Alantra – London

Alantra is a European financial services firm with a team of over 500 professionals, based in 35 offices in 25 countries. Within the Alternative Asset Management division, it has $2.6 billion (€2.2 bn) AUM in different asset classes, $12.9 billion (€10.7bn) AUM in FoF and $2.8 billion (€2.3bn) AUM in Private Wealth.  In November 2020, the Alantra Global Technology Fund was launched.

Dr. Fiorangelo Salvatorelli is CIO/Founder of the Alantra Global Technology Fund. He has been an active technology investor for over 20 years, combining cross-disciplinary experience from consulting (Mckinsey & Co), long-only investing (Newton, Fidelity, CCLA), hedge fund management (Lansdowne, Kite Lake) and private equity (Fusion/Hermes) across multiple economic cycles and delivering a consistent investment performance track record.  Dr Fiorangelo is a strong believer in the multi-decade trends in the technology industry, as well as driving superior risk-adjusted returns for investors. He was a former university lecturer at the University of Oxford Department of Engineering Science and INSEAD, and holds a MA and DPhil in Engineering Science from the University of Oxford.

Kulbinder Garcha is Portfolio Manager / Partner of the Alantra Global Technology Fund. Kulbinder has been analysing the technology industry since the late 1990s and is recognised as a top-ranked equity research analyst, having held positions at Morgan Stanley, Goldman Sachs and Credit Suisse. Most recently, he was head of Global TMT investing at the Qatar Investment Authority, overseeing the strong performance and material growth of the sovereign wealth fund’s technology, media and telecoms exposure across asset classes. Over more than 20 years, he has advised on numerous transactions, including IPOs, private equity, M&A, as well as activist investing across the industry. Kulbinder is focused on fundamental industry and company level analysis and has developed proprietary, data-driven thematic investing strategies. He holds an MA in Mathematics/Economics from Cambridge University.

How does the global technology fund fit within Alantra’s ecosystem?

Alantra has an alternative asset management business, we fit as the technology exposure for investors within that business. We were keen to start a fund where the business risk was largely removed. The combination of committed long term capital and Alantra infrastructure, business development, operations, compliance etc allows us to benefit from that.

When was the fund officially launched?

November 10, 2020 (ticker ALGTFDU ID Equity), this followed a 30 month period where the strategy was incubated in a managed account.

Performance to date?

The strategy of the fund was tested with capital in a managed account between April 2018 and December 2020, over that period we saw a 128% total return, 36% CAGR. The same strategy was transitioned to the fund in November of 2020 and since then we have seen a 10% return.

Current AUM and how large do you expect to grow?

$32.5 million, we believe long term this strategy can scale to $1 billion, however, we are modest in our ambitions.

Will anyone else at Alantra be involved in stock selection process? 

As the PMs, Fiorangelo and Kulbinder make these decisions jointly, however we have a weekly IC, which includes senior members of Alantra AM, which ensures oversight.

Are all investments in equities?

Yes 100%.

Geographic split of equities?

Typically, 70% NA, 15% Asia, 10 to 15% WE.  We would focus our EM typically on China, India, SEA and South America.

Can you talk about your investment process?

The Alantra Global Technology Fund (AGTF) takes a unique research orientated approach investing in the global TMT and related sectors. The strategy is disciplined, and thematic focusing on digital transformation through a process which is rigorous, repeatable and scalable.

Our fundamental belief is the technology sector is transforming entire sectors, reshaping economies, and the themes we are focused on will playout in decades as opposed to years. Simultaneously we believe the healthy innovation ecosystem means new players are consistently being created, allowing us to identify sources of outperformance against this backdrop over the long term.

We start by focusing on ten themes that we think will play out over decades – e-commerce, cybersecurity, AI, etc, that is our first screen and the most important. Our second screen is for various factors such as governance, internal employee metrics, and accounting. This creates a watch list of approximately 50 names. Then we look at potential returns. All of this leads to a concentrated portfolio of 25 to 30 names, based on conviction, financial and industry analysis.

Will you invest in companies that are not profitable?

Yes, we have and will continue to, for us what is important is that the unit economics can justify profitability at scale. However, this is always a balance from a portfolio perspective, some investing heavily, and others are harvesting, on balance the portfolio typically has had EBITDA margin that is significantly positive.

Describe your investment style?

We focus on growth equity with superior business models and unit economics, this involves identifying multi-year winners in large and growing markets.

Investment horizon?

3 years.

Share price appreciation goal?

Minimum IRR of 15% over 3 years.

Any market cap restrictions?

None per se, however, typically we have very little exposure to megacaps (>$200bn).

Can you invest outside the TMT universe?

We seek to be a premier, growth-oriented Public Technology fund investing in technology and related sectors in a disciplined, thematic manner. This inherently results in investing in areas that are becoming drivers of that change or that benefit from it, and allows us to pursue the investments wherever they lie. Payment systems therefore is a key area for us and has represented approximately 10% plus of the portfolio. However, what is important is that there is a heavy technology component, for example while we have no exposure to the area currently, we have looked at datacentre opportunities, as we see them a direct beneficiary of the transformation of IT.

Is ESG a consideration?

The fund is anchored around one main theme of digital transformation of sectors and economies.  What that means, many of the companies are driving trends that are improving logistics and delivery that have clear ESG benefits from an environmental perspective. We also look closely at corporate governance, to ensure companies operate responsibly, so while we do not have a direct ESG mandate our approach incorporates important elements of ESG.

Average and largest position?

We are compliant with UCITS rules which means we would not have a position above 10%, currently we have several positions around 5%, with the average at 3.5%.

What do you look for in a stock?

We look for a company to fit a theme, around digital transformation, once we have that, important factors are superior unit economics, disruption to large TAM, management and the ability for the company to achieve healthy FCF at scale.  In order for it to enter the portfolio we need to be convinced not only from a return perspective, but also that we have a unique perspective, whether this on the company, industry, runway for growth, or understanding how the sector may evolve technically.

Can you name any stocks you like and why?

One area we favour is Cybersecurity. In a world where more transactions shift online, more data is processed at home for corporate purposes, cybercriminals, with increasing sophistication, see more opportunities to steal, disrupt or destroy data. In 2020 we saw hackers targeting high-profile organizations with significant data sets, particularly in retail, finance and the public sector (Solarwinds and Equifax).  All of these mean that the $124 billion cybersecurity market is set to see secular growth. Second, Cyber CIOs have a preference where they buy best of breed suppliers as the types of threats evolve continuously, this means that as leading-edge innovation is done within start-ups, emerging companies can grow and continually disrupt the market and capture wallet share. Indeed, by some estimates this could lead to net transfer of revenue of some c.$10 billion of this TAM.  It is for this reason that approximately c.20% of AGTF portfolio has exposure to such names such as Okta or Zscaler to name a few.

Other holdings include: Alteryx, Broadcom, DocuSign, Infineon, Paycom, Paypal, Proofpoint, Zendesk.

Any stocks you don’t like?

We tend to avoid many of megacaps and MFAANG type names.  Not because we don’t like these companies, simply its more of a reflection of index concentration, regulation balanced with acceptable valuations. Additionally, we believe value investing in technology is challenging in what is often a winner takes all market, hence while we have turnaround ideas in the portfolio these tend to be limited.

Do you like to meet management before you buy a stock?

Yes, we typically have interacted with management several times prior to investing.

IR tips especially for companies adapting to the new virtual world?

Virtual conferences should democratize corporate access on a global basis, and also facilitate more, shorter events and interactions. It is important for it to be more topic focussed.

Why should corporates target Alantra’s Global Technology Fund?

As the fund grows we will continue to allocate and be active in the technology sector. Additionally between us we have 50 years’ experience, through multiple strategies of investing across several economic cycles which means that we can have meaningful interactions around the long term and be a sounding board.

Given the concerns about technology stocks being vastly overvalued, does the world need another technology fund? 

To deal with the question of technology being in a bubble or overvalued, we have a different perspective. We recognize that with the technology sector at record highs, the Nasdaq surpassing previous highs, the software sector on the highest multiples seen, a robust 2020 IPO market and SPAC phenomena, it is hardly a surprise most observers conclude or caution that there is a potential bubble. Comparisons are often made between the surge in share prices last year with the dot.com mania and crash of 2000. There is undeniably a lot of “froth” in the market and some extreme valuations.  For example, Tesla is now worth north of $900 billion, it is valued more than the next 9 largest publicly quoted car companies combined.  However, there are significant differences. Unlike in 2000, many of the more established technology companies are dominant global businesses and have a solid financial footing. Additionally, we believe there exists strong thematic tailwinds for growth, at early levels of adoption in several areas, notably Digital Transformation, Electric Vehicles, Cybersecurity, Cloud and E-Commerce more generally. Whilst we do detect degrees of excessive valuation in both public and private technology markets, equally we are of the view that current valuations in the technology sector are very different to the fundamentals seen in the year 2000, which suggest to us a sustained market leadership for decades to come, and that the risk of severe multiple contraction is less likely.

As to whether the world needs another technology fund, we would argue that a fund that is not index constrained and with a track record, does have some differentiating merits.

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