Here’s an excerpt from an interview by Value Investor Insight with Alexander Roepers. Making highly concentrated bets, as Alexander Roepers can attest, requires conviction in one’s research, flexibility of mind and, at times, a cast-iron stomach:
While he spends considerable time and effort on “constructive activism” with his portfolio companies, Alexander Roepers is quick to highlight the basic impetus for all of his investment ideas. “Our interest starts first and foremost with a good value story,” he says.
His nose for value has translated into excellent returns for his Atlantic Investment Management investors. The U.S.-focused fund he has managed since its inception in 1992 has earned a net annualized 13.4%, vs. 9.2% for the S&P 500.
Finding bargains at levels he hasn’t seen for nearly 20 years, Roepers is seeing opportunity inside and outside the U.S. in such areas as security services, packaging, IT consulting, specialty vehicles and electronic-product distribution.
How you define your opportunity set says quite a bit about your underlying strategy. Describe where you will and won’t look for ideas.
Alexander Roepers: Our universe consists of companies with $1 billion to $20 billion in market cap in the U.S., Europe, Japan and some Asia, ex-Japan. Because one of our key tenets is to concentrate on high-conviction ideas – our long portfolios have between six and maybe 20 names – we also try to avoid a number of particular idiosyncratic risks. We avoid high tech due to the risks of technological obsolescence. We avoid most financials due to the lack of transparency, and we avoid industries like utilities and cable television, which are subject to significant government intervention. We won’t take on the potential for product-liability risk that comes with investing in tobacco or pharmaceutical stocks.
The market cap range reflects the fact that we would like to always be a significant minority shareholder, holding between 1% and 7% of the shares outstanding. This facilitates engaging in constructive conversations with top management about their companies and their plans to improve shareholder value over time. Our activism is liquid activism, meaning we engage in a constructive manner and won’t hesitate to be increasingly vocal when the situation warrants, but we also avoid board seats and proxy battles that can make us illiquid by virtue of our activism. We want to be able, without constraint, to size positions as we see fit when we believe the risk/reward becomes more or less attractive.
You can read the entire interview here – Value Investor Insight, Alexander Roepers Interview.
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