A rigorous adherence to value now counts for more than ever

CIO Insights 1Q2020

One of the positive aspects that uncertain and frightening times like these bring with them is that they will ultimately show how earnest, diligent and thoughtful a particular investment program is being conducted. In this report we would like to highlight five of the elements showing why the fund represents these traits.

First, all portfolio firms provide demonstrably essential goods and services. The fund is mainly engaged in areas such as public utilities (e.g., electricity, gas, water, heating); telecommunications, select services in finance, commerce and health; logistics and transportation; food; materials; energy; and basic infrastructure. All of these sectors can be considered “must-have” in nature, rather than merely “nice-to have”. As has become clear in the current crisis, “nice-to-have” has practically no relevance anymore, certainly not in the immediate future.

Second, all of our portfolio firms have demonstrably comprehensible and transparent balance sheets. This is so thanks to our analytical approach that features a built-in balance sheet eminency. That is, we only pursue a possible investment idea any further if we understand the respective firm’s asset and liability situation well enough. This straightforwardness in their balance sheet, in turn, tends to enable our companies to swiftly access funding sources such as loans, debt or equity in order to survive difficult operating periods such those at present. Furthermore, our customary predilection to invest in firms with controlling family, trade, government or other strategic shareholder structures is highly advantageous in that these companies generally have long-standing relations with their financing partners, which places them first in line to be able to tap capital compared to firms that previously didn’t have such ties.

Third, all of our portfolio firms are demonstrably crisis-proven. The inherently difficult nature of most portfolio firms’ business in terms of competitive, cyclical and operating challenges are all contributing factors which render them undervalued and hence attractive for us to buy in the first place. When companies are accustomed to be under pressure even in normal times, they tend to be better prepared to handle sudden emergencies of the type they encounter now as compared to other firms whose business has hitherto been in smooth sailing.

Fourth, the investment program of the fund operates entirely leverage-free. Our strategy never employs financing tools or derivatives to attempt to enhance portfolio returns. Hence, the fund itself cannot be subject to “forced-selling” measures such as margin calls. This structure enables us to stand out tough times and calmly keep our eye on what matters, i.e., the appropriate long-term strategy and positioning/composition of the portfolio.

And fifth, we have our skin in the game. All members of the portfolio management team have a significant portion of their personal savings invested in the fund. Thus, rather than merely giving well-meaning advice, we eat our own cooking. In other words, our interests and those of our clients are the same. Evidently, we are absolutely convinced that the steadfast and solid strategy we have followed over the years continues to be the appropriate one to steer all of us through the current and any other sporadic challenges towards a prosperous future.

Sincerely,