fundtruffle

Peter Seilern-Aspang discusses growth

David Stevenson, 22/02/2021

The dominance of growth stocks over value has been one of the hallmarks of the last decade at least. However, there has been some debate over the usefulness of these labels so fundeye spoke to Peter Seilern-Aspang, chairman, founder and chief investment officer of Seilern Investment Management about his definition of growth which informs the firm’s funds.

The firm itself can be described accurately as a boutique, with just under $3 billion in assets under management. However, well over half of these assets are in the firms’ World Growth Fund which has performed extremely well over the last couple of years, returning over 30 percent in 2019 and in excess of 20 percent last year.

 Considering the firm only exceeded £1 billion in AUM in 2019, it’s perhaps not hyperbole to describe its rise as exponential. So, why have investors been attracted to this firm?

 The firm is independent so doesn’t have to worry about quarterly reporting compared to its listed counterparts. This allows for long-term thinking which seems to be the one of the key components of the firm’s investment process. For instance, Mr Seilern-Aspang says that sell side research into his favoured quality growth style stocks only extends to a maximum of three years, whereas his firm do ten-year cash flow forecasts.

“There are also companies that we've had on our universe for a long time that indicate that these businesses are what I call a long-duration assets and the value of these businesses lies in the terminal value of these holdings [assumes continued growth],” said Mr Seilern-Aspang.

Compare this to those who are hoping for a rotation into value which Mr Seilern-Aspang views as chasing a “staccato performance”. This is to say the investment horizon is much shorter, in some cases less than one year.

Not growth at any price

While some firms are happy to grow by acquisition and certain fund managers are keen to hold these companies, it’s not preferred by Mr Seilern-Aspang. One of the reasons he dislikes the ‘bolt-on’ model is that an acquisition’s price can be governed by intangibles such as goodwill which he views could cause ‘harm to the return on invested capital’, in other words it raises a red flag. 

Another issue with the ‘buy and build’ model is how the deals are financed. Given the low interest rate environment, acquisitions can be financed by debt, with companies happy to leverage up in these accommodative times. However, considering the long-term nature of the firm’s investment horizon, holding stocks that are highly leveraged, they might witness a market change whereby the cost of servicing debt becomes unsustainable. Thus organic growth is preferred by the firm. 

There’s evidence that the above scenario could hurt over-leveraged companies. When Fed Chair Jerome Powell insisted that his interest rate hiking cycle was on ‘auto pilot’ in Q4 2019, the markets took a tumble as the real cost of debt increased. 

Some economists have likened this loose monetary policy to opiates which now the market has become accustomed to, any hint of removal will cause withdrawal symptoms such as the above event. For instance, even the threat of slowing the amount of asset purchasing could harm emerging markets in a similar way to 2013’s taper tantrum. 

Firm culture

For those finance professionals looking to find a house that doesn’t appear to be a faceless multinational that some of the uber asset managers may be accused of, could do worse than Seilern Investment Management. But be warned. To make sure that someone is the right fit for the firm they are put through a rigorous interview process, sometimes meeting up to eight times.

However, for each of the analysts in the firm, whether you’re working on the blockbuster World Growth fund or the three others which are significantly smaller, all are remunerated equally and encouraged to become shareholders in the business as soon as possible. 

In an environment whereby some asset managers seem to be only able to grow by M&A, it’s refreshing to see an independent run like a family business that incentivises its staff. Mr Seilern-Aspang described last year as a ‘trial’ for the firm. If so, it’s one they should be extremely pleased with the outcome of.

About PAM

PAM Insight is the world’s leading independent provider of essential specialist news, analysis and comparative data for the fast-evolving world of wealth management.

Read more about PAM

Subscribers

Dedicated to serve both investors and fund companies, fundeye.com aims at becoming the preferred publication platform for market professionals.

Read more