Turtle Creek to launch UCITS fund

Canadian asset manager Turtle Creek has a 20-year record of running an innovative North American equities value strategy for HNWIs. As it launches a UCITS fund which will make its strategy available to European investors, CEO Andrew Brenton talks to Harriet O’Brien about its achievements and challenges.

What are your objectives for the new fund?

We’re putting our portfolio and investment approach into an easily accessible vehicle for European investors. That will be part of our assets under management alongside our existing funds; we’re agnostic about which structure investors choose. We think our approach is unique, that it adds value and that it will attract investors who would like to outperform the market over the long term.

Turtle Creek bills itself as “not a typical value investor”. What makes you different?

One of the key differentiators is that we do the work on any one of our companies as if we were going to buy the entire company. That comes from our days as private equity investors where we did buy control positions in companies and sat on the boards. When you do that, you need to do a lot of work upfront to decide what you think a company is worth and what you’re willing to pay - and we bring that approach to the public markets. We’re able to accomplish the same business due diligence on the public companies we own as we did when we were private equity investors. 

I hear from a lot of value investors how conservative they are in their assumptions about the companies that they’re looking at and they think of that as their “margin of safety”. That’s not our approach at all. Our approach is to try to get the future right for each of the companies we follow. If there’s a lot of organic growth, we’ll have that in our model and in our forecast. If they’re good at acquisitions and create a lot of shareholder value from that, we will include that in our forecast.  

Tell us about your strategy, your attitude to risk and how you choose which companies to invest in.
 
We’re trying to identify highly intelligent, honest, well-run companies which are focused on all of their constituencies but fundamentally appreciate they exist to deliver superb long-term returns for their shareholders. They aren’t the majority of the public companies. 
I am really drawn to companies that are unique, that don’t have a lot of easy comparables in the public markets. So, in many cases I would describe our companies as leaders in their industry. But they are unique in ways that maybe will make it hard for the public market to really understand the company, which means they’re more likely to get mispriced. 

In terms of risk, we try to educate our investors on what risk really is. We strongly believe that trying to measure risk by looking at how share prices move around really doesn’t make any sense. We view risk as doing work on companies and having a forecast and then looking back and seeing if we were right or not. For us risk management is knowledge and understanding what you own. Our approach is to own a fixed number of holdings but we don’t have position-by-position caps.

Why have you chosen to launch a UCITS fund now? 

We have had European investors for a very long time, and we’ve been asked often if we have a UCITS fund. So we did research on whether a UCITS structure would cause us to sub-optimise our strategy. That may have been the case previously but UCITS has evolved to the point where it wouldn’t sub-optimise, and having a UCITS fund will make life a lot easier for many of our investors outside of North America. 
In terms of what we can offer European investors, we’re offering our very well-established strategy with the same companies, the same approach, the same investor team, just in a structure that is much more common and knowable for European and rest-of-the-world investors. We’re offering access to a terrific portfolio of North American mid-cap companies and access to a team that is on the ground in North America and has been doing this for over 20 years. 

What are you anticipating will be the biggest challenges?

Challenges that we’re facing today are different to just a few months ago because the transitory inflation doesn’t look so transitory any more. You know the Fed and central banks are finally in a long-predicted rate increase cycle. Those are macro things that we think about… But not too much, because we think if you own great companies, they will manage through those challenges. 
The biggest challenge is to try to get people and investors away from worrying about unit price volatility, worrying about the stock market and whether they’ll be down and trying to shift their focus to understanding that we own companies that just happen to be public, and volatility is part of that.