M&G’s Aled Smith on How to attract long-term investors: Executives overburdened by the demands of their companies’ short-term investors may yearn for a more supportive crowd that might be less skittish about volatility. Such investors would base their decisions on a deeper understanding of a company’s strategy, performance, and potential to create long-term value—and would not pressure a company for short-term gains at the expense of greater long-term growth.
Attracting such investors can prove something of a challenge. Certainly, executives are often highly coached when they talk about their strategy and objectives, and have extensive information about potential investors and their style and approach to investing. Too often, though, those messaging cues come from sell-side analysts, who may have a shorter-term agenda. So says Aled Smith, who manages the Global Leaders Fund and the American Fund at M&G Investments, based in London.
With the S&P 500 falling a double-digit percentage in the first half, most equity hedge fund managers struggled to keep their heads above water. The performance of the equity hedge fund sector stands in stark contrast to macro hedge funds, which are enjoying one of the best runs of good performance since the financial crisis. Read More
Smith recently joined Marc Goedhart and Tim Koller in McKinsey’s London office for this wide-ranging interview on what he looks for in potential investments for his portfolios.
McKinsey: In a world where investors and analysts often focus on short-term returns, how do you differentiate your approach? What characteristics do you look for in the companies you consider for your portfolio?
Aled Smith: My strategy is based on the observation that a lot of companies are making good long-term investments that may hurt short-term cash flow. Investors often overlook these companies because they shun earnings and cash-flow volatility. Today this aversion is extreme—they aren’t prepared to admit that the world will still exist in five years, so they want to get their money back sooner, and volatility works against that. Eventually, the markets will see earnings and cash-flow volatility as a good thing again because it’s being priced so attractively. In the meantime, that’s what I look for—especially the volatility resulting from corporate restructuring and change.
Let me put that into context. When I started investing in the early 1990s, information was imperfect and not freely available. Having a valuation framework was a competitive advantage; having sensible inputs into it was even more so. Today, those things are available off the shelf, and it’s rare for one investor to know something others don’t.
M&G’s Aled Smith full interview here