one of the largest securities settlements in history.
The idea: appraisal rights
What brought us together, though, was not litigation. Andy had an idea to build a hedge fund around a little-known investor protection called appraisal rights.
Appraisal rights come up in mergers and acquisitions. When a buyer acquires a company at a price a shareholder believes is below fair value, that shareholder can choose to perfect their appraisal rights rather than simply accept the deal. In practice that means voting no on the merger, declining to sell the shares, and having the record holder, Cede and Company, send a formal demand to the company before the merger closes. Shares handled this way are not bought out in the transaction. They survive the close, and the holder earns the right to ask the Delaware Court of Chancery to determine the fair value of those shares. Importantly, this is not an accusation of wrongdoing against management or the company. It is simply a request for a court to decide what the shares were actually worth.
It was exactly the kind of opportunity I have always been drawn to: legitimate, structurally protected, and almost entirely overlooked by mainstream capital because it was complex and hard to access.
Building Merion
We launched the fund, Merion Investment Management, with about ten million dollars of our own money and a handful of early outside investors. From there it grew well beyond what we first imagined. We eventually raised 1.2 billion dollars of capital from some of the largest institutions on Wall Street, and we ran the business for fifteen years.
The lesson
Merion confirmed something I had suspected since I was a kid selling parking spots and pizzas: the best opportunities usually live in the places that are difficult to access, harder to understand, and rarely covered. They require a partner with real domain expertise, the patience to learn a complex idea deeply, and the willingness to be early and contrarian. Find a sound idea that almost no one else is willing to do the work to understand, and you have the makings of a durable business.
The best opportunities live where the work is hardest and the crowd is thinnest.