Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
The advantage of running a high conviction global fund out of Australia
The perception may be that fund managers trying to operate from an Australian base would be hindered greatly by the distance from major equity markets in neon capitals like London, Tokyo and New York, but for high conviction investment teams like Claremont Global that isn’t the case.
In fact, Claremont co-portfolio manager Bob Desmond believes that running the firm’s fund out of Australia has several key benefits over other major cities. That advantage, he said at The Inside Network’s recent Investment Leaders Forum in Queenstown, New Zealand, starts with the fact that Australia’s geographical isolation actually provides a layer of barrier to excess market “noise”.
Being caught up in a constant thrum of market activity can work for some investors, Desmond explained, but not for those with a high conviction style.
“If you’re a trader you obviously have to be in London or New York, but if you own businesses like we do it’s all very long-term. It’s actually a benefit [to be in Australia] because I’m asleep when the markets are open, so all that noise is taken away.”
If there is an adverse development during the day, Desmond continued, the team can spend its time quietly analysing earning calls or modelling charts and focus on the underlying issues instead of fretting over the live share price.
“It’s an odd one, but in Australia you’re just away from the noise,” he said, before recalling an anecdote about a recent conference trip to the US with co-portfolio manager Adam Chandler.
“We went to the Bernstein Conference in New York recently, and it was fascinating to us that it was like being in a Facebook echo chamber,” he recalled. “You had all these very bright young people around the table, much brighter than us, talking about AI, and they just started just echoing what everyone else was saying. And it was a reminder to us that being in Australia, you’re just away from the noise.”
Amplifying this advantage for Claremont is that that there is a good understanding among Australian adviser and investors that holding onto quality companies for longer duration is beneficial to portfolios.
“Australia has a great client base,” Desmond said. “They’re long term, they like owning great businesses. A lot of our client base is actually quite sophisticated. There’s obviously some traders but they seem to be less about trading and more long term [and] patient.”
This client base is an appropriate one for a fund that prides itself on taking a concentrated portfolio of holdings in companies that are already established and have relatively robust market share, then only parting with those shares when their true value becomes separated from the market price. It’s long-only, high conviction equities, and based on four investment criteria: business quality, balance sheet quality, management quality and an attractive valuation.
“We have a very select universe,” Desmond said at The Inside Network’s Investment Leaders Forum in Noosa last year.
“We try to find stocks that are good quality and run by good people, but it’s very rare to find a pricing dislocation and get them at the right price because markets are pretty efficient most of the time. You don’t get that many opportunities, which is why we have 10 to 15 [holdings] but a watch list of about 150. To get to that 10 or 15 you have to be patient.”
