Our Research & Investment Methodology
Growth Fund
River Capital has adopted a proprietary company evaluation approach in determining whether or not to include a business in our “universe” of stocks for potential portfolio inclusion.
Our screening process is dynamic and typically generates an opportunity set of approximately 300 companies after the exclusion of businesses where we have limited access to senior management, or sectors such as resources and bio-technology, where we do not maintain sufficient sector expertise to critically interrogate the business or its underlying results.
Entry into or exit from our universe is decided through the continual monitoring of company releases, attendance at management meetings, review of sell side research and a review of publicly available information.
Once an opportunity is identified, a robust due diligence process commences, involving both quantitative and qualitative analysis.
On the quantitative side, the process commences with the construction of a full financial model, incorporating historical and forecast profit results and balance sheet movements in order to determine maintainable earnings and cash generation. This analysis – including all assumptions – is continually interrogated, discussed with company management and re-tested to ensure our modelling is soundly based.
The qualitative process involves multiple meetings with senior management, discussions with competitors, suppliers and industry bodies and an analysis of sector and industry dynamics. We also conduct extensive competitor or peer analysis to ensure we are buying the best in the sector, not just domestically, but globally. Vigorous debate is encouraged to identify potential flaws in our analysis.
When taking strategic positions based on fundamental value, River Capital does not speculate on short-term movements in a company's share price. We consider our competitive advantage lies in being able to make good assessments of the intrinsic value of businesses. Accordingly, while the short-term irrationality of some participants in the market may influence share prices, we believe that over a reasonable time horizon, share prices will reflect the intrinsic value of the underlying business.
Once identified and acquired, we exercise patience and discipline to ensure that each investment is given sufficient time to realise its intrinsic value.
As a high conviction manager, our portfolio typically comprises between 15 and 20 of our best ideas. Acquisitions are always subject to achieving our targeted rate of return and purchase price after applying a suitable margin of safety.
All acquired positions are continually monitored. We only sell a position when the price being offered to us is at a premium to our view of fair value, or when we believe we can no longer achieve our required pre tax return hurdle of 15 to 20 per cent.