Deep Engagement: A Banking Approach to Classical Value Investing | Donald Zilkha of Zilkha Investments

Episode Summary

Executive Summary: Donald Zilka traces his family’s banking roots from Baghdad to a modern engagement-driven public equities strategy. He explains how Zilka Investments blends deep diligence, management collaboration, and value discipline across old-economy and tech-enabled small/mid-cap stocks, why earlier SPV and drawdown-fund structures failed, and how the firm now plans to raise broader capital with a more accessible fund format.

Main Topics: Family Banking Legacy and Reputation (Priority: 5/5): Zilka recounts his family’s origins in Middle Eastern banking, emphasizing trust, adaptability, and reputation as the basis of long-term survival through war, expropriation, and relocation. Evolution of the Investment Model (Priority: 5/5): He describes moving from venture/private equity and deal-by-deal SPVs to a public-market, liquid fund structure after learning what structures did and didn’t work for investors. Engagement Without Traditional Activism (Priority: 5/5): Zilka explains his quieter, relationship-based style of engaging management teams through deep research, respectful dialogue, and operational questions rather than public activism. Value Investing Across Old Industry and Tech-Enabled Businesses (Priority: 4/5): He frames the strategy as value-driven even in technology-adjacent names, with a focus on margin of safety, cash flow, and business quality rather than labels. Case Studies: Nathan’s Famous, Kemet, Palantir, Mattel, Sprout Social (Priority: 4/5): Specific investments are used to illustrate how deep diligence, patience, and willingness to exit when value is realized shape the portfolio approach. Team, Incentives, and Fundraising (Priority: 4/5): He discusses keeping a small, loyal team motivated via salary plus profit sharing, and the shift to marketing the fund more broadly through media, family offices, RIAs, and events.

Key Arguments: Trust and reputation are central to Zilka’s investing style; the family legacy taught that character and credibility drive access to opportunities. Deal-by-deal SPVs can work for a handful of aligned investors, but they are hard to scale because decision timing and stock volatility destroy opportunity. A drawdown/private-equity-style fund was a mistake for this strategy because public-market investors want simpler, more liquid access and smaller tickets. The firm’s real edge is process: quantitative screening, qualitative diligence, and management engagement that creates an informed, constructive view of businesses. Engagement works best when it is collaborative and discreet; management often responds positively when questions are thoughtful and non-confrontational. Value can exist in technology-enabled businesses if the company has durable customer adoption, cash-flow potential, and a clear margin of safety. The strategy is not about falling in love with companies; it is about exiting when the easy money has been made, even if more upside remains. Broadening fundraising requires lowering minimums and communicating the process, not just the stock picks, to a wider set of investors.

Data Points: Family performance through 2021: 22.4% net - Zilka says the SPV portfolio produced this net return through 2021. Grandfather’s age when he left school: 13 - He left school at 13 to begin work in the family’s early banking activity. Year of gold-trading/banking foundation: 1904 - He describes the grandfather’s return to Baghdad after a cholera outbreak and the transformation into a bank. Banking family’s expropriation in Iraq: 1950 - Iraq nationalized and expropriated the family’s business after his grandfather refused to speak out against Israel. Syria lost: 1954 - He cites Assad taking over Syria and the family losing that market. Egypt lost: 1956 - He cites Nasser’s takeover of Egypt and the family losing that market. Investment career start: End of 1986 / early 1987 - He says he created his own MA strategic advisory business around age 36. Venture fund structure: 5-year investment window, 3-year exit - He describes the original venture fund terms as too short for seed-stage investing. Largest distressed sale offer: $25 million position for $10,000-$100,000 - He recounts buying failed venture positions from institutions at steep discounts in 2001. SPV target raise per family: $5 million to $10 million each - He expected to raise this amount from each of four or five families for individual deals. Drawdown fund size: $40 million - He says the drawdown-fund attempt was made when the fund was around this size. Nathan’s initial purchase price: around $20/share - He notes the team bought Nathan’s at roughly this level. Nathan’s dividend: $25 cash dividend - Within two years, he says they received this dividend, enough to repay initial investors and taxes. Nathan’s store count: 247 stores announced; 66 proper Nathan’s stores - He distinguishes franchise/store categories while describing expansion potential. Kemet position: entered at $35/share - He says they were in Kemet at this price before the planned take-private failed. Kemet proposed take-private: $55/share - He says the plan was to take the business private at this price before Lehman Brothers halted the deal. Palantir exit price: $40/share - He says Zilka exited Palantir at this level after buying it at $6. Mattel entry and exit: bought at $9/share; sold at $25/share - He cites this as an example of taking gains before the full thematic upside arrived. Sprout Social valuation range on exit: rose from $40 to $140, later in the 20s - He uses the investment to illustrate his tech-enabled value framework and active monitoring. Team size: 3 investment professionals - He says the firm’s investment function is run by three people.

Pivotal Quotes: "If people like you, they will trust you. And if they trust you, you have a moral obligation to deliver what you say you care." — Donald Zilka: He explains the family’s core principle for banking, relationships, and investing. "It was a bad idea. The one thing that we had done, which was really... let's go out and do a plain vanilla fund format." — Donald Zilka: He reflects on why the drawdown-fund structure failed and why the firm reverted to a simpler model. "We're a hybrid between your sort of momentum-driven hedge fund and your long-term eight to 12-year private equity fund." — Donald Zilka: He defines Zilka Investments’ distinct public-market strategy and investor proposition.

Implications: The interview shows how relationship-driven, deeply researched public investing can differ from both activism and classic value funds. It also suggests that fundraising success now depends on clearer messaging, lower entry points, and showing a repeatable process, not just isolated wins.