Investment Objective
The Company will target a return on investments of at least 2.0x invested capital over a three-to-five-year hold period, aggregating into a total annualised return of at least 15 per cent, per annum in smaller companies.
We do this using a specialist strategy tailored to capture a structural market opportunity in UK smaller companies. Rising costs and regulatory pressures for advisers and other investors have increasingly restricted the flow of research and level of investment into smaller companies – this is the bedrock of the opportunity the strategy is targeting.
Our proactive investment strategy and expertise enables us to invest in these smaller companies, using various structures and techniques to target the market inefficiencies from which source returns for our clients.
The Company will seek to achieve its investment objective by investing primarily in equity and equity-related securities of UK smaller companies that are predominantly listed or admitted to trading on markets operated by the London Stock Exchange where it is considered that there is a material potential valuation upside that can be delivered from catalysing strategic, operational or management initiatives.
In order to ensure that the Company is able to effectively maintain its approach of active engagement with investee companies, and to encourage and support value creation, the Company will typically target meaningful minority stakes in Investee Companies of between 5%. and 25%. of issued share capital of such investee companies.
Whilst the Company has no limitation on the size of the market capitalisation of the companies in which it can invest, the Company typically expects to invest in companies with market capitalisations of no more than £250 million, with a particular focus on those below £100 million, at the time of investment. The Company will therefore focus on investments in the ‘micro’ smaller companies sector, and on companies admitted to trading on AIM.
Summary
1. An Identified Market Opportunity
- Structural ‘gap in the market’ caused by rising costs and regulation on both the buy and sell side reducing levels and flow of information
- This creates mispriced and misunderstood smaller companies in the UK (<£250m)
2. Bespoke Proven Strategy
- High conviction investors using an in-depth and active approach to generate 2.0x invested capital over three-to-five-years
- Relationship based activist strategy focused on making returns rather than noise
3. Depth of Experience to Execute
- Aggregate of c.160 years’ experience across the Investment Committee and Lead Manager
- The team has a history of value creation and building businesses from the ground up
Investment Philosophy
We focus on the tangible. We believe in investing in businesses, strategies and catalysts that we can see and understand. This we think gives us the best opportunity to value a company today and to assess its intrinsic value tomorrow. We then aim to purchase it at a discount to both of those values. Therefore, Investee Companies will typically have certain of the following characteristics:
- balance sheet asset backing;
- a competitive advantage and/or strong management track record;
- attractive cash flow potential;
- visibility of earnings/future earnings improvement;
- potential for liquidity and/or exit in line with the Company’s targeted hold period;
- scope for an active shareholder to trigger value creation; and/or
- foreseeable events and catalysts to unlock intrinsic value.
Although investments will not be restricted to specific sectors, the Company does not expect to pursue or make investments into companies in the biotechnology sector, or in companies directly involved in extractive industries (such as mining, oil or gas).
Once we have found what we are looking for, we apply private equity techniques to our due diligence to allow us to deep dive on the earnings, valuation and capital allocation potential of an investment. Again like private equity, these findings are then presented to an Investment Committee with an investment recommendation. The Committee then opines with an approval or rejection decision.
Following investment, we take a relationship-based approach to active and engaged investing, seeking to unlock the value we have spotted for all stakeholders. This will typically involve direct and indirect engagement on a number of identified catalysts and variables in an investment to drive improved earnings, capital allocation or valuation.
See below for our three-step Investment Process.
1. Idea Generation & Sourcing
To generate investment ideas, the Portfolio Manager screens for simple theses that may deliver superior returns. Promising ideas progress to an investment appraisal, where the team analyses core tenets. After appraisal, the Investment Team, with consultation from the Investment Committee, can invest in a target up to 2% of the Net Asset Value to remain agile and match investment to growing conviction.
2. Due Diligence and Investment Execution
Once the Investment Team finds a promising opportunity, they conduct an extensive due diligence process to explore the investment potential in more depth. They produce a private-equity style investment report and present it to the Investment Committee for discussion and feedback. The Investment Team then provides a recommendation including a target price, time horizon, and recommended portfolio weighting. The Portfolio Manager makes the final decision to proceed with the investment, while the AIFM retains risk management functions and oversees the Portfolio Manager’s actions.
3. Catalysts, Monitoring and Exit
The Portfolio Manager’s active investment style involves post-deal involvement to help investee companies achieve key goals and improve earnings, ratings, or capital allocation. These pre-identified catalysts and opportunities are lobbied for during the holding period using a blend of relationships and shareholder rights. Quarterly portfolio reviews are conducted by the Investment Committee, and the Portfolio Manager provides regular updates on investment progress. The Portfolio Manager aims to achieve an exit within 3 to 5 years.
Culture & Vision
We are passionate about generating absolute returns for clients and delivering it via an investment company structure.
The Company will target a return on investments of at least 2.0x invested capital over a three-to-five-year hold period aggregating into a total annualised return of at least 15%, per annum.
We think Investment Companies are great products; they are transparent, public, accessible and overseen by an Independent Board. We think these are attractive qualities for investors and our vision is to grow their audience.
