Accessing a portfolio of high-quality speciality investment fund managers – and monitoring them effectively – is beyond the means of most retail investors. However, by combining a portfolio of top tier fundamental managers with the opportunity to invest alongside some of the world’s leading investors in their highest conviction ideas, as well as direct equity investments, results in a unique and hard-to-replicate blended approach to money management.
Majedie Investments PLC [LON:MAJE], is an investment trust that pursues a ‘liquid endowment’ approach and aims to provide returns that are comfortably above inflation.
Majedie runs a single portfolio, managed for inflation-beating total returns through a combination of capital growth and dividends. This is achieved by identifying great investment ideas that are not easily accessible to the wider investment audience, seeking out strong opportunities in markets that have structural inefficiencies, and using specialists with deep understanding of niche areas.
The portfolio is managed by the experienced team at Marylebone Partners, the London-based independent manager regulated by the FCA. Marylebone Partners’ Founding Partner and Chief Investment Officer Dan Higgins said Majedie’s ‘liquid endowment’ approach emulates that of the US university endowments with one notable difference. While it aims to replicate their fundamentally long-term model, embracing differentiated and sometimes alternative return sources, it avoids deep illiquidity. Consequently, Majedie steers clear of deeply illiquid or hard-to-value assets like private equity, venture capital, real estate and infrastructure.
“Majedie’s approach is fundamental, accessing bottom-up investment opportunities across three strategies which not only have a good chance of succeeding in today’s world but also offer something different to the shareholders, opportunities that they could not find elsewhere,” said Higgins.
The portfolio combines three complementary fundamental strategies: External Managers, Direct Investments and Special Investments.
Majedie Investments identifies external managers
The largest part of the portfolio is with external managers. They are a focused selection of some of the world’s best fundamental investors in specialist areas such as specialist credit, long only equity, and long-short equity.
The External Manager allocation is comprised of managers with a proven capability to add value and to deliver inflation-beating returns in areas where generalists tend to struggle. These managers add value by leveraging their skills and accessing opportunities, prone to inefficiencies.
The company allocates to world-class investors operating in structurally inefficient areas that will reward their expertise. For example, mid-cap biotech, software, deep-value turnaround, European value situations, or distressed debt. The key here is that these investments were historically not accessible to retail investors or fund managers. However, Majedie Investments now provides access to them in an investment trust format.
For the moment external managers make up roughly 60% of the portfolio but that percentage is expected to come down as the allocation to special investments increases.
The process of picking external managers involves qualitative and quantitative elements.
“We spend a large portion of our time trying to understand the people, the individuals behind the performance and the firm in which they operate. If we are not comfortable with these two elements, we will not go ahead with the investment proposition,” said Higgins.
Typically, these are not funds managed by large institutions. Instead, there is a strong preference for boutique managers. External Managers must be motivated by performance and capital preservation rather than asset gathering.
“It is important to us that the individuals investing the money have the right disposition and behavioural qualities for us to entrust them with our clients’ capital. Over time this has helped us identify exceptional partners with whom to partner,” said Higgins.
Three criteria for special investments
For an investment or asset to be picked it must fulfil three criteria. First, it must come from a trusted source, second, it has to have attractive return targets of preferably 20% or more per year and finally it must be monetisable within three years or less.
Over the course of 20 years, Marylebone Partners principals have built an extraordinary ideas network of external managers, clients, fellow industry practitioners, business executives and advisors.
“A few times each year we are presented with the opportunity to invest alongside some of the world’s leading investors in their highest conviction ideas. These might be co-investments in a public equity, a credit investment or it might be more thematic in nature,” explains Higgins. The bar is high with only one in seven reaching the portfolio.
One of the examples is an idea brought to the company by a California-based activist investor called Engaged Capital, a public equity stake in the popular and fast-growing burger franchise Shake Shack. While the demographics and footfall for the franchise are very good the profitability has been far below what investors would expect.
In-house managed portfolio
The last part of the equation is an in-house managed portfolio of publicly listed equities which have a quality bias to them. However, don’t expect consensus names on that list or names that are part of other portfolios. The biggest direct investment is in a UK stock called Computacenter Plc LON:CCC, a value-added reseller of technology equipment to big companies. Another direct investment is US healthcare company Evolent Health, Inc.
“When we put together the three parts – only two of the fifty component companies are also components of the MSCI ACWI Index. This is a highly differentiated portfolio which features ideas that are not found elsewhere,” said Higgins.
In terms of the Net Asset Value, the company has adopted proven strategies for establishing NAV for all three of its investment components. Direct investments, about 20% of the portfolio, are in liquid securities listed on recognised exchanges priced in real time through data vendors such as Bloomberg or Reuters.
The Net Asset Value of the funds managed by External Managers is priced by an independent third-party at least quarterly. Majedie does not invest in funds that self-price their own books or where there is no external valuation.
Special Investments come in different investment structures, from co-investments, special purpose vehicles or thematic funds. All Special Investments are mark to market on at least a quarterly basis.
All Majedie’s assets are held by a blue-chip depository, JP Morgan Europe. Importantly, although Majedie invests in companies across the globe, the assets are valued in sterling. The investment is denominated in pound sterling with other non-GBP currency exposure hedged, so that investors can rest assured that currency moves will not meaningfully affect their investment.
Majedie is an easily accessible and unique combination of investments. As a listed investment trust it can be held in the portfolios of all types of investors whilst providing exposure to high grade investments that were once purely the domain of only Family Offices and institutional investors.
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