It is difficult to use the word unique when it comes to fund management. Most things have been done before but the new Talents fund from Axa does seem to have something which is genuinely different.
The fund is run by Charles Firmin-Didot and his team. Firmin-Didot spent 12 years of his career at JP Morgan which was predominantly macro-orientated. He worked on fixed income and currencies before moving into mergers and acquisitions.
He left JP Morgan when it merged with Chase, setting up the Sophia global investments fund. This was a private fund with a maximum of 50 investors but he also wanted to manage a retail fund so he launched Talents in 2001. In 2003, he sold the brand to Axa while retaining ownership of the company.
The team are totally independent within Axa. They recruit their own staff and use their own investment process.
What is different about the fund? The manager uses a strategy of investing with entrepreneurs and adopts the philosophy of “people make the difference”. He believes that entrepreneurs can create long-term value but what exactly does he mean by entrepreneur?
Entrepreneurs have far more to lose than an employed chief executive. To Firmin-Didot, they should be able to make tough decisions, against the market when necessary. They should ideally be a majority shareholder and have low debt in their business, meaning they are free to make the tough decisions without fear of being overruled by minority shareholders or banks.
In essence he is looking for high quality, dynamic and independent management, believing this is the primary catalyst for growth. He therefore wants to see people with a history of visionary leadership and flexibility who have the courage to make changes.
The fund is global by nature and the process is almost totally bottom up. It has a universe of some 2,400 listed companies and the team have built their own proprietary database to monitor them.
This universe is filtered down to some 900 companies using a process that looks for three characteristics. First, a long-term track record of active value creation, looking for entrepreneurs who have at least a 10-year history. Second, the team look for freedom of action, which means entrepreneurs who are not influenced by external problems.
Finally, trust is of paramount importance. Do the team understand the long-term goals of the entrepreneur? Are there conflicts of interest, perhaps with a private listed company that the entrepreneur might also own? As you might expect, face-to-face meetings are extremely important in making these assessments.
Valuation is not ignored and the key measure they use is the price/earnings to growth ratio. In addition to this, they like to see a discount for small illiquid stocks and emerging market companies.
The fund looks to hold around 100 stocks, with around a quarter of the fund invested in a diverse range of underlying businesses. These can include holding companies with a range of different businesses, for example, Berkshire Hathaway.
The rest of the portfolio is diversified across a range of sectors although financials, oils and health tend to be considerably underweighted simply because these businesses are affected significantly by macro factors, making judgement calls on management less effective.
The fund is also diversified by country, with around a third in the US, a third in Europe and a third in Asia. This fund will inevitably have a mid-cap bias as this is where more successful entrepreneurs are found.
Firmin-Didot seems to have found a very interesting niche, even arguably a separate asset class. His approach and philosophy are completely different from the vast majority of fund managers.
However, in no way has this hurt performance, which on the existing funds has been extremely strong.
He is backed by a team of five who travel the globe, rather like talent scouts. They tend to have a non-financial background as this gives them a less blinkered approach to investment.
Firmin-Didot wants free thinkers rather than people wedded to academic studies. The fund looks a good investment to tuck away for the long term.
Mark Dampier is head of research at Hargreaves Lansdown