One of Europe’s leading multi-family offices was born from the merger of Stonehage and Fleming Family & Partners

When Stonehage and Fleming Family & Partners merged in 2015, the resulting institution became one of Europe’s largest multi-family offices which today manages more than $175 bn on behalf of some of the world’s high net worth dynasties in 14 geographies.

Tom Jeffcoate, who serves as the fund’s head of equity funds today, joined Stonehage before the merger in 2009, working side-by-side with Gerrit Smit, the Global Best Ideas lead fund manager and head of the company’s global equity offering. He is also responsible for company research within the equity management team, with a special focus on in-depth, bottom-up research covering firms across all sectors, for their $4.3 bn Global Best Ideas strategy. Prior to Stonehage, Jeffcoate held positions at ZAN Partners, Sigma Capital and PwC.

He talks to IR Impact about how the fund management industry has changed in recent decades, why he has a love-hate relationship with earnings season and why he values investor days so highly.

You’ve been in the fund management industry for some time. How have things changed?

One of the most interesting dynamics that’s changed is that when we started the strategy in 2009, 60 percent of the fund was in consumer staples, and whilst our philosophy has remained totally unaltered, today a number of very high-quality technology companies have essentially become the modern-day consumer staples. Companies such as Alphabet and Microsoft are today massive cash generating machines.

We all use their products without thinking every day, very widely. They have built very strong economic moats and today they have the characteristics of the greatest consumer staples companies of years gone by, if not more so, combined with far stronger growth.

In the past, investors were rather wary of the growth sustainability of a tech company, especially with hardware makers such as Blackberry and Nokia.

Today many technology companies have done a fantastic job of transforming into recurring revenue businesses with super strong balance sheets and strong cash generation. This has seen us change the universe of companies that we look at and our exposure to quality technology companies today is far larger than it was back in 2009.

What do you like most about working in investment management?

The Global Best Ideas Fund invests all around the world and in any sector, and with that comes great variety. You can uncover some really interesting, high-quality companies you may have not have previously thought about.

I also really enjoy the engagement with clients, many of whom run successful businesses themselves.

And what do you dislike?

I have a love-hate relationship with earnings season. What has changed in recent years is the volatility that we see now around results, with quality stocks dropping 10 percent on a small miss or a small change to outlook. It is very dramatic and extreme and has obviously got a lot to do with the participants in the market. It can be very stressful.

But with that comes the love part of it, because it can present some great opportunities for a long-term investor.

What’s your investment style?

The Global Best Ideas Fund is a quality growth fund. We seek to own the world’s best companies and to try to acquire them at attractive valuations.

We have a four-pillar quality strategy which is based on some very simple but must-have characteristics:

• First, they must have the ability to deliver sustainable organic growth throughout the entire business cycle. For example, businesses with very high recurring revenue, strong pricing power and defensive business models.
• Second, we seek companies with the highest quality management teams, so we focus intensely on their culture, drive and strategic vision.
• Third is operational efficiency: everybody should want to own companies with super strong balance sheets, high ROICs and expanding profit margins.
• Finally, our fourth pillar is strong free cash flow generation. We want our companies to really be cash machines that are either paying us an ever-growing dividend or buying back a lot of stock. If they’ve got a very high ROIC, we’re very happy for them to be reinvesting in innovation and future growth. With Alphabet, for example, we’re comfortable for them to be reinvesting in innovation because those ‘other bets’ turn into Waymo or Gemini, which turn into future profit growth opportunities.

Is there a market cap cut-off?

Officially it’s $10 bn, but our smallest holding is close to $40 bn. Our main priority is liquidity, where we require at least $75 mn in daily value traded. We can sell our entire fund in less than a week if necessary.

Any sectors you avoid?

Due to our four-pillar approach and our need for sustainable revenue growth no matter what’s going on in the world, we avoid commoditized companies, so resources. Our obsession with sustainable growth sees us also keep away from pharmaceutical companies with patent risks and complex product development pipelines. A few years ago, we were constantly asked why we didn’t own [weight loss medication] GLP1 drug companies.

What screens do you use?

Our core universe that we cover is just 150 companies. Our official benchmark is the MSCI All Country World index, but we really focus all our energy on these 150 companies which are screened for 15 quality tests. We consider size and liquidity, then growth and profitability, ROIC, ROE and balance sheet strength. Finally, the dividend record and an ESG test.

We only hold between 20 and 30 companies so it’s a very high-conviction strategy.

Average holding period?

Ideally, we will hold a company forever – there are five companies that we’ve owned since we started the fund – but on average it’s about five years.

Active share figure?

Currently 86 percent.

Capital allocation?

The discipline of an ever-growing dividend is fantastic. But we recognize the importance of reinvesting in the business for profitable growth. Buybacks are also a positive at the right valuation.

Your holdings are heavily weighted to the US – why is that?

The US has just been a tremendous region for value creation for shareholders through innovation and expertise. It’s currently where we find the best management teams. But we are a global fund, and we proactively seek regional and sector diversification. We’re not a US tech fund.

Can you talk about some of your larger holdings?

GE Aerospace is a $270 mn position across the whole strategy. Today it is a fantastic business. Larry Culp, the CEO, has done a phenomenal job of deconstructing the old GE. A few years back, it was obviously a huge conglomerate, but the jewel within that portfolio was the GE Aerospace business. It was producing lots of cash flow, but that was having to go to fight fires elsewhere in the business. Now the conglomerate has been broken up, and GE Aerospace is purely just the jet engine business.

Their jets are on 75 percent of all planes in the sky and they have a service length of 30 years: that service business is why we own GE. It’s very high-margin, highly sustainable and a low-cyclical industrial business. Operationally, we’re seeing very strong earnings and cash flow growth that is now benefiting shareholders. So it’s a fantastic business with an incredibly strong competitive position. An exceptional company.

We really like spin out companies. We’re very patient, so we can sit there and watch them for a while. Often, they might get spun out with a ton of debt or some poor working capital that’s got to be sorted out. But, once unleashed, they do very well. A good example is former holding of ours is Edwards Lifesciences which came out of Baxter. It did exceptionally well as a standalone entity and was a great performer for us over a number of years.

Why do you own MasterCard as well as its competitor Visa?

We have owned Visa since 2009 and we initiated the position in MasterCard a few years ago as we love the payment space.

Visa’s obviously quite US debit-focused. MasterCard has positioned itself a bit differently and is a more international business. Both are growing attractively into new payment areas.

We look at them collectively though, and their combined weight is just over 8 percent in the fund.

The cash flows in payments are fantastic and both have a highly resilient business model that serves everybody in the ecosystem. They have proven to be tremendously hard to disrupt.

What about Amphenol?

It’s not a name you see in every portfolio. This is a business of businesses, brought together via a highly strategic acquisition strategy All companies within Amphenol are operate at slightly different stages of the business cycle so when you combine them all together, its growth is smoothed out over the cycle.

Part of its offering today plays a critical role in the build-out of AI data centers. The inter-connect cabling business (for NVIDIA graphics processing units and Google tensor processing units, for example) is a fantastic growth business and is the industry leader.

They’ve also done a couple of very astute corporate actions recently, buying a distressed business at a very low valuation which has benefited the earnings growth of the business. It’s been one of our top performers this year – up over 100 percent year to date.

How do you prefer to meet company management?

One-on-one, in-person meetings are the most valuable especially when you’re trying to get a sense of their values and culture. Investor days (or capital markets days) are brilliant too as you get to meet people that you don’t normally meet: you really get a feel for the firm and what it’s like to work there.

With consumer-facing companies, it’s essential that we are users of the products and get out there and visit their stores and have a proper understanding of their offering.

What is your outlook for 2026?

There’s obviously a lot of chat about bubbles, but there are a lot of high-quality companies (outside of the AI infrastructure space) that are today very attractively valued. Data owners with a digital user interface and many software services companies have de-rated because there’s uncertainty of what AI means for them. For example, Salesforce.com – because there’s some investor uncertainty over its durability, it looks attractively valued today relative to its own history.

Many quality companies that are usually expensive are currently relatively cheap. Market returns this year have been driven by a very concentrated number of stocks. In healthcare, many medical device companies have underperformed for a long time now and it’s in these sectors – along, with financial services, particularly the exchanges – that I hope to see a recovery.

In 2026, therefore, I hope we will see the ‘return of the rest’.

By Gill Newton, partner at Phoenix-IR. This interview also appeared in IR Impact on December 9, 2025.

 

The Swedish national pension fund, with $150 bn in assets, is taking a new approach to climate transition.

Christian Granquist joined AP7, one of Sweden’s national public pension funds – into which some 6 mn Swedes pay – in August 2025. Working alongside Jessica Eskilsson Frank, Granquist is senior portfolio manager, impact investments, climate transition at the globally invested fund that has total assets of around $150 bn.

Before joining AP7, Granquist – who has a master’s in economics from Uppsala University – had a 10-year stint at Lancelot and worked at Handelsbanken for 13 years in a number of roles including chief investment strategist and co-head, equities.

He talks to IR Impact about how the fund is changing, meeting management and investing in big polluters in order to drive change – without being an activist.

How’s life at AP7?

Pretty hectic but it’s good. There are a lot of things in motion and change, so it’s very interesting.

Can you explain a little about Sweden’s AP Funds?

There’s a big difference between the APs. AP2 to 4 are buffer funds for the Swedish income pension system. So, they will work as a buffer when the demography is declining. AP7 is completely different. It was arranged because part of the premium pension system in Sweden is based on choosing funds when the system was set up in 2000.

There had to be an alternative for those who actually don’t want to or can’t choose. So that was why AP7 was created. The fund started to get relatively big inflows from its inception in 2000. It was decided it would be a passive investment fund, which would buy passive strategies from other asset managers throughout the world. There was also an element of gearing on top of the global portfolio, which meant that over time the portfolio performed very well and outperformed a lot of the active managers.

A lot of people then started to actively choose AP7 because of the good performance and so it has rapidly increased in size and now has AUM of approximately $150 bn.

The large AUM figure has demanded changes and two things happened. One, we are considering to wholly or partly in-source the management of the passive portfolio. The second part is that part of the portfolio (10 percent of the total) will be managed actively in-house and with a climate-transition focus. And that’s where Jessica and I come in.

Of the $150 bn, how much is in equities?

It’s $130 bn.

And 10 percent of that will be in the actively managed climate transition fund?

It isn’t yet, but it will be. Jessica and I will be building up that portfolio over the next three years.

Can you explain AP7’s strategy going forward?

AP7 has radically rethought the way the fund management industry should be looking at sustainability. We want to do things differently from the rest of the industry.

The big difference is how we approach the question of sustainability. As you know, Scandinavia is a sustainability positive environment and how it’s been approaching the question of sustainability has basically been to choose companies with either a very low emission history or those who have already made a leap into transition. This means that the way to get a good sustainability rating in Morningstar or whatever, is to actively choose companies that don’t have an emission problem and/or sustainability problems.

AP7 has chosen another path. We’re saying that we won’t be making any (positive) change to the climate by choosing companies that don’t have to transition. We therefore must turn it upside down and look at the companies that have not been in scope for most asset managers. We’re talking about companies within the energy sector, utilities or chemicals. Industries which, generally speaking, have had very high emissions. The way to actually make a difference is to choose these companies, invest in them and actively work with them to choose a path towards transition.

Would you regard yourselves as activist investors?

No, we don’t use that term and we’re a government entity, but the approach is kind of more activist than pacifist, so to speak. We want to have a dialogue with investee companies but we want to do it together with the companies, their management and their boards because we are not interested if the company doesn’t want to make the transition or doesn’t have the capacity to do it.

But we are not an activist. We’re not trying to force anyone. We think that most companies will thrive by making choices that are sustainable. The whole point is to avoid being caught with stranded assets, which we think will happen to companies that do not choose to transition.

How would you describe your investment style?

Both Jessica and I come from a quality company/quality growth background. But it’s different now as we’re looking at energy companies, for example, and you can’t really call them growth companies or even quality companies because they are not.

They may be well run but they can’t control energy prices, for example, so they don’t have pricing power (often the sign of a quality company). While they may manage that very well, they have to cope with volatility in their earnings. So, it’s a different mindset.

So, you could invest in Exxon or Phillips66 for example?

Yes, hypothetically if we think that they have an interest and an ambition and the capability, financial and psychological, to make reasonable sustainable choices.

Any sectors you avoid? Defence for example?

AP7 does invest in defence. For our transition mandate of the Equity fund, we don’t look at ethics in a broad perspective but are focused on climate transition. We are trying to get as much bang for our buck by focusing on companies that are becoming more climate friendly and reducing emissions. So, we will evaluate the companies we invest in by how fast their emissions are falling.

What about screens?

We start by looking at how bad the companies’ activities are for the environment. We screen them for their emissions, if they are producing coal or fossil fuels etc. Once we’ve established a company has high emissions, the next step is the financial analysis. Does a company have both the cash flow and balance sheet to be able to make the investments to make the transition possible? We will avoid companies that have a weak profit history, a weak cash flow history and a weak balance sheet.

So you are basically looking for companies with ability to improve their emissions/sustainability?

Exactly.

Do you look at ESG scores and do you use external providers?

We do a lot ourselves as we have a large sustainability team working with us. We also use external providers.

Do you have an active share figure?

Not at this time as we are building out the portfolio (2025-2027). But the whole point is to have a high active share against a global benchmark because we aren’t looking at sectors such as technology (as most tech companies don’t have emissions issues). As well as investing in companies with high emissions and the ability to improve, we will also be investing in so-called ‘solution providers’ – companies that are actually providing these companies with tools to help them in their transition.

Would a company such as Quanta Services qualify as solution company?

As a company actively managing and increasing the grid capacity, which is vital for the transition, it could potentially be a solution company candidate.

Any market cap constraints?

We’re starting with large-cap companies (the larger the market cap, usually the bigger the emissions). We will then venture into smaller/mid cap companies. We will start with developed markets but will eventually be looking at emerging markets.

Average holding period?

Up to 20-30 years – so very long term, which is why we can be more contrarian than a traditional investor.

What about capital allocation?

We want the companies we invest in to use their cash flow and their balance sheet to make the relevant investments needed for the climate transition. Too many buybacks or too much dividend would be viewed negatively.

So, as above, our approach is a bit ‘the other way around’. You have to turn everything upside down a little bit.

Do you like to meet management of companies you’re considering?

Yes, it’s vital. Sometimes, it might be us and sometimes the sustainability team may join too. We like to be flexible, we do Teams meetings but it’s always preferable to meet in person, whether it’s at a conference, our offices or their offices.

To conclude, the sectors you’re most likely to be investing in are energy, mining, industrial, utilities?

Correct. Possibly also food manufacturing companies.

What do you think the geographic split will be?

Initially, the US and Europe.

For AP7, you and Jessica are the only people really to meet with US companies, because the rest of it is passive?

Correct, but we will probably be building the team as we go. And, for the record, the sustainability team also meets with US companies.

By Gill Newton, partner at Phoenix-IR. This interview also appeared in IR Impact on November 13, 2025.

 

 

Fund manager with a quarter of a century of investment experience on working with a long-tenured team, the importance of patience and having held onto one company since 1998.

Fergal Sarsfield joined Dublin-headquartered Setanta in 2007 and is today responsible for co-managing the EAFE (European, Australasian and Far East) Equity Fund. Previously, he divided his time with sector responsibility for the technology sector within the Setanta Global Equity Fund, while co-managing EAFE.

Setanta was established in 1998 and today manages around $15 bn with $8.9 bn in equities across three strategies: global, EAFE and dividend (with roughly $3-$4 bn in US equities). Setanta is a wholly owned subsidiary of Canada Life, which is in turn owned by Canada’s Great-West Lifeco. There is an investment team of 30 based mainly in Dublin with representatives also in Toronto and Frankfurt.

Before joining Setanta, Sarsfield spent five years working at KBC Asset Management. He has a BBS and Advanced Diploma in Corporate Governance from UCD. He is also a CFA Charter holder and earned the CFA Certificate in climate risk, valuation and investing in 2024. Here, Sarsfield talks about what he looks for in digging for value, what his relationship with IR looks like and why companies should meet with Setanta – and much more.

How do you negotiate the current the market turmoil?

The Setanta fund management team is long tenured. Most of us saw the dotcom bust, the Great Financial Crisis, Covid and, now, the start of a global trade war. So, we’re experienced in market drawdowns/corrections.

Fundamentally, we’re trying to understand how exposed our companies are and as we tend to invest with a conservative, risk-averse mindset, we feel confident that the companies that we’re invested in are somewhat more immune. Secondly, we need to understand if there are potential opportunities for us to upgrade the quality of the companies we own without compromising valuation.

Earnings kick off in a week or two and it will be interesting to hear companies’ views on the tariff situation and what it means for their businesses.

You’ve been in investment management for 25 years. What do you like about working in fund management and what has changed for you in that time?

By nature, I’m intellectually curious. So, when you think about how we manage our funds as fundamental stock pickers, being able to take that intellectual curiosity and put it to work on every company that we look at is very rewarding: building an investment thesis, and over a period of months and years after we’ve made our decision, looking at how that thesis has played out. What events have transpired that have either proved or disproved our initial investment thesis? It’s great when our thesis is proven but it’s also important that we take positives from our mistakes. I believe we can learn more from our mistakes than we do from what we get right.

We learn from those mistakes and take it on to the next investment thesis to compound our knowledge and mitigate the risk of further mistakes.

I love that challenge and I love the level of accountability. We’re constantly accountable to our clients and there’s a very tangible benchmark which we’re measured against.

What’s Setanta’s investment style?

Long-term and contrarian. We focus on high-quality companies that are mispriced. We are risk averse and highly selective with a long-term investment horizon and low portfolio turnover. We like wide moats, dominant niches, companies that reinvest cash flow. We dislike overstretched valuations. Liquidity is also a consideration.

What’s your average holding period?

Ultimately, we would love to own a share of the business into infinity, but rarely does that happen. Setanta was founded in 1998 and there is actually one company in the portfolio that we’ve owned since then. But currently our average holding period is three to five years plus.

I guess quarterly earnings are not a focus?

One of the changes I’ve seen in my long fund management career is that, over the last decade, markets have become much more myopic – the majority of the market is focused on the next quarter and how corporates are going to come in relative to consensus expectations.

That, for us, creates opportunity because that level of short termism means that the market isn’t really focusing on the long-term opportunities like we are. Often there are some short-term speed bumps with which the market is preoccupied. When you look out over the longer term, the investment case may be compelling and our assessment of intrinsic value is materially higher than what the market is currently ascribing.

Our strategies are all-cap strategies. The most important driver for us is liquidity given that we are risk-averse investors and want to be able to exit a position within a few trading days if necessary.

Do you focus on leverage?

There’s no one-size-fits-all when it comes to financial leverage. The most important consideration for us is the interaction between operating leverage and financial leverage. Some businesses have very little operating leverage and therefore, they can deploy higher levels of financial leverage.

How do you identify mispriced companies?

We don’t believe we can value a company unless we fully understand it. So, once we understand the company, we can then go about estimating the long-term sustainable revenue and growth rate to estimate intrinsic value. We are looking to be directionally right rather than precisely right, over three to five years. Once we’ve assessed that intrinsic value, we can then compare it to what the market is currently willing to pay. As above, the market’s short termism creates opportunities for us given our long-term, patient capital view. It’s time arbitrage.

Does your focus on valuation rule out investing in big tech for example?

No, as in a lot of instances with big tech companies, it’s nearly a winner takes all. So, in a sense, the competitive landscape for some of the large tech companies has become more relaxed. The level of competition is lower and we get a greater sense of the sustainability of revenues and growth. As risk-averse investors, the risk has been reduced so we should be willing to pay a little more. These large tech companies are trading on multiples that look expensive, but when you dig deeper and understand the company, it’s not actually the case.

What screens do you use?

We typically don’t rely on screens to a major extent but do for idea generation – at the early part of the investment journey. We are looking to get behind the numbers that may show up on the screen. Value is more than a number.

How do you incorporate ESG into your investment process?

We have Article 6, 8 and 9 funds. So, the extent to which ESG scores are used is determined by the classification of the fund. We use Sustainalytics as our primary provider.

What’s your active share ratio?

Setanta has three core strategies: global equity, dividend and international equity – and within those strategies, we’ve got close to $9 bn in AUM. The active share ratio across those strategies would be more than 85 percent.

We’re running quite concentrated portfolios with high active shares. Our global equity fund would have 70 to 80 holdings, our EAFE fund would have 35 holdings and our dividend fund between 40 and 45.

Do you have a minimum dividend yield that you look for in the dividend fund?

It’s not set in stone, but around 2.5 percent.

Dividends or buy backs?

If a company has internal projects that can generate returns in excess of the ROI of the company, then we’re strong proponents of continued capital investment. Companies need to continue to invest to remain competitive. The dividend strategy needs a balance – a return of capital to shareholders and reinvestment.

What do you look for in performance?

Our client mandates typically require us to outperform the benchmark over a rolling three-year period. Of course, we’re reviewed annually, like everyone else. Performance ultimately comes down to four factors: people, philosophy, process – and luck.

We believe our track record shows we have the right people, a clear and consistent investment philosophy and a disciplined process to deliver outperformance over the long term – acknowledging, of course, that luck always plays a role, particularly over the shorter term.

Any sectors that you don’t invest in?

We’re looking for two things> Firstly, an attractive industry that can grow revenues and profits sustainably. Secondly, does the company have the right people, the resources and strategy to allow it to win and benefit from that inherent growth? We never entirely rule out any one industry, but we are acutely aware that some industries don’t have compelling long-term growth opportunities ahead. Examples of those industries would be the likes of telcos and utilities.

Management is another important criterium for you – do you like to meet management?

Absolutely. When you think about our risk-averse, contrarian approach, it’s always good to meet the people who run businesses in which we are interested. When meeting management, ultimately what we’re looking to do is understand their mindset, understand their capability to drive strategy, implement strategy and execute strategy – and then understand whether we believe that strategy can lead to long term-growth in revenues and profits, which will lead to share price out performance.

We also look at how incentive plans are structured, ensuring that they’re aligned with shareholders, strong corporate governance can be value accretive over the long term.

How do you prefer to meet management?

For the companies that we own, we have a direct relationship with the IR team and look to get access to senior management. Companies travel to Dublin to meet us, but we also attend conferences and do site visits. We will also try to have a minimum number of an annual calls with investee companies.

Why should companies meet you?

We’re long-term investors and good managers run businesses for the long term. So, we are wholly aligned in that regard. Also, we tend to get to know companies very well. We try to understand the strategy and the ability of the company to win over the medium to long term. Our risk aversion and in-depth knowledge of companies puts us in a unique position to be able to evaluate corporate strategy and sometimes challenge management in a non-confrontational way which I think can be mutually beneficial.

As fund managers we’re looking to glean as much information from companies as we can to allow us to make the most informed decisions.

By Gill Newton, partner at Phoenix-IR, a European-based IR advisory firm. This interview was also published in IR Impact and can be accessed here : IR Impact  

Former Capital Group manager talks about his new fund, why he doesn’t feel the need for wide ‘coverage’ and why he’s looking at $3 bn to $5 bn companies as his sweet spot

Compound Equity Group (CEG) was founded in 2024 and seeks high-conviction, long-term ideas in global equities. The founder and portfolio manager in charge, Jonathan Knowles, spent more than30 years managing money at Capital Group. At his time of retirement in December 2024, he was in charge of some $50 bn in assets and was the chief investment officer of the firm’s $70 bn small-cap fund – the largest such fund in the world.

CEG has recently raised  $500 mn in capital and is deploying a very long-term, highly concentrated approach: to have 20 to 25 investments with some positions around 10 percent of the fund, turning over only 10-15 percent.

Starting out in a different universe – with an undergraduate degree in Veterinary Science and a PhD in Immunovirology from Liverpool University, UK, where he was a Welcome Foundation Research Scholar before earning his MBA from INSEAD, in France – Knowles delivered exceptional results at Capital. During his tenure at the firm, he grew assets in the global fund by more than 11 times over 19 years, achieving returns substantially ahead of inflation and the relevant global index. As the principal investment officer of the Small Company World Fund (SCWF), a mutual fund investing in small companies globally, Knowles helped grow assets to $74 bn, with SCWF taking home the Lipper Award for best 10-year results in its category every year from 2013 to 2017, and again in 2020.

In 2024, Knowles founded CEG with a view to managing his family assets. His investment style has a strong emphasis on a business’ defensive moat, growth potential, certainty and incremental return on capital.

How did you move from veterinary science to fund management and has your science background served you well over the years as an investor?

At Capital, I had a reputation for hiring very numerate people, often with a science, engineering or a maths background.  At CEG, I’d like four out of five analysts with that kind of background. I’m very keen on people who are very, very numerate.  Also, I need people who can be objective and think for themselves.  I favor investors with profound comfort with uncertainty on the one hand, yet a degree of paranoia, on the other. You need to be able to tolerate uncertainty, yet you need to have a process and stick with it. There will inevitably be moments where the investment world will profoundly disagree with you and you need to either be reasonably confident you’re right or you will capitulate at exactly the wrong time. The paranoia permits you to constantly re-evaluate what you’re doing and try to work out whether you’ve got things right.

There’s a lot of numbers involved in what we do and it’s very helpful to be able to process those numbers. Numbers speak to you – they convey a message:Is this a good business? Is this a bad business? How much capital does this business need to grow?

 What drove you to set up your own firm? 

I was at Capital a long time (1992-2024) and really enjoyed it but, ideally, I’d like to carry on investing for another 20 years. My challenge now is to try to invest in my personal wealth, which I need to do this with great humility. I’m acutely conscious that I’m not in the privileged position I was at Capital, where I had an outstanding team of global analysts feeding me ideas. I’m also acutely conscious that many really good fund managers with great records have tried and failed at a second career. I’ve studied those reasons for failure and I will endeavor to assiduously avoid them. Important considerations are the people we hire, the culture and the process. 

CEG can invest globally, what’s the geographic split?

We’re trying to find a spread of good businesses around the world. And then, invest in them and be patient.

I’ve been a very big investor in emerging markets historically. But emerging markets are extremely difficult. One of the many challenges, is they tend to have depreciating currencies so you really need to find businesses that have a return on capital that’s quite a bit higher than the currency depreciates.

The US market must seem quite tame in comparison to emerging markets?

I like good governance at both a sovereign level – law and order, good judiciary and reasonable accounting – and at a company level. At the company level, we’re looking for competent and honest management. Management that is smart enough to deploy capital well and build and maintain a resilient moat. One of the challenges with the US market is share-based compensation, which can be egregious.

What about sector diversification?

We’re just trying to find businesses that go up over time, but I want a bit of a spread because I don’t want to put it all on black. We’re seeking companies that can deploy capital at reasonable rates of return and generate a bit of top line.

Discuss your investment style

We seek wide moats, dominant niches and companies that reinvest their cash flow at medium to high incremental rates of return – and ideally have a long runway for growth (recall the firm is called Compound!). We pay a lot of attention to certainty. What do we really know and how certain are we? We try to make relatively few solid decisions.

We try to avoid overstretched valuations and we favor liquidity. We aim for honest and meritocratic management who are ideally moderately competent. 

Do you have a minimum market cap?

The reality is that $2 bn feels like a good low end. We’re an open-ended fund, so it’s very important that people can sell the fund if they want to. We might go lower on occasion but not often.

Excluding yourself, CEG has three portfolio managers, one who focuses on industrials, one on healthcare and consumer and another on technology, what about coverage of other sectors?

I have a slight aversion to the word ‘coverage’ because all we need is 20-25 investments in stocks that are going to do well. We don’t need to ‘cover’ everything (which is how a typical Wall Street firm looks at things).

One of the things I like to do is go back and look at what have been the best stocks over the last 10 years. And what did we know about them 10 years earlier?

Very often those stocks were completely or partially off the radar. How many people were discussing Nvidia a decade ago?

Thirty years ago, companies like Google, Meta, Tesla didn’t exist. You need to be constantly looking around for the next companies that are going to devour companies that exist now. Obviously, the big theme at present is artificial intelligence (AI). We’re trying to think about what AI is going to destroy just as much as what it’s going to create. I suspect AI will dramatically alter the legal profession, accountancy, coding, call centers.

Which screens do you use?

We use a lot of screens, which helps generate ideas in the $3 bnto$5 bn range. I hope we can make that our sweet spot. It is much easier to double or quadruple a $3 bn company than a $500 bn company.

Do you consider ESG when investing?

One of the big fallacies about ESG is that it’s new. ESG has been around for 30 years. Let’s take ‘E’ – I’ve been avoiding businesses with environmental liabilities for an eternity.

On ‘S,’ my definition is a merit-based company. It doesn’t matter what you look like or what you do with your personal life, I do not dwell on it. I want to be invested in companies where talent and hard work ascends: a merit-based company.

As for governance, the G part of ESG, I’m very focused on it – it’s a must.

What’s your average holding period?

[We currently have a] 10-15 percent turnover. It will be a little higher initially as we get settled.

What’s your view on capital allocation: dividends vs buybacks for example?

The most important thing is that free cash flow is redeployed to grow the business wherever possible. After that, if there’s some cash flow left, [we favor] buybacks or dividends depending on the stock price.

Can you share some fund performance figures? 

It’s too early yet – I’m going to give myself five years to deliver returns that are substantially ahead of inflation.

In my 32 years of investing, I have made multiple mistakes or just been out of favor. The global fund I ran, compounded over 14.6 percent in dollar terms for 19 years but it was not a smooth vertical chart up. I will undoubtedly have years where I lag the returns of the market.

Can we focus on some of your larger holdings and why you invested? 

Copart is a good example of a company where you need to be patient. After its third quarter, the market got terribly upset because revenue growth was a bit below what it wanted. After its fourth quarter, the market loved the company again because revenue growth was a bit above what it wanted. And you couldn’t have anticipated either of those quarters.

That aside, I like the family ownership as families tend to make very long-term decisions, but it’s also listed, so it has the pressures of public ownership. There are multiple drivers.  The company deals with insurance companies on cars that have been written off. It collects the cars and processes them: you need big scrapyards to do this and nobody wants a scrap yard next to them – so that is a significant entry barrier. Copart processes more than 2 mn vehicles annually via online auctions operating from 200 locations in 11 countries. It’s a global business: if you want parts for a Toyota Rav 4 and you’re a Nigerian auto dealer, you can log on to Copart’s website and, via an online auction, buy yourself a scrapped RAV 4 car that’s been written off in the US. it’s global arbitrage really.  Revenues are driven by miles driven, which are rising; the accident rate, which is also rising as drivers are increasingly distracted; and salvage rates, which are rising as scrap values go up. Copart has compounded revenues at 14 percent in US dollars for the last decade. The balance sheet is excellent.  It’s a stock I like but I’d like it cheaper than it is!

How has corporate access changed since being at Capital? 

At Capital I had the luxury of seeing just about any company in the world. It was the greatest calling card you could have. At CEG, I’m insistent that we’re incredibly well prepared for every meeting. And we’re very focused: we only need 20-25 ideas.

Why should companies meet you? 

We’re very long term and we’re very patient. We won’t sell the first time there’s a hiccup in their share price. Indeed, we’ll probably buy if we if we understand the hiccup. We would like to have constructive relationships with 20-25 companies and we won’t waste their time as we’ll be very well prepared.

And we try to be excellent custodians of our clients’ money.

I’d add that I have some grey hair! I’m always struck when I go to investment conferences that I’m probably one of the very oldest people there. I feel so many young investors are under such intense pressure and they take that pressure out on management, often inappropriately in my opinion.

This interview was also published in IR Impact and can be accessed here : IR Impact

Institution profile

Heptagon Capital is a private investment firm with $14.4 billion AUM and advice, founded in 2005. The firm partners with a range of asset managers as well as manging funds in-house (including the Future Trends and European Focus Equity Funds) as well as discretionary mandates. The firm has offices in Dubai, London, Malta, Stockholm and Tel-Aviv.

Biography

Alexander Gunz is a Fund Manager at Heptagon Capital, having joined in 2011. His primary responsibility is managing the Heptagon Future Trends strategy. Along with regular thematic articles, Alex also produces the Future Trends blog and writes Heptagon’s monthly View From The Top macro commentary. Alex started his financial career in 1997, holding senior roles at J.P. Morgan and Friedman Billings and Ramsey, after earlier positions at Hoare Govett and Credit Suisse, where he became a top-ranked analyst. Alex has a BA in PPE from the University of Oxford and a Master’s in English Literature from Queen Mary College, University of London.

The heptagon Future Trends Fund can invest globally, what’s the geographic split?
Roughly 80% US today, 20% European by listing. The important caveat here is that where a company is listed means very little. The businesses we invest in are typically global. For example, we’ve owned Novo Nordisk and MasterCard since the inception of the fund. Novo Nordisk is headquartered in Denmark, but they get less than 1% of their revenues from Denmark. (The US and China are their two largest end markets). And MasterCard is listed in the US but operates pretty much in every geography in the world.

Discuss your investment style.
We look for businesses exposed to long term future trends. A trend that will grow in importance regardless of what’s happening to global GDP and where regulation or government intervention, if present, are tailwinds rather than headwinds. Then we look for the best business within that thematic area – pure play businesses, that have dominant market positions, and that market leadership is sustained by some form of competitive advantage or moat. We put a lot of emphasis on innovation and R&D. What is R&D as a percentage of revenues and what businesses are doing to attract and retain the best personnel?

The winning formula, is to identify high quality, sustainably oriented management teams that over allocate to innovation (organically or via judicious M&A) so that innovation drives market leadership. Market leadership drives free cash flow generation, which is the key financial metric for us. And that free cash flow enables continued innovation.

Does the Future Trends Fund mean you are heavily swayed to AI?
This is a multi thematic fund, not an AI fund. We invest in in everything from cloud to wind and fish to chips.

Which screens do you use?
Firstly, this is an Article 8 fund, so we have a very clear set of exclusions (weapons, gambling, alcohol, tobacco, oil, mining, nuclear etc). Renewable and food innovation are themes we are keen on. Xylem is a holding due to its exposure to water and MasterCard, another given its exposure to financial inclusion. These themes naturally align with the UN Sustainable Development Goals.

Secondly, we do not own loss making businesses. In my many years in financial services, I’ve learned that #1 you have to separate hype from reality and #2 only businesses that generate free cash flow will ultimately survive.

Another key differentiator is we only own pure play businesses. So, we’re generally wary of conglomerates.

The other factor is we typically want is a business that is #1 or #2 in its market. (E.g., MasterCard, are clearly #2 in the market after Visa (and MA has massively outperformed Visa in recent years and that’s partly why we own it). Also, only about a quarter of all payments globally by volume are done digitally today so there’s a huge thematic runway ahead.

Do you look at ESG scores when considering investing and which providers do you use?ESG is why it is important to have ongoing engagement with management and we participate actively in proxy voting. To us, sustainability really begins with governance. You want to have management teams you can stare in the eye metaphorically and trust and believe are good stewards of your capital.

MSCI is our external provider but we use it more as a sanity check than a guiding factor. A statistic we are very proud of – as of 30/09/2024, 71% of the fund received either a AAA or a AA rating.

What’s your active share ratio?
Over 95%.

Minimum market cap?
Soft close of $1 billion. The median market cap in our fund is about $50 billion.
There’s quite a broad spectrum from $8 billion to $500 billion. The sweet spot would be $20 to $40 billion – a company that has proven itself but is not necessarily well understood by the investment community.

Average holding period?
Potentially indefinite. Average holding period is 50 months.

Fund performance figures?
As of 30/09/24, the Fund has produced 11.1% annualised returns since inception.
In the last three years, performance has been more challenging as we don’t own the Magnificent Seven.

Can we focus on some of your larger holdings and why you invested?

Qanta Services – we think about second derivatives of AI. AI is hugely demanding of power consumption and therefore you need a robust set of grid infrastructure, not just in the US but elsewhere in the developed world. Most grid infrastructure was built around WWII and was never intended for the amount of data that’s going through it. Compound global warming as a factor and that puts stress on ageing infrastructure, and you simply need to upgrade it. That’s where Quanta Services plays a critical role. The business is strongly positioned because they self-perform almost all of their work. They do not work with third party contractors and therefore have a very strong track record of execution and delivery in terms of product. They have a research and innovation-led culture. They own a number of technical training colleges in the US and subsequently have a much higher than average employee retention rate. Their current backlog is about $30 billion which is an all-time high. It’s not just upgrading existing grid infrastructure and connecting new elements into the grid, but also the sheer amount of new demand that is coming from AI as well.

Palo Alto is one of our largest holdings. We’ve argued consistently that data will have zero value unless you secure it, store it and analyse it. Cyber is a theme we’ve followed for a very long time. In cyber, our contention is you either have to be very small and niche like Darktrace, Avast, Sophos (subject to positive M&A) or you have to have a very strong franchise which PANW has. Palo Alto has been arguably more effective than its peers in terms of pioneering this idea of platformization, creating a one stop shop, from which corporates can buy a large suite of cyber products. Another compelling characteristic is from day one, all of their products have been cloud native, and nearly everything they’ve done has been organic (developed in-house). So back to my point about innovation and innovation culture. When you are integrating new products into your suite, clearly if it’s an in-house product, it’s much easier to integrate. Also, anyone who’s met Nikesh Arora would struggle not to be impressed by him.

Equinix – owned since the fund’s inception. As above, data needs to be stored. Equinix, is arguably the best player with regard to the storage theme. It is a portmanteau for equal Internet exchange and effectively they are the largest carrier neutral data centre player. So, if you are two third parties, Google and Amazon for example, and you’re looking to cross connect your traffic, it makes much more sense to do it in an Equinix data centre than anywhere else. They have basically built the largest network of data centres in the world. What is really compelling about the Equinix story is the percentage of customers that buy in more than one geography. Some stats – 60% of the Fortune 500 buy from Equinix, 76% of their customers are multi regional, 64% take services in all three regions. They have 268 data centres across all six continents today.

Xylem – the amount of water needed to produce just one semiconductor chip is remarkable (1500 gallons) and that’s why a business like Xylem is incredibly relevant. Water is about 1% of global GDP, but the other 99% of global GDP requires water to survive. Water demand is increasing yet water supply is constrained. We like industries where there is a demand/supply imbalance. The world needs to focus on how to improve water supply. Xylem have a leading franchise both in water hardware (pumps and filters), but also water software as well. And every single industry globally is digitizing so having that ability to sell a full suite of water services and then be able to tangibly point out that these water services are saving you (in terms of identifying leaks, recycling water, routing water efficiently) is a demonstrable and sustainable benefit to an end customer.

Do you like to meet management?
Absolutely, it’s an important part of our process. I do between 50 and 100 meetings p.a. We try and meet management once in London and once at their headquarters. Meeting management really helps to bring the equity story to life.

How do you prefer to meet management?
It depends on our knowledge of the business and whether we’re invested.
Physically making the effort to go and see someone at their HQ generally makes them more amenable to sharing information and talking to you.

Any companies that stand out as particularly good at investor relations?
Quanta Services is headquartered in Houston, TX, but once a year they fly their management team to New York and do an investor reception. It’s an informal environment and for 2 – 3 hours you can chat to everyone from the CEO, to head of HR to the manager of their Midwest division.

Why should companies meet you?
Because we are fundamental long term investors, long only and given our thematic approach, we are much more top down than bottom up. So, the discussion topics tend to be quite interesting and thought provoking for all.

Picard Angst (PA) is an independent Swiss financial services provider, established in 2003. Based in Zurich and the UAE, the firm offers different investment solutions and takes on individual asset management mandates with its 40 investment professionals. It runs several investment strategies in the listed and alternative space, including the Food Revolution Fund, different commodity and real estate strategies and two medical technology venture capital funds.

Jann Breitenmoser works as a senior investment manager at PA and is part of the food revolution team. Previously, he worked at Man Group, where he co-managed a thematic investment strategy focused on water and the circular economy. Before that, he worked as portfolio manager at J Safra Sarasin Asset Management, where he managed different impact and sustainable equity strategies. He started his career more than 14 years ago at Akina (formerly Lombard Odier Private Equity), working as a private equity associate.

What is PA’s client base?
We have a broad client base of mainly Swiss and international institutional investors.

What are its assets under management?
We currently manage more than $4 bn in assets under management with continued inflows across both regions and into our various product solutions and services.

What is the Food Revolution Fund’s investment objective?
The global agri-food system is highly inefficient. The yearly food production value amounts to $8 tn, corresponding to around 10 percent of global GDP. In producing this 10 percent, the agri-food sector generates a third of global emissions, occupies half of the planet’s habitable land and consumes more than two thirds of the available fresh water. This makes the agri-food system a source of significant external costs related to environmental and health damages or malnutrition, which are not reflected in the price of food. This market failure results in false incentives and a structural overuse of natural resources.

In recent years we have seen an increasing pressure to internalize and address these external costs. In this structural shift toward a more efficient and sustainable food system, the global food industry, which is dominated by large multinationals, has an important role to play and bears a lot of responsibility. At the same time, this process poses significant challenges for these ‘old food’ companies. The vast majority of them sit on huge historically grown portfolios that are dominated by plastic, sugar, meat and other problematic products, and are facing growing pressure to adjust.

As investors in the food revolution, we leave these old-food companies aside and focus on innovative companies that we consider to be part of the solution. As the winners of tomorrow’s food industry, they should enjoy a significant tailwind in the years to come and offer attractive investment opportunities. These companies can be found in both the large-cap and small-cap space.

What is the fund’s strategy and style?
The fund adopts a fundamental, thematic and style-agnostic investment approach, with a focus on the agri-food industry. We aim to capitalize on major catalysts for change and fundamental trends around the food revolution that evolve independently of the economic cycle and can become a permanent source of capital growth and attract future money flows.

We invest in 40-60 publicly listed equities (using no benchmark) offering exposure to six sub-themes covering the entirety of the agri-food value chain:
• Alternative proteins (such as ADM)
• Sustainable packaging solutions (such as Graphic Packaging)
• Organic, healthy and functional food (such as BellRing Brands)
• New forms of consumption (such as Zebra Technologies)
• Automation and agri-tech (such as GEA Group)
• Food safety and clean label (such as Novonesis)

By focusing on such themes throughout the entire agri-food value chain rather than through sectors, our equity long-only fund is able to invest across all geographies and market capitalizations, thereby offering an undiluted exposure to winners of the food revolution, combined with sufficient diversification. This should help to reach an uncorrelated and differentiated alpha generation relative to more traditional equity benchmarks.

Which screens do you use?
Our investment decisions and portfolio weightings are based on an in-depth bottom-up analysis. For all of our invested companies we conduct a detailed fundamental analysis and calculate an intrinsic value for each company. This is, however, only one aspect of several that we consider in our own proprietary scoring system.

Among other aspects, we assess in detail:
• Competitive landscape and defendable entry barriers (moat)
• Earnings momentum and estimate revisions
• Ability to fund future growth
• Access to and track record of management
• Earnings quality and return on invested capital
• Short and long-term catalysts
• ESG considerations and general profile of each company

How are ESG and sustainability embedded into the investment process?
Our sustainability strategy applies a systematic, modular ESG approach, the PA ESG layer, which is fully integrated into the investment process and part of risk management. This takes into account both exclusion criteria (such as low ESG ratings, controversial weapons, stranded assets or companies involved in serious controversies) and integration of ESG scores to reduce risks and optimize opportunities. On top of the general exclusions mentioned above, we apply an ESG framework specific to the food revolution strategy, including specific inclusion criteria.

Our investment approach is focused on pure-play companies, which we consider to be beneficiaries of the structural shift toward a more sustainable and efficient food industry. Hence, we do not invest into structurally challenged old-food companies. We use a systematic approach to structure the listed agri-food universe into categories, based on the food revolution ‘purity’ of their revenues.

This measures the percentage of revenues a given company is generating along the value chains of our previously mentioned six sub-themes. The weighted average revenue purity of the overall portfolio must exceed 75 percent, so we mainly focus on companies with A and B ratings. We also exclude category D companies, which are considered old food.

Do you use external ESG ratings providers?
Currently more than 95 percent of the portfolio’s market value is invested in companies with an existing ESG score. For these companies, we apply internal ESG criteria and also use data from large third-party providers. For the other companies without a rating – mainly due to their small market cap – we apply our internal ESG criteria. Our strategy currently has an overall AA MSCI ESG Rating.

Do you have market cap constraints?
No. Our portfolio reflects a mix of young, smaller, fast-growing ‘disruptors’ and established companies with a strong market positioning, a clear moat and attractive cash generation. Currently 40 percent of our portfolio is invested in companies with a market cap of more than $10 bn. Another 40 percent is invested in companies with a market cap between $2 bn and $10 bn, and the remaining 20 percent is invested in smaller firms with a market cap below $2 bn.

What is your average holding period?
By its very nature, thematic investing is looking at changes and trends that have durability. Our strategic time horizon tends to focus on three to four-year cycles. Tactically we have a shorter time horizon, mostly focused on the calibration of risk-reward and rebalancing. The portfolio is expected to see a yearly turnover of around a third.

Do you like to meet management before you buy a stock?
As previously mentioned, one of the key aspects in our proprietary scoring system is access to and track record of management. Hence, it is crucial for us to first engage in a thorough discussion with the company. This ensures that we fully understand its operations, strategic goals and financial health, allowing us to make well-informed, long-term investment decisions.

What is your preferred format for meetings?
For us it is very important to be in regular contact with management and the firm’s IR department. We actively seek opportunities to engage with management through multiple channels, including one-on-one, in-person meetings, virtual discussions and interactions at conferences and roadshows here in Switzerland.

Why should companies meet you?
Within the food revolution team, we are a dedicated team of five specialists with a broad network of corporate contacts and investors. We are a trusted and valued investment partner, thanks to our extensive expertise in the agri-food industry. We maintain close connections with companies across both the publicly traded and private equity sectors. This dual approach allows us to gain a comprehensive understanding of a wide range of market developments, opportunities and new emerging technologies along the entire agri-food value chain.

What is your outlook for the remainder of 2024?
Within our universe, we see encouraging signs that the food industry is about to enter a new innovation and volume cycle after an extended period of high food inflation, ‘shrinkflation’ and de-stocking. We are very positive on companies exposed to organic and healthy foods, as well as companies active in the food ingredients space. We are confident that such firms will benefit from the improving general dynamics in the food industry.

We are also confident in the potential of companies that specialize in sustainable packaging solutions. This industry is gaining global traction as governments intensify their efforts to tackle food packaging issues. Policies are being implemented to ensure packaging is recyclable, setting mandatory reuse targets and restricting certain single-use packaging types.

By Gill Newton, partner at Phoenix-IR.

Liontrust was launched in 1995 and listed on the London Stock Exchange in 1999. Today, there are seven teams that invest in global equities, sustainable investment, global fixed income, and multi- asset. A third of Liontrust’s AuMA is in sustainable investment. There is no single house view. AUM are $27.8 billion as at 31 December 2023. The firm is a signatory to the United Nations Principles for Responsible Investment (UN PRI).

The Liontrust GF Sustainable Future US Growth Fund was launched in July 2023 and is managed by Chris Foster, Simon Clements, and Peter Michaelis. It is an Article 9 fund and focuses on 35 – 55 stocks.

Chris Foster joined Liontrust in April 2017 as part of the acquisition of Alliance Trust Investments (ATI). Chris had initially joined ATI through the management training programme after graduating with a First Class Honours degree in Economics and Mathematics from the University of Edinburgh. Chris is a CFA Charterholder. Chris has ten years’ industry experience and has been part of the Liontrust Sustainable Investment team for eight years.

Co-fund managers Simon Clements and Peter Michaelis also joined Liontrust in April 2017. Prior to managing funds at ATI for five years, Simon spent 12 years at Aviva Investors where latterly he was Head of Global Equities. Peter has managed Sustainable and Responsible Investment portfolios for over 20 years and was previously Head of Sustainable and Responsible Investment at Aviva Investments.

In recent years, Liontrust has made a number of acquisitions such as Majedie and Neptune, how are acquisitions integrated?
Each team is very much independent from the rest of the organisation. Our team joined in April
2017 and has been kept as a separate team to those other acquisitions. We don’t have a CIO and we don’t have a house view. It’s been very seamless for us – the support services we get from Liontrust, the sales, the marketing, the compliance, the risk, the performance stuff and all the distribution is unchanged.

Continue reading →

Rathbones Group is a leading, independent provider of investment and wealth management
services for private investors, charities and trustees, including discretionary investment
management. In September 2023, Rathbone and Investec Wealth & Investment UK
combined – creating the UK’s leading discretionary wealth manager with $125 billion of
funds under management and administration. Within the group, Rathbone Investment
Management (discretionary management) are fundamental investors who combine top-
down asset allocation and sector analysis with stock-picking.

Sanjiv Tumkur joined Rathbone Investment Management in 2016 as Head of Equity Research, becoming Head of Equities in 2022. He is responsible for developing and promoting
Rathbones’ equity investment philosophy and process. He joined from Investec Wealth where he was a member of the Research team and provided equity analysis and recommendations to the firm’s investment managers. After reading Philosophy, Politics and Economics at Oxford University, Sanjiv spent nine years at Morgan Grenfell. He then spent three years at AllianceBernstein.

How have things changed since the merger?
Post-completion, we are working to align Rathbones’ and IWI UK’s approaches, looking at
both organisations and incorporating the best from each. We are similar businesses, with
similar client bases and client objectives, and we are excited about the opportunity to create
the UK’s leading discretionary wealth manager. Continue reading →

Pyrford International, founded in 1987, is an investment boutique that operates independently within Columbia Threadneedle Investments. Pyrford is a provider of global asset
management services for collective investment funds, investment management companies,
local and state bodies, pension schemes, endowments and foundations. Its investment
approach is rooted in capital preservation and its strategies include global absolute return,
global equity and international equity.

Suhail Arain is head of portfolio management for the Americas. He joined Pyrford in 2008 as a portfolio manager covering North American equities having previously worked at Scottish Widows as a global equities portfolio manager and research analyst. He has more than 25 years’ experience in the asset management industry with a particular emphasis on US and
global equities.

Arain graduated from King’s College, London with a degree in law and completed a masters in finance from London Business School. He also holds the CFA designation and has held positions at KPMG, Hambros Merchant Bank, Prudential and ABP Investments.

Pyrford is owned by Columbia Threadneedle. Do you operate independently?
We operate independently of Columbia Threadneedle so nothing has changed for us in terms
of our investment process or our clients.

Continue reading →

David Shaw is co-head of global equities at AXA Investment Management. He also manages the Global Sustainable Distribution Fund, co-manages the Global Sustainable Managed Fund and is deputy on the American Growth fund. He joined AXA in 2016 from Aerion Fund Management (2000-2016). Before this he worked at NPI, NatWest Investment Management and United Friendly Asset Management. He was educated at City University and has a BSc (Hons), Electronic Engineering.

AXA IM is part of France’s AXA Group, a global leader in insurance and asset management with AUM of $916 billion. AXA IM traces its roots back to 1994 and today is present in 22 offices in 18 countries. The firm is an active, long-term, global, multi-asset investor. AXA’s primary equity management operations are Paris and London. The London office runs a number of global equity funds including a number of thematic and geographic funds.

Equity AUM in London and Paris?
$61 billion in equities.

What’s the equity AUM figure for London?
$36 billion.

How do London and Paris co-operate?
Paris is predominantly European equities, the global small cap team, the convertibles team and the multi-asset team. London manages sector specific funds such as technology, healthcare, Thematic and regional funds such as The American Growth Fund as well as a number of global funds. Many of the sector specialist fund are quite US-centric given their technology/healthcare skew. If you note that >60% of the MSCI is US, then we have higher exposure to US equities. But I wouldn’t want to put people off visiting Paris. We do collaborate and often share ideas with the global small cap team in Paris, for example.

In terms of collaboration, we have two formal meetings a week – one with a regional focus and the other is more thematic/sector specific. Teams from London, Paris and Hong Kong share thoughts. We do a good job of getting the London and Paris teams to collaborate. Names from the American Growth may also be held in the global small cap fund.

Which screens do you use?
Fund managers have a lot of personal autonomy. We tend to look for quality growth. Some strategies are more GARP while others are out and out growth. (We hold a few names that are still unprofitable but working towards it, companies with innovative, breakthrough technologies).

Do you use benchmarks?
Yes – most strategies have an appropriate benchmark. We are benchmark aware, not benchmark driven.

Active share?
Most portfolios hold 40-60 stocks, so our active share ranges between 60 – 70% dependent on the fund.

Minimum market cap?
Around $1 billion – Small cap team would be lower.

Average position size and largest?
Largest – we would have exposure to Apple even if it is underweight for our US funds. So that would be our largest holding without being an active bet. A typical active weight is 100 BP above the benchmark.

Average length of a holding?
4-5 years+. A couple of names in my US portfolio we’ve held for 6 – 7 years. We buy and hold where companies are executing well. We want to be long term investors, and invest in companies that grow and develop. However, fund managers may trade around a position so will trim if sentiment is overly optimistic.

Geographic allocation?
>60% in US. A lot of the global/specialist strategies are heavily exposed to the US e.g. our healthcare and technology funds.

Sector allocation?
We pay attention to sector allocation but look for good organic innovative, growth names. Some sectors such as healthcare, technology and consumer discretionary in the US are good places for innovation and new ideas. Sectors where you don’t see much innovation and growth are, for example, financials, utilities and energy and we are typically underweight these sectors.

How does the team split sectors and geographies?
We do have our technology and healthcare specialists, but fund managers are attracted to certain sectors by the nature of their investment style. Steve Kelly and I tend to focus our attention on Healthcare, Technology and Consumer.

61% of assets are ESG integrated, how is ESG integrated into the investment process?
We have a large Responsible Investment team (more than 30 people) which supports the whole business, not just equities. In addition, there is a team of 7 ESG & Impact analysts who work more closely with the equity team. We have an Impact Fund range as well as dedicated ESG funds (our ACT range). The sustainable funds that I’m involved in all have a high degree of ESG integration. The sustainable funds look for companies that can deliver sustainable opportunities including environmental or social progress. As growth investors, we are looking for businesses of the future and they normally align well with ESG. Younger businesses take those responsibilities more seriously.

Discuss some holdings and why you invested?
Mondelez – bought it for my US funds in 2016 and still hold it. The weighting has increased as my confidence in the growth dynamics and management has grown over time. When I first bought it, I didn’t have much exposure to consumer staples. It was one of the better food producers, with faster growing categories. It was growing slower than its overall category due to a focus on margins that was stifling growth. The management transition of 2018 has gone well, and Dirk and Luca were very early in transitioning from a cost focus to looking for more
growth. They also moved away from the traditional US centralised Chicago HQ to a more decentralised localised management style where local offices have a say on sales’ strategies and product development. So, growth is now in line, and they have managed to keep within their margin framework.

Food producers can face challenges and our Responsible Investment (RI) team have been a huge help in this regard. We, as a firm, wanted to learn more about deforestation and so our RI team had a meeting with Mondelez about how they ensure their suppliers are not involved in deforestation. Overall we felt that Mondelez are ahead of their peers. While we would like them to do more, it is good to have the back up of RI team and they came away with good outcome from their engagement.

NextEra – the only US utility that we own. We own it in our global portfolios, as well as some US funds. They are forward thinking, and it has delivered the best organic growth amongst US utilities, partly due to its innovative early adoption of renewable energy. And being based in Florida helps (population growth). NextEra has more organic growth than most US utilities. It is also very well positioned due to its renewables exposure in terms of ESG. Their target is “real zero” – by 2045 – 100% renewable energy generation – and they are well on way to achieving it.

Chipotle – My colleague, Steve Kelly, first invested over a decade ago for the American Growth Fund. It has a combination of organic growth via new store expansion and menu innovation. (It has a simple menu so it can add in one or two new ideas). It has some of the best unit dynamics in the quick service industry in US. Covid gave them the opportunity to develop their digital offering – on-line or take away and they’ve been very successful there. 2023 sales are forecast to be 80% higher than in 2019. So, they have managed to grow very strongly for last 3 – 4 years and there are still some things they can do better. Productivity is probably not as high as should be as they have a number of new hires who take time to get faster at making burritos, for example.

Dexcom – another >10 year holding. Great example of a holding that started with one team and other teams have become interested. It started out as a holding in the American Growth Fund, and it is now widely held on our Thematic funds, our healthcare funds, Global funds and the convertible team owns the convertible. So cross pollination of ideas leads to more teams owning it. Holdings of names that execute on the long term growth strategy, do snowball as fund managers hear the story, and it becomes a major holding across the firm. Dexcom is
the creator of the continuous glucose monitoring industry. Innovation keeps coming, making the product smaller, making the sensor last longer etc. It improves health outcomes and users are big fans.

Chart Industries – a newer name we recently added. I met the company properly in November 2021. The business has changed in recent years. Their core business and expertise are in gas compression and liquification technology. In the last 3-4 years, management has transitioned the business away from the legacy LNG business and is growing in hydrogen, biomass, carbon capture and storage. So, from fossils fuels to fuels of the future. We originally added it to the US funds and now it is in convertibles and global small caps as well as we’ve spoken to other teams about it.

Do you like to meet management?
Yes, but it can be hard work to carve out time to prepare for a meeting and we do like to do our homework. We like to check market expectations, and gain comfort from management as we are looking to be long term holders. We want a company to meet/exceed long term guidance. We want to understand what levers a company has if things don’t go as expected.

Preferred method of meeting management?
1/1s generally – with a popular name you could have 4-5 PMs joining the meeting from Axa IM. Group meetings can be productive though as sometimes another investor takes a different angle that you hadn’t appreciated. We prefer face to face meetings if possible. And we like companies to be consistent. It is frustrating if a company comes over and starts to build interest and then don’t come back. Year 1 our US specialist may see it, year 2 – a chance to get the company in front of a few more colleagues. Just because we are an existing holder, it doesn’t
mean the position couldn’t be increased (by other funds internally).

Any companies that stand out as particularly good at IR and why?
Tractor Supply stands out, it’s a fairly recent addition to both my GARP US portfolio and the Global Sustainable Fund. They are good at explaining the business mix and the cyclicality. Mary Winn Pilkington (Investor Relations) does a good job of explaining the different parts of the business and management are quite forthcoming.

Brunswick – we like how IR tries to frame the business. Some look at its history and how it performed during the Global Financial Crisis, but the business is now very different as the growth in Mercury engines business has reduced its cyclicality. They’ve downsized the pure boat business so that is now only 30% of revenues. Engines and accessories are the lion’s share and is more a repeat business so less cyclical.

Why should companies meet you?
We are genuinely long term and positions can be increased across numerous funds, even convertibles.

What are the major changes you’ve seen during your tenure in investment management?
Information flow has increased massively – in both detail and complexity. However, the fundamentals remain the same – if you buy a company with good organic, innovative ideas you tend to get rewarded. And you have to keep evolving and building on skills learned elsewhere.

This interview appeared in the recent digital edition of IR Magazine

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