GQG Partners a US-based investment boutique firm found itself in the limelight overnight, when it rushed to the rescue of four listed Adani companies in the wake of a scathing Hindenburg report. While the fact that GQG Partners funneled a little over Rs 15,000 crore in the Adani universe is well-known, other operational facets, including the stock screening methodology and business philosophy of the investment firm are relatively unknown.
Taking a cue from the immense curiosity surrounding the investment firm, Moneycontrol did a deep dive into the dynamics powering the working of GQG Partners. Here’s a quick take:
1. What is GQG’s investment philosophy?
The firm, in their words, pursues a bottom-up fundamental research process which helps its filter down 300-350 investible companies from a universe of 50,000 global securities. The screening process informed by three mantras filters down companies on three parameters, namely:
- Companies that have produced superior rates of returns and margins relative to their peers over the previous 3-, 5- and 7-year periods.
- Have generated superior stability of return on equity and on return on assets.
- Are not excessively levered.
Ironically, the prime concerns around Adani stocks were around high leverage.
However, the founder of GQG Partners Rajiv Jain is putting his money where his mouth is and reportedly is likely to step up his investment in the four listed companies after the first tranche of funds inflow.
2. Valuation analysis figures later in the game
GQG Partners place greater emphasis on RoE, leverage, margins and stability of returns and margins over valuation metrics.
“Our screens primarily consist of elimination first and ranking thereafter based on return on equity, leverage, margins and stability of returns and margins. We do not employ valuation metrics in our screens. This avoidance of valuation means that our screens tend to be more stable. Valuation analysis is done after we have isolated quality names.” the latest GQG Partners’ investment adviser brochure states.
3. Investigative journalists on its payroll
Alongside employing mainstream analysts, the firm also employs analysts with a background in investigative journalism so as to provide it with “unconventional perspectives and to investigate social aspects of various prospective investments”
“That approach at times gives us insight into social issues that may not be available through what would be considered standard investment research. We believe that this is particularly important in evaluating the culture of prospective investments and, to some extent, the ecosystem in which they operate.” the brochure spells out.
4. When is the sell discipline triggered?
GQG Partners identifies consistency, predictability, profitability, sustainability and reasonable price as the key legs of its investment purchase discipline. In the same vein, it has a sell discipline, which kicks in when:
- The market price exceeds GQG’s valuation estimate.
- There occurs a meaningful deterioration of the company’s relative long-term earnings growth prospects.
- There is a loss of long-term competitive advantage.
- The company is involved in a major acquisition
- Inability to reconcile company data
- The company is replaced by an investment which is more attractive
5. What are the kinds of clients that GQG has onboarded?
The list of clients for GQG includes investment companies, pooled investment vehicles, pension and profit-sharing plans, state & municipal government entities, as well as sovereign wealth funds and corporations.
6. What is the total quantum of regulatory assets under management for GQG Partners?
The firm has a total of 100 customers with a total kitty of over $ 91 billion. As the firm’s filings before the Securities and Exchange Commission, 40% of its clients are non-United States persons.
7. Does GQG’s leadership have skin in the game?
As per the annual report for the year 2022, the firm identifies itself as “co-investors” with our clients.
“Our team has substantial exposure to our own strategies, with our co‑founders having invested in the order of $1 billion personally. We believe this deep commitment provides tight alignment with both clients and shareholders and sharpens the focus on our constant effort to drive performance. When you eat your own cooking every day, you tend to focus more on the freshness of the ingredients.” the annual report states.
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