Purposeful Growth: what it is, and why we seek it
Nearly 25 years of experience investing in emerging markets has taught us that Purposeful Growth enterprises tend to deliver superior financial performance and superior long-term shareholder returns. Their cultural attributes also tend to be hard to replicate, giving them significant and sustained competitive advantage.
‘Purposeful Growth’ is an organisational principle which requires businesses to think about the overall value creation of the enterprise across multiple stakeholders, including customers, employees, the environment, and local communities.
We believe that markets are poor at evaluating the long-term growth prospects of great companies because our industry’s incentive structures are ill-suited to recognise compound growth over long periods – still less if that growth is non-linear. Such discrepancies create pricing inefficiencies that are exploitable by investment managers who themselves can adopt Purposeful Growth investing and organisational principles.
Purposeful Growth businesses are motivated not by short-term profitability but rather the value they create customers and society. Therefore, while not ethically perfect (we doubt such entities exist), Purposeful Growth businesses take a multi-stakeholder view of the world that lends them the ability to chart the right course. This is a source of competitive advantage in our ever-changing world.
Three traits of purposeful growth companies
1.Products/services which benefit customers and society
2.High stakeholder value creation reflected in high returns on capital employed
3.Reinvestment with purpose
Finding Purposeful Growth businesses is hard. Our values underpin our investment universe construction, allowing us to focus our resources on a tight list of businesses. This means we can identify the attributes of Purposeful Growth in companies that may ‘screen’ poorly due to limited disclosure or inaccurate market-data.
To understand a company’s long-term potential we adopt a 360° research ‘mindset’ and review potential investments from the perspective of all possible stakeholders. We closely analyse the operations, industry context, sales channel and end consumer of each company, in order to form as full a picture as possible of its long-term trajectory.
The companies within our universe enjoy sustainable competitive advantages and their management teams allocate capital with the long term in mind. These businesses deliver high, durable ROCE and generate substantial cash flows, enabling additional avenues of growth to be created. In other words, they are in control of their own destiny.
We have integrated ESG analysis since our inception, developing a much more sophisticated understanding of E and S factors since becoming the first Asia-based signatory to the UN PRI in 2010. We do our own homework, understanding that standardised disclosure is often weak in the emerging markets context, rendering third party datasets unreliable on their own.
It is our belief that the best possible investment outcomes for Arisaig and our partners will result from patient, deliberative, strategic allocation of capital towards the purposeful growth businesses best positioned to succeed over the long-term.
This ‘endurance investing’ approach is best reinforced by a collaborative, research-driven decision-making structure. Trades should be infrequent, following debate, discussion and ‘fair and sophisticated criticism’ of potential allocation decisions. We see low portfolio turnover as a virtue.
Arisaig has always followed a consensus-based approach to decision-making, eschewing an overreliance on individual portfolio managers and the ‘sharpshooter’ approach prone to impulsive, short-termist behavioural pitfalls. We take investment decisions by using an Investment Committee (IC) structure which is chaired by our Singapore licensed investment management entity and made up of partners. There is a separate sub-IC per each strategy in order to ensure accountability within the collegiate IC structure.
The IC represents the final stage of a long, team-based research process which builds towards investment consensus. Nonetheless, we believe it is important to reinforce the behavioural benefits of collective decision-making at this final stage of the process through the formal committee structure.
To understand a company’s long-term potential we adopt a 360° research ‘mindset’ and review potential investments from the perspective of all possible stakeholders. We closely analyse the operations, industry context, sales channel and end consumer of each company, in order to form as full a picture as possible of its long-term trajectory.Get in touch
Buy quality, hold forever
The companies within our universe are driven by predictable EM consumer demand. They enjoy sustainable competitive advantages and their management teams allocate capital with the long term in mind. These businesses deliver high, durable ROCE and generate substantial cash flows, enabling additional avenues of growth to be created. In other words, they are in control of their own destiny. They also demonstrate good governance, are aware of ESG risks and opportunities, promote healthy corporate culture and have sound incentive structures in place.Get in touch