Rishi Ganti - Esoteric Assets - [Invest Like the Best, EP.46]
At a Glance
Rishi Ganti (PhD in Economics, CFA, CPA, lawyer, fluent in six languages) is the founder of Orthogon, specializing in investing in "esoteric assets"—assets with no market, no bidding, and abandoned. Ganti's core thesis is that to achieve true alpha, investors must completely avoid market mechanisms—because as soon as even two buyers participate in a bidding process, prices quickly converge to fair value, and alpha is squeezed out.
Theme 1: The Market Is a Social Blessing but an Investor’s Trap
Ganti argues that the market mechanism is a perfect machine for "price discovery," yet for investors trying to beat the market, it is precisely the greatest enemy.
- The Principle of the Price Mechanism: Ganti illustrates this with the classic classroom experiment of auctioning a dollar bill—once two students start bidding, the $1 bill ultimately sells for 99 cents. In the real world, asset values are uncertain, and the "winner's curse" further worsens returns. Asset pricing literature shows that investment managers, on average, pay $1.02–$1.12 per dollar of risk-adjusted value, meaning the entire asset management industry operates at a loss on a risk-adjusted basis.
- The Nature of "Alpha": Alpha is the difference between price and fair value. The more efficient the market, the smaller this gap. Ganti notes: "Even when they're up and the returns look good, like they make 20% in a year, they really should have made 25 or 30 on a risk-adjusted basis." (In other words, even if they earn 20% in a year, they should have earned 25–30% on a risk-adjusted basis.)
- Social Value vs. Investor Value: The market allows ordinary people—parents and grandparents—to buy and sell stocks at fair prices, making it a great social institution. However, for investors seeking excess returns, "attacking a market or having confidence in the face of a market as an investor is an act of hubris for most."
Readers should note: Ganti uses microeconomic first principles to defend his strategy, which serves both as a logically self-consistent argument and as a narrative tool for his fund's fundraising.
Theme 2: The Asset Pyramid — From "Light Matter" to "Dark Matter"
Ganti compares global assets to a pyramid, where alpha opportunities increase progressively from the bottom (most refined, most competitive) to the top (most raw, no competition).
| Layer |
Asset Type |
Competition Level |
Alpha Opportunity |
| Bottom |
Most liquid assets such as currencies, stocks, and mortgages |
Extremely high — information is instantly refined, and cheap pattern seekers (computers, offshore labor) quickly discover prices |
Nearly zero |
| Middle |
Bonds, off-the-run assets |
High — still two "students" bidding |
Very little |
| Upper-middle |
"Niche assets": railcars, aircraft leasing, music securitizations, pharmaceutical royalties, tax liens, litigation financing |
Intense — sounds cool, but still a bid market |
Surface returns mask real risks |
| Top |
Esoteric assets: non-bid, illiquid, non-market, non-auction, unique, abandoned, or overlooked assets |
Zero competition — only one buyer |
Genuine alpha |
- Key analogy: Ganti uses the metaphor of "light matter vs. dark matter" — 99.9% of our attention is focused on a thin layer between 100 and 200 meters above the surface, but this is only a tiny fraction of the universe's matter. Similarly, "refined assets" like stocks and bonds are just "a vanishing fraction" of the global asset base. "The stuff you read about in the newspaper and all the markets you can see and anything you can pull up on a Bloomberg is just a vanishing fraction of what's really out there."
- Whole Foods vs. Fisherman: Buying fish at Whole Foods — convenient, refined, but priced above fair value (Whole Foods needs to make a profit). A fisherman goes out to sea to catch fish — the asset's value has no necessary relationship to its cost; it could yield a big gain or a loss. The former is a "refined asset," the latter is a "raw asset." "In the former one, you can never get alpha. In the latter one, well, maybe you will and maybe you won't."
Theme 3: From "Picking Gold Nuggets" to "Building a Mine" — The Platform Strategy
Ganti emphasizes that Orthogon is not about one-off trades but about building an "alpha factory"—an operating platform that can self-learn, expand, and defend against threats.
1. Picking Gold Nuggets: Spot an opportunity, take a profit, and move on. Ganti calls this "rich for a day."
2. Building a Mine: After discovering a gold nugget, buy the mining rights to the entire land, deploy a professional mining team, and continuously extract from the vein. Orthogon chooses the latter.
- Definition of a Platform: Each platform is an operational business entity with its own team, processes, and the "Orthogon DNA." Ganti states: "We are not a fund of funds that invests in managers. They are we and we are they." Orthogon resembles a "sister company system," with over 100 employees globally.
- Biological Nature of Platforms: Platforms can "learn" and "grow." Ganti compares this to his newborn daughter: "The platforms initially will struggle with the asset... But after a while, they get it. And not only do they get the asset, they'll get adjacencies." Platforms can identify adjacent product opportunities (e.g., from gold to silver) or geographic adjacencies (e.g., expanding from California to 12 states).
- Asset Creation, Not Discovery: Ganti stresses: "We're in an asset creation business. The asset was submersed. And we pull it out. We refine it. We create it in a manufacturing process." This is precisely why there are no other bidders—the asset itself is "manufactured" by the platform.
Theme 4: Two Case Studies – From US Charter Schools to Italian Government Receivables
Case 1: Charter School Capital (US)
The Ganti team identified a AAA-grade asset completely overlooked by the traditional financial system – government receivables from charter schools.
- Background: Charter schools are public schools, with tuition paid by state governments. In California, the state constitution mandates that school payments take priority over bonds – schools effectively carry "quadruple A" credit. During the 2008 crisis, Governor Schwarzenegger paid state employees with IOUs, but schools were the only entities that had to be paid on time.
- Problem: State governments can legally delay payments (e.g., June payments pushed to July–August). Traditional public schools can issue "Education Revenue Anticipation Notes" (ERANs) through Morgan Stanley at interest rates of just a few basis points. However, charter schools have no assets, no credit history, and no banking relationships, making them unable to borrow – a payment delay could lead to bankruptcy.
- Solution: Charter School Capital purchases charter school receivables at a discount (e.g., paying $99 for a $100 receivable), providing immediate cash flow. Ganti emphasizes: "Charter school capital is absolutely not out there to gouge schools." The effective interest rate is highly favorable for the schools.
- Scale and Returns: Over $1.5 billion in receivables processed, with zero losses. Because the asset is AAA-rated, banks provide 100% financing, making the return on capital "almost arbitrarily high." Ganti calculates: "If we make on an IRR basis something like 10% off a school, the actual risk of the payment, the municipal bond risk, is something like 10 basis points. So there's something like 100 times more alpha in the trade than total risk."
- Social Impact: The platform not only solves cash flow problems but also serves as an "acquisition financing tool" for charter schools – advancing funds allows schools to immediately enroll students from waiting lists, accelerating expansion. Ganti states: "Charter school capital... has done more for charter schools than any Betsy DeVos or any education secretary ever could."
Case 2: Italian Government Receivables
In Italy, the Ganti team faces a more complex and "darker" receivables market.
- Problem: All levels of Italian government (from national to local) systematically delay payments. After treating patients, hospitals invoice the government, which uses "audit threats" as leverage to demand that hospitals accept a 60% discounted payment. Ganti describes: "That sort of thing happens in Italy all the time."
- Orthogon's Role: The team purchases receivables from hospitals at a price higher than the government's discounted offer, then uses legal means to force the government to pay in full. Ganti says: "We'll make Italy pay on that payment and essentially force Italy to behave."
- Clients Served: Includes the Vatican, hospitals, refugee camps, Catholic brotherhoods, women's shelters, and others. The core logic is the same as with US charter schools – these institutions need "most of the money on time" rather than all of it; payment delays would disrupt their operations.
- Difficulty: Ganti admits: "This activity is extraordinarily difficult." It requires multidimensional capabilities in law, accounting, language, and local relationships. Hospitals cannot pursue this recovery on their own because "the enforcement action that you would need to undertake on this one-off basis is so gargantuan."
Theme 5: Fundraising Challenges — Why a "Triple Win" Still Struggles for Trust
Ganti admits that Orthogon has a "triple win" track record (sustained double-digit returns, zero principal losses, and extremely low correlation with the market), yet fundraising remains difficult.
- Track Record: 12 years, $1 billion deployed, zero principal losses, sustained double-digit returns, and "breathtakingly high orthogonality" with the market.
- Common Rejection Reasons:
- Institutional hurdles: "We don't invest in first-time funds," "We don't invest below $100 million," "We don't invest without a three-year track record."
- Home bias: "We don't invest outside the U.S." — Ganti responded: "I actually referred that group to a Wikipedia page on home bias."
- The "need for a second manager" logic: Some LPs require a "chase manager" (backup manager). Ganti countered: "You're guaranteeing if you only invest with number ones that have number twos, you're guaranteeing that you're only investing in assets that are heavily competed."
- Risk perception bias: LPs see a zero-loss record and instead perceive "insufficient risk." Ganti points out that Orthogon is exposed to "exotic risks" (legal change risk, confidentiality risk, competitive risk upon discovery), which are precisely the "different dimensions of risk" that modern portfolio theory should pursue.
- Classification dilemma: "Is there a bucket for other? And they say, no, we don't have a bucket for other."
- Who Is Investing: The most active investors are other investment managers (PE/hedge fund GPs) — they understand the logic of "avoiding competition." Ganti says: "One gentleman that we spoke with decided to invest within about two minutes of the phone call."
Readers should note: Ganti's fundraising narrative itself carries a "smart money vs. dumb money" marketing tone, but the institutional investor behavioral biases he identifies (home bias, rigid classification, distorted risk perception) are indeed supported by academic literature.
Mentioned Positions
| Position |
Guest Stance |
Key Data |
| Charter School Capital (U.S. Charter School Receivables Platform) |
Bullish – Successfully created a market |
Processed $1.5B+ in receivables with zero losses; grew from processing hundreds of thousands annually to hundreds of thousands daily |
| Italian Government Receivables (Hospitals, Vatican, Refugee Camps, etc.) |
Bullish – Ongoing operations |
Operating since 2009; team uses legal means to compel government payments |
| Polish Microfinance Bank (Former Employer Project) |
Neutral – Mentioned as "most unforgettable experience" |
Hired elderly women for door-to-door collections and helped borrowers get back on track |
| Low-Income Housing in Peru (Past Project) |
Neutral – Mentioned as an early example |
No specific data provided |
| Icelandic Government Financing (Past Project) |
Neutral – Mentioned as an early example |
No specific data provided |
Judgments Worth Remembering
1. “Avoid markets at all costs.” (Ganti) — As long as there are multiple buyers, prices become efficient and alpha disappears. True alpha exists in assets without markets or bidding. Support: Microeconomics 101 — two students bidding can push $1 to $0.99.
2. “The world of non-traded assets simply has to dwarf the world of traded assets. But our attention is exactly the reverse.” (Ganti) — In the global asset base, non-traded assets far exceed traded assets, yet 99.9% of attention is focused on refined assets like stocks and bonds. Analogy: visible matter vs. dark matter.
3. “There's something like 100 times more alpha in the trade than total risk.” (Ganti, on the charter school case) — An asset with a 10% IRR has a true risk (municipal bond risk) of only 10 basis points. The remaining 990 basis points of excess return cannot be explained by any systematic risk factor; it is compensation for the service of “surfacing an asset into a market.”
4. “We're in an asset creation business.” (Ganti) — Orthogon does not discover assets but “manufactures” them. Assets are originally “submersed”; the team “pulls them out, refines them, creates them in a manufacturing process.” This is precisely why there is no competition — the assets are created by the platform.
5. “Once you have identified something... the scale question kind of disappears and an efficiency question emerges.” (Ganti) — In non-market scenarios, scale is not an issue. Like Airbnb — once the demand “people don't rent out their own homes” is identified, the scale problem becomes an efficiency problem. Orthogon’s platform strategy is similar: each platform is a “self-originating” alpha factory.
6. “If you want to have a wedge between price and fair value, you've got to avoid competition.” (Ganti) — This is the ultimate expression of Orthogon’s strategy, and what Ganti considers a “microeconomics 101” level of simplicity. Yet in practice, the vast majority of investors and institutions do the exact opposite — they only invest in competitive assets with a “number two.”
7. “Planning comes second. Some level of personal introspection... has to come first.” (Ganti) — Ganti reflects on becoming a father at 45 and spending too much time acquiring credentials, believing that “big goals” may stem from deep-seated insecurity. He agrees with Patrick’s framework: small goals (daily practice) + process as the end goal are healthier than grand ambitions.
8. “Stop the relentless commodification and credentialization of education.” (Ganti) — Ganti, who holds a PhD, CFA, CPA, law license, and speaks six languages, instead argues that “you just don't need that.” He warns that universities may become “ghost towns” as information is being democratized.