The business argues that its laser-like focus on public, listed companies in North America, cutting through certain fashionable ideas, appeals to clients.

A Canada-based investment firm that is opening its strategy to clients via a UCITS fund structure argues that its focus on North American listed firms run with a “founder-owner” mindset delivers the goods, free of noise around fashionable ideas.

“Our strategy targets a set number of high conviction holdings. We fixate on the present value of each company’s future cash flows. And the partners are fully committed: this is where they have all of their money,” Andrew Brenton, chief executive at Turtle Creek Asset Management, told this news service.

Turtle Creek AM, which manages money for high net worth individuals and institutions, likes relatively concentrated positions, such as 30 to 40 companies and avoids those with a lot of debt.

“We are looking at highly intelligent organisations that deal with complexity in their business and are thinking about the long-term interests of their shareholders….and have a `founder-owner’ mentality.” “We avoid firms that are 'corporatised', too focused on noise around ESG, for example,” he said.

Turtle Creek, which oversees C$5 billion ($3.04 billion) in assets under management, was asked by European investors about the possibility of getting access to the strategy via a UCITS structure. So far, the strategy has generated more than 20 per cent in terms of compounded returns.

According to the December 2021 factsheet on the Turtle Creek Equity Fund, an open-ended fund, it has clocked up compound annual returns over five years of 11.8 per cent, ahead of the market, at 8.9 per cent. Over three years, the annual result is 21.6 per cent, also ahead of the market. Since the business was founded in November 1998 – at the height of the dotcom bubble – Turtle Creek has chalked up a 22 per cent compound annual return.

The new UCITS fund, to be registered in Ireland, is called the Turtle Creek North American Equity Fund.

Results more recently have been mixed. According to its first-quarter 2022 note, the firm said: “During the quarter, Turtle Creek Equity Fund’s (“TCEF”) unit price was down 10 per cent. And yet our companies, by and large, reported solid results. Based on our review of results and meetings with company management teams, we increased the business value of a number of our holdings. This, along with our ongoing rebalancing across the portfolio, combined to increase portfolio business value in TCEF by approximately 10 per cent.”
 

Access
“What we’re doing is putting our portfolio and our investment approach into an easily accessible vehicle for European investors. As it will be part of our assets under management alongside our existing funds, we’re agnostic about which structure investors choose. We do think our approach is unique, that it adds value and that it will attract investors who would like to outperform the market over the long-term,” he continued. 

“Our strategy is exclusively North American equities, intensely bottom-up, with a focus on value investing in midcaps. Fundamentally, we believe that risk and return are not directly correlated, as is often thought, but that they can be inversely correlated. We believe risk is the prospect of permanently losing money,” Brenton said. “This contrasts with most investors and academics, who describe risk as the likelihood and magnitude of prices bouncing around. We manage risk by understanding the value of the companies we invest in and then constructing a diversified portfolio that, among other things, owns relatively more of what we believe are the most attractively priced companies.”

WealthBriefing asked Brenton about the strong market trend of investors pushing into alternative areas such as private equity, venture capital and private credit. Is this going to displace listed equity? 

“It is a niche and will remain a niche,” Brenton replied. Even so, he said his views on areas such as private equity have changed over the past few days. “They [private equity firms] are genuinely adding value in some cases.”

Turtle Creek has clients and capital from high net worth individuals, family offices, foundations, and other institutions. 

“The most traction we have got is with ultra-high net worth individuals and single family offices," Brenton added.