As emerging market investors, we aren’t great followers of US politics. Sure, we have had a tough decade or so as investors swimming against the tide of US Dollar strength, and wouldn’t have thought the host for the Apprentice TV series would have made it to the White House (that normally happens in places that we invest in like the Philippines). But beyond that, we’re much more interested in bottom-up story in emerging markets.
When I saw the below photograph from Anne Moneymaker of Getty over the festive period, however, it did give me pause. Taking the Republican Party out of it, how do collections of people end up here? And importantly, as a leader of a firm, how can we make sure we never end up anywhere in the vicinity of this?
The ‘bun fight’ hosted by the Republican party was happening at an important time for Arisaig as a firm. Whilst we were ending a challenging year our strategies, and our entire ‘asset class’ of emerging market equities still distinctly out of favour, the bright spot for us as a firm was we formalized the appointment of Vatsal Mody as a new Partner at Arisaig. He joined as our 6th Partner, alongside myself (Rebecca Lewis) Hugo Robinson, Gordon Yeo, David Lanning and Desmond Tan.
Our partnership group is uncompromisingly equal. Vatsal will, from day 1, have an equal share to myself with a seven-year partnership tenure. We see this as a signal to the culture of our firm. It is very much not industry standard, but we truly believe in our collective strength and this structure will foster greater success and togetherness of the long-term. We are united in our view we would all rather have a smaller share of a better business.
We have, over the years, faced a few quizzical expressions as to the nature of Arisaig’s Partnership scheme. Not only the fact that we are equal partners regardless of tenure or role, but also the very gradual and long-term nature of our scheme’s implementation. The Founders have been giving away 5% of Arisaig to successor Partners every year since the scheme’s inception in 2016. With 8 years under our belt and 40% share of the business, we are just over half-way through the scheme. The equity will continue to be handed to us annually until we own 70% of the business.
The lack of desire of the Founders to ‘value’ the business and for Partners to ‘buy in’ but instead ‘earn in’ and then steward it for future generations is very odd, especially in an industry that looks to put a number by everything and ideally sell it for more a few years down the line. It is, however, deeply unsurprising if you know about the way we invest. Our focus on Purposeful Growth – identifying business that think about all stakeholders and in doing so deliver superior returns over the long term. Our Founders understood that a fund management business has little to no value without keeping its own main stakeholders – its partners and LPs – aligned and happy. They also knew that continuity would be key to maintaining a patient, long-term investment approach.
The philosophy behind this scheme is one of enlightened self-interested. 100% of our proceeds from being a Partner are invested in the strategies and so we would much rather focus on the important stuff (our investments) instead of debating valuation techniques. A mechanistic distribution approach takes care of the equity part in January every year.
We are quite a diverse group of people. Half of us were educated in the UK the other half educated in Asia. We find we have quite different life experiences, passions, and sometimes world views. At difficult times like this – our strategies had negative absolute returns and our assets dropped to USD3bn from our usual fighting weight of USD5bn – what continues to bind the partners together?
For sure, our focus on our shared investments in the strategies keeps our eyes on the prize. But perhaps more importantly, we know from our shared experience that the way we will tread our way back is not to attempt to chase our way out of the bottom of the cycle. Arisaig has experienced eight drawdowns of >25% over its 27-year history. It is always earnings growth that carries us back on track. So instead of coming up with strategies that might dial up short-term performance, when the Partners met in September in Singapore we spent most of the time discuss how much better we could get at implementing our investment process.
We have all spent the majority of our careers at Arisaig, and at least a significant part of our working life in emerging markets, some of the Partners were born in one. We don’t know any other way to invest than buying great businesses that think inter-generationally and let them do the hard work of compounding earnings. We don’t want to try any other way.
Perhaps more important than our shared experiences is our shared values. Collegiality is one of Arisaig’s key values (the other two are being transparent and thoughtful) and so a focus on collective success rather than individual genius is hardwired into the firm. Since inception Arisaig has always run investment committees. Instead of relying on an individual sharp shooter, we believe that collective decision making (when done properly) delivers better outcomes and it reduces the behavioural biases that can trip us up.
That doesn’t mean discussions between the Partnership team are a cake walk. The Partners have strong opinions and disagree, but ultimately what we are discussing is not our philosophy to investing or the values we hold dear. Instead its earnings growth assumptions, and relevant long-term trends, such as the potential for digitalisation of informal retail in India, or how to assess ‘softer’ qualities to our investments such as management quality. These are healthy differences of viewpoint built on the foundation of getting better outcomes for our clients, rather than fundamental differences in how we invest.
Getting the right people around the table who buy into our Purposeful Growth investment philosophy and live our values becomes key. There can be no fragile egos at Arisaig. If you are sharp elbowed, or care about your title more than your responsibilities you wouldn’t enjoy it here one bit.
As one of our Founders once said to me ‘we invest in emerging markets – and so you can’t hire anyone you can’t spend 8 hours with in a car at 35 degrees in the traffic of Mumbai’. With the Partners having all done our fair share of sweaty car rides with Vatsal over his past 8 years we know that our firm is stronger with him alongside us. Welcome Vatsal.
