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Hedge fund interview: David Waters — Alluvial Capital Management

Alluvial Capital Management, LLC is a registered investment advisor firm that offers separately-managed accounts with a focus on micro caps, thinly-traded securities, and complex equities.

Alluvial offers Alluvial Fund, LP, a value investing partnership. Its separately managed accounts are no longer open to new investors.

Since inception (31 March 2014), the Alluvial Global Focused Value Strategy has produced a cumulative return of 45.2% for investors compared to a return of 19.9% for the Russell 2000 and 15% for the Russell Microcap Index. Below we interview David Waters the founder of this famous hedge fund. See the full interview in our upcoming issue of our new exclusive quarterly small cap magazine.

Dave Waters Alluvial Capital
Hedge fund interview: David Waters — Alluvial Capital Management

Hedge fund interview: David Waters–Alluvial Capital Management

To start can you tell our readers a bit about your background and how Alluvial Capital Management came into existence?

The story of Alluvial begins several years ago when I was working for a trust bank in their wealth management department. From my own reading and research, I had developed a keen interest in the niche corners of the market, mainly over-the-counter and thinly-traded stocks. I would spend hours on evenings and weekends constructing databases and valuation models for these companies and seeking out new market niches to investigate.

But of course, a sleepy trust bank was never going to invest client funds in these opportunities. I knew I needed to leave for a hedge fund or private equity group, but I didn’t have a top school MBA on my résumé or any investment banking experience. So I started publishing my research, profiling interest opportunities in tiny and obscure companies on My hope was that my work would be recognized by potential employers. What actually happened was dozens of different readers contacted me over the years to ask if I were able to manage money for them. That’s why I launched Alluvial Capital Management, LLC in January 2014.

What’s your investment strategy?

It’s fairly simple: I practice traditional value investing. I attempt to identify securities trading at a significant discount to a conservative estimate of asset value or earnings power.

The problem is, these securities are rare. My solution is to focus on the areas of the market where most investors cannot or will not invest: unlisted securities, those with little trading volume, complicated situations where the value is hidden, and foreign markets that attract little attention. Securities in these categories are much less likely to be efficiently priced, and value is there for those willing to look for it.

How do you go about finding ideas?

I turn over a lot of rocks. There are no shortcuts for finding many of the companies that I own. I go through lists of businesses in a particular market, exchange, or industry, one by one. When I am done, I start over again. I am particularly interested in companies that don’t screen well because of some financial statement quirk or because some temporary factor is distorting earnings or disguising growing business value. I do use screens, some traditional and some proprietary because value opportunities that would be seized on immediately in large-cap stocks and arbitraged away can persist with tiny companies.

Finally, I monitor news flow and corporate actions in the market segments I follow. The market can be stunningly slow to incorporate new public information into stock prices in less liquid, lower-profile markets.

Want the read the rest of the interview? 

Want to read the rest of this interview? Then head over to Hidden Value Stocks is ValueWalk’s exclusive quarterly magazine.

The next issue of this exclusive publication will be released on March 15 contains interviews with three impressive small-cap hedge fund managers as well as for stock tips.

If you want to buy the last issue, sign up for a whole year, or just find out more about what’s on offer, click here.