This article is authored by MOI Global instructor Gaurav Aggarwal, Portfolio Manager of Metis Capital Management, based in Mauritius.
Even after managing external money in India for over seven years, it remains a mystery to us why investors are enamored with flimsy stories (largely irrespective of their level of truth based on any reasonable analysis of past vs. future). Treating all EMs as a group tourist activity seems to have been institutionalized.
For example, not making a strategic investment in the fast-growing $2 trillion listed Indian equities universe (via our fund or otherwise) is likely not the most optimal course of action if year 2030 was compressed to today. For us the goal and timeline are clear: capture for our partners (goal is to deliver minimum 17% net USD annualized) the fair share of the wealth creation that will occur during next 12 years as India nears $10 trillion economy (12% annualized nominal growth).
The best offense oftentimes is a good defense and for Metis that practically means to make sure we are continuously internally stronger/wiser (this write-up was notable this quarter for us to think more rationally about money) to withstand any external pressures in this joint long-term endeavor to sustainably build wealth over the next decade+.
We want to make sure that our partners are not expecting something that is not your managers main aim (i.e. the critical difference between yearly outperformance vs. outperformance over 5+ years—i.e. willing to take lumpy 17% over next 12 years vs. those more comfortable with 12-14% with lower annual return range). Thus, we have posted on our website the following requisite traits of investors in our fund, including your managers who are second largest investors on a combined basis:
Traits of an ideal investor to optimize his/her long-term (minimum 5+ years) investment return in Metis India Opportunity Fund (MIOF):
1. Have a true long-term outlook and clear vision (MCM goal is to deliver 17% annualized USD return till 2030 when Indian economy will near $10t at an annualized return of 12%). Practically this means the desire and ability to hold on through largely unavoidable, temporary rough patches.
2. Long-term conviction on India. To gain this conviction in sufficient dose would probably require hours of discussion with your managers (which we welcome) and hefty comparative country analysis but as a heuristic, especially at frequent times of panic about Indian story, internally as self-motivation your managers ask: Why not India? Why won’t a diverse, fastest growing/youngest population with affinity for technology, aspirational, and democratic country with a low base across industries grow to a middle-income or even developed country in our lifetime? Without having sustained long-term belief (as opposed to near term worries/gripes about multitude of issues, economic or usually non-economic in our experience) the ability to execute #1 optimally is lowered.
3. Being situational focused and not painting with a broad brush. One can have long-term belief in India yet not find enough value in the overall market. Thus, finding value in partnering with managers such as ourselves who are 100% focused on analyzing individual businesses and their competitive dynamics, leadership, and valuation. Thus, understanding at a gut level that Indian markets, like most others, given its size and low base, there are no paucity of great businesses, run by shareholder friendly management-owners, and selling at least at reasonable value (we like to buy much cheaper).
4. Appreciate the process more than outcome for simple reason that we have numerous innings left and thus what is most important is the likelihood of future outperformance. We like to keep improving on our art of understanding and valuing businesses from a ground up approach to ensure 2030 goal is achieved.
5. Desire to give back in their own way and not fundamentally driven by accumulation of money for its own sake. This is more personal but we feel it’s important to mention in order to keep the right perspective as time & markets march on.
Below quotes from Warren Buffett were spoken in reference to general bull market environment (i) and to the US financial crisis in 2008 (ii.) but we feel it can be inverted to explain and give guidance for general conditions in current Indian markets (i.e. replace United States with India in the 2nd quote).
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About The Author: Gaurav Aggarwal
Gaurav Aggarwal, CFA, CPA, CIPM is the co-founder and co-portfolio manager of Metis Opportunity Fund (MOF). Prior to starting Metis in 2011, he was a senior analyst with portfolio management duties over $50 million in fund of fund assets at a leading regional investment bank (Global Investment House) in the Middle East. Prior to this, he was with Bay Harbour Management, a $1.2 billion distressed debt and equity hedge fund in New York City. He has also served as an analyst with Polen Capital Management, a $8 billion+ long-only firm with a very successful long-term track record. He received an M.S. in Accounting (specializing in Finance) and B.S. in Business Administration from the University of North Carolina at Chapel Hill. He has publicly committed to create a charity corpus by initially allocating 10% of his annual share of earnings (management and incentive fees) from fund management. He will in the future then deploy this corpus to charity/cause of his choice.
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