The linchpin of our process is our rigorous approach to risk management based on the fundamental tenet that preservation of capital is our first priority. We align our interests with those of our clients by investing our own capital alongside those we serve.
Our investment process is anchored by four time-tested cornerstones:
We begin by using the breadth and depth of our industry-specific knowledge, alongside our many relationships to identify out-of-favor companies with potential catalysts for transformational change. Potential investment opportunities are found by using various value screens derived from our many years of sector specialization. Our search focuses on evaluating companies based on recurring revenues, strong cash flows, strategic importance, management team and balance sheet quality. This approach enables us to seek quality investments with attractive asymmetric risk/reward characteristics.
Our bottom-up investment approach consists of several interlocking pieces of fundamental research and analysis. Each potential investment opportunity undergoes extensive analysis of the quality of its recurring revenue base, earnings power, financial condition, and valuation given the current and projected outlook. A strategic competitive analysis is performed to understand the company’s strengths and weaknesses, with potential catalysts/events that may unlock shareholder value identified.
We meet with management teams, board members, industry contacts and consultants throughout the research process and constantly reevaluate our analysis. Both the upside and downside return scenarios are modeled to fully understand the risks associated with the investment.
Each investment opportunity is scrutinized by the team, with a sharp focus on downside risk. We consistently ask the question, “How low can it go?”, and a “Devil’s Advocate” test is always performed to understand the risks. Optimal entry points are established after upside and downside risk targets are determined. Position sizing varies upon conviction level.
Position and Portfolio Management
The portfolio is constantly monitored for developments that might create opportunistic trading. Comprehensive risk analysis is done that closely follows volatility, liquidity, industry exposure, incremental value at risk, correlation and beta. Diligent re-evaluations of each position can lead to adding, trimming, or exiting a stock depending on the fundamental change to the investment over time.