As investors with a long-term investment horizon, a global portfolio of public equities remains at the core of our multi-asset class allocation, providing our clients with exposure to returns tied to global economic growth. Our equities allocations are expressed through a combination of low-cost passive exposures, derivatives, directly held securities and active managers. We define the asset class to include long-only, long-short and activist strategies.
The vast majority of active equity investors do not deliver persistent outperformance net of their fees, so we are focused on finding the needles in the haystack that do have the potential to persistently outperform in the future. In this pursuit, we have a bias towards independent and owner-operated managers who engage in deep fundamental research, who manage high-conviction concentrated portfolios, and where outperformance is a function of idiosyncratic security selection as opposed to market timing. The large cap generalist segment of the market is highly competitive and outperformance from proprietary or differentiated insights is extremely challenging for all but the most talented managers. Accordingly, we complement our core group of exceptional large cap active managers with sector specialists, leading quantitative managers and systematic public equity co-investment strategies.
In search of alpha in equities, we are thus biased towards three types of managers:
(a) small and mid-cap managers where there are greater inefficiencies to be exploited,
(b) sector or geographic specialists who benefit from deep industry or country expertise, and
(c) managers who adopt a “private equity approach to public equity investing” where the depth of research and influence on management rivals that of our private equity managers. This last category of managers typically benefit from long-term capital which allows them to exploit what we refer to as “time horizon arbitrage”.
Our best ideas in equities are expressed through two of our discretionary multi-manager pooled vehicles. Our Falcon portfolio, which focuses on long-short equities, is a concentrated portfolio of the most talented asset managers who deliver alpha on both the long and short side of the portfolio across both generalist and sector/geographic specialists. Our Greyhawk portfolio, which captures our philosophy of the “private equity approach to public equity investing” is a concentrated portfolio of managers who conduct deep fundamental analysis and drive change as “virtual insiders” to their businesses over long periods of time.
We capture the best ideas of our active equities managers through a co-investment program which offers direct exposure to a concentrated portfolio of stocks. These stocks reflect the top holdings of managers who embrace what we refer to as the “private equity approach to public equity investing” – public equity investors who have a private equity owner’s mindset and a truly long-term perspective. Through deep fundamental research and engagement with management teams, these managers become “virtual insiders” and drivers of change over multi-year hold periods. These managers are also typically closed to new capital.