We aim to be as aligned with our clients, the asset owners, as possible. As such, we require the management of the companies in which we invest to demonstrate similar alignment. Since many scenarios arise where alignment may not be absolute, we consider and quantify any risk arising from that lack of alignment as we would with other major risks.
Trinetra's investment strategy reinforces this alignment. We invest in areas where considerable growth opportunities exist, and specifically select businesses with fundamentally sustainable business models, avoiding near-term opportunistic anomalies. These investment criteria provide a foundation for long-term investment performance at their core. Likewise, environmental and social considerations that could be viewed as externalities and can negatively affect other stakeholders. Management of a company that can align shareholders’ interests with those of the wider community therefore improves the prospects for that company’s sustainability.
We actively and deliberately vote according to our governance principles and to protect our clients’ interests. We do not rely on recommendations from proxy voting providers.
We believe that our approach to investment with ethnographic research and a risk-adjusted returns-based process acts to defend clients’ interests. By carefully considering risk, and assessing the opportunities of the businesses that we invest in, we believe that we can sensibly incorporate risk into expectations of returns, using a risk-adjusted returns methodology.
We consider a management’s approach to governance for companies in which we invest our clients’ funds to be fundamental to any investment decision. Failure to adopt and practice good governance imposes considerable risk on a business. We consider governance on at least three levels in our risk methodology:
When making an initial investment decision, we will not invest if past actions or existing governance practices are not consistent with alignment to our clients’ interests. We also assess, among other elements: stated strategy; whether management has shown discipline in the past regarding their cashflows and balance sheets; explicit alignment to shareholder interests; and board structure and composition. On an ongoing basis, we monitor the company for any deviation from what we understand to be management’s commitment to its shareholders. If a deviation is fundamental in its negative impact to shareholder interests, we are likely to sell the entire position. Where a deviation is more minor, we will engage with management to encourage more appropriate behaviour.
Our general engagement with management from the early stages of our research process enables us to wield sufficient credibility with management over what can be sensitive governance issues. For example, as an outcome of both our immersions research and our risk assessment, we can gain insight that could be useful to management as they make decisions. We share these insights with management when appropriate.
Our approach to Stewardship encompasses both boundaries to discourage inappropriate behaviours and incentives in the companies in which we invest, as well as to encourage positive behaviours to enhance a company’s impact on its various stakeholders. In this regard, sharing Trinetra’s proprietary ethnographic research with management can help them to better understand how they can have a positive impact with respect to certain consumer trends.
We believe that our approach to risk acts to defend clients’ interests. By carefully considering risk, and assessing the opportunities of the businesses in which we invest, we believe that we can sensibly and effectively incorporate risk into expectations of returns, using a risk-adjusted returns methodology. We believe that this enhances risk-adjusted returns for clients, minimising risk for a given level of expected returns.