Investment Philosophy
A defining characteristic of publicly listed firms is the separation of ownership and management of corporate assets, which gives rise to potential conflicts of interest. For instance, in undertaking a debt or equity funded large acquisition, a CEO might engage in empire building that is value destructive for shareholders. Corporate governance researchers and practitioners have sought to develop remuneration and board structures, designed to align the interests of senior management with those of the ultimate owners, shareholders.
Within the universe of publicly listed companies lies a small subset which are run and/or overseen by company founders. Founders bring a single minded focus, long-term vision, entrepreneurship, and a commitment to build wealth for shareholders over the long-run. Importantly, the active involvement of founders helps to address the principal-agent problem, because the founder runs and/or oversees the company that they own. This creates a powerful alignment of interests that formal corporate governance structures aspire to, but rarely achieve.
We always had a belief that founder led businesses collectively outperformed those managed by executives, however after some reading, the weight of academic research in support of founders surprised us. A study by Bain & Company of S&P companies where the founder remained meaningfully involved in its operations showed that such companies share prices performed 3.1x better from 1999-2014. Likewise, Jeremy Siegel’s book, The Future for Investors, presented IPO data from 1968- 2000 which showed the top 10 performing businesses were all founder led. The story is the same when looking at internal measures of success; a 2016 academic paper demonstrated that founder led companies are far more likely to take a long-term view, are prepared to take calculated risks and will invest to support strategic goals. The study showed that a founder CEO is correlated with a 31 percent increase in the citation weighted patent count and concluded that “founder CEO’s are more effective and efficient innovators than professional CEOs”.
To our knowledge, Global Founders Funds Management (GFFM) offers the only investment strategy of its kind to invest exclusively in Australian and internationally listed founder companies. We have identified over 250 outstanding listed founder companies in developed markets. A concentrated portfolio of up to 30 stocks is constructed based on a range of market capitalisation, quality and valuation criteria, which are designed to focus the portfolio on liquid stocks that have high expected returns. Our product represents an active investment strategy that uses our proprietary systematic portfolio construction process, which means that we don't rely on a large team of analysts or portfolio managers. This enables us to maintain low fees and deliver higher after cost returns to our co investors.
Consistent with the founder principle that underpins its investment philosophy, GFFM's investment team achieves a powerful alignment of interests with clients by investing a material portion of their net worth in the portfolio’s. GFFM is wholly owned by management and is therefore not influenced by a dominant equity owner.