Jeremy Raper Pt. 2: Activist Investing, Australian Small Caps, and Finding New Ideas

Episode Summary

Executive Summary: Jeremy Raper discusses how his investing evolved toward smaller, more illiquid markets, less short-selling after painful COVID-era losses, and a new form of “social activism” that uses social media and traditional press to influence outcomes in small-cap special situations. He walks through examples like Hunter Douglas, Australian event-driven names, commodities, Japan, and his activist campaign at Alto Ingredients.

Main Topics: Evolution of Raper’s investing style (Priority: 5/5): He explains how moving from London to Tokyo shifted his focus toward Asia/Australia and reduced short-selling after experiencing major losses in names like Tesla and NIO. Rise of “social activism” in small-cap investing (Priority: 5/5): Raper argues that smaller investors can influence outcomes by combining equity ownership with social media and press coverage, especially in sub-$1B float companies. Case study: Hunter Douglas activism (Priority: 5/5): He describes how he challenged an unfair takeout bid, mobilized minority shareholders, and helped force a much higher eventual sale price. Idea generation and pattern recognition (Priority: 4/5): Raper says he does not rely on screens; instead he uses newspapers, reverse inquiry, and analogies to prior situations to spot mispricings and catalysts. Australia as a fertile small-cap/event-driven market (Priority: 4/5): He highlights Australian micro/small caps as inefficient, media-sensitive, and full of special situations, with greater opportunity than crowded large caps. Japan’s capital structure and stakeholder model (Priority: 3/5): Raper sees Japan as socially cohesive and operationally inefficient for shareholders, but believes balance-sheet excesses and cross-shareholdings can still be unlocked. Alto Ingredients activist thesis (Priority: 5/5): He outlines why Alto’s ethanol asset base and carbon-capture optionality could justify a sale or strategic reset, arguing management has underperformed for years.

Key Arguments: Shorting became far less attractive after COVID-era speculative melt-ups; timing risk can overwhelm correct fundamentals. Social media alone often doesn’t move management, but print coverage and local market reputation can materially affect outcomes. Smaller floats allow a motivated investor to have outsized influence without needing activist-fund scale capital. Many Australian small caps are inefficiently priced because large institutions cannot or will not own them, leaving event-driven upside unexploited. Japan’s stakeholder-oriented model may persist, but excess cash and cross-shareholdings can still be reduced over time. Commodity investments should usually be paired with a special situation or corporate catalyst; pure commodity calls are less appealing to him. Alto’s asset value, carbon-capture opportunity, and improved ethanol margins make a sale of its main asset more compelling than continuing as a standalone public company.

Data Points: Time since last appearance: Episode 27 / early 2020 - Host notes the previous interview was very early in the podcast’s history. Move to Tokyo: Late 2020 - Raper says the move increased his focus on Asia/Australia due to time zone convenience. Tesla short loss: Six-figure loss - He cites a painful Tesla short as part of his reduced appetite for aggressive shorts. NIO short loss: Close to seven-figure loss - Another major short that helped push him away from large, directional short positions. Hunter Douglas initial bid: Low 60s euro per share - Founder-led takeout offer on the Dutch-listed window coverings business. Hunter Douglas eventual sale: $175 per share - The business was later sold to 3G Capital at a dramatically higher price. Hunter Douglas bid increase: From 65 to low/mid-80s euro - Raper says activism helped push the offer higher before the final sale. Hunter Douglas tender acceptance: ~15% - He describes this as a very low acceptance rate for a board-approved deal. Silicon Valley Bank stock reaction: Hundreds of millions traded in the aftermarket - He lamented not shorting after the Peter Thiel withdrawal headlines. Hunter Douglas ownership: 87% founder-owned / ~700m euro float - Shows why the company functioned like a smaller, more influenceable situation. Think Childcare initial bid: ~30% premium - Used as an Australian event-driven example where a financial buyer started a process. Australia/ASX small-cap threshold: Under $300m; often under $100m-$200m - Raper uses these ranges to define where inefficiency is greatest. Alto market cap: Just under $200 million - Current size of the ethanol company at the center of his activist campaign. Alto capacity: ~350 million gallons/year - He describes the company’s ethanol production footprint. Pekin campus capacity: ~250 million gallons/year - This is Alto’s key integrated asset and the focus of his thesis. Alto CEO track record: Negative 60% compound shareholder return since 2013 - Used to argue management has failed to create value over a long period. CEO compensation: Close to $8 million total comp - Raper cites pay versus performance as part of the governance critique. Crush margin: ~35-40 cents now vs. about -5 cents last year - Shows a major improvement in ethanol economics. EBITDA sensitivity: $1 million annualized EBITDA per 1 cent move - Management guidance Raper uses to frame Alto’s leverage to margins. Carbon capture opportunity: ~$150 million EBITDA potential - His estimate of the strategic upside if Alto monetizes carbon sequestration. Replacement cost / EV: ~50 cents per gallon EV vs. $2 per gallon replacement cost - He argues the assets are materially undervalued relative to build cost. Japan foreigner ratio: 1 foreigner per 10,000 Japanese - Used to illustrate Japan’s cultural homogeneity and low-immigration model.

Pivotal Quotes: "if you're not attacking multi-billion dollar companies, if you're attacking kind of sub-billion dollar companies... then you can have an outsized kind of impact" — Jeremy Raper: Explaining his concept of social media activism in smaller companies. "shorting was a very big part of my game... Having any kind of outsized shorts became basically suicidal" — Jeremy Raper: Why he reduced short exposure after painful losses during the COVID/speculation era. "you don't see the piranhas eating each other either" — Jeremy Raper: His Rounders analogy for how sophisticated investors can behave around a known catalyst or setup.

Implications: The episode shows how modern activism, media, and social platforms can reshape outcomes in micro/small-cap markets. For investors, process and catalyst matter as much as valuation, and overlooked illiquid names may offer the best risk-reward.