These are my notes and instant reactions from a presentation at the Value Investing Congress, the notes below might contain errors, paraphrases, incorrect quotes, or misinterpretations.
Alexander Roepers, of Atlantic Investment Management, presents at most of the NY Value Investing Congresses, and to my mind he is, frankly, one of the more consistent and successful presenters here even if his talk is rarely sexy or headline-generating — he usually shares a few ideas that he owns, and they rarely quadruple in value (his strategy is usually to ride them from undervalued to fairly valued, help the board improve the company, and get out, not to shoot out the lights) but they usually climb nicely from year to year and I can’t remember any of his picks that have really cratered. That’s unusual for a value conference — usually when you dig in the dirt, some of the stuff you find ends up being really ugly.
I’ve gotten several ideas that were very profitable from his past presentations — including Flowserve (FLS), which was nicely timed for us to get a huge gain three years ago. His hedge fund is always very heavily weighted, you can see their top holdings according to their SEC filings here, he’s talked about several of those companies in past years… So what’s on tap from Roepers today?
He aims to take minority but highly concentrated positions (2-7% of a company, 10% of their fund), picking bottom-up as if they were buying the company, and then trading around those positions to improve returns. He doesn’t do blue chips, that’s not worth a hedge fund fee — they want midsize companies where they can meet one on one with the CEO, market cap between $1-30 billion or so. They avoid technological obsolescence risk, and they avoid companies like financials that lack transparency or have high regulatory risk.
He’s looking for sustainable competitive advantage, predictable cash flow (like companies who have aftermarket businesses), solid balance sheets without scary stuff on the books, low insider control, low cyclicality, and solid liquidity so they can trade around their positions. They try to scale in after a stock has fallen, look for a roadmap to return to good graces and work with the company to add value, then scale out a couple years later as the stock gets a better valuation. (He says they ...