Investment Process
Philosophy
TechInvest specialises in managing portfolios of listed companies that operate in the global knowledge industries of health care, information technology and telecommunications. We specialise in these industries because:
• We believe that the knowledge industries offer a wide spread of investment opportunities making them ideally suited to investing and short selling;
• Knowledge industry companies are some of the more difficult and complex sectors to invest in and thus offer substantial rewards to those that have an experienced team which applies a dedicated investment focus; and
• We have gathered a well of knowledge and depth of experience in these industries that when maintained, enables well-informed investment decisions to be made.
Knowledge industry companies are typically companies with high growth prospects. TechInvest believes that significant excess returns can be realised by constructing knowledge industry portfolios in which companies are correctly valued taking into account risk-adjusted rates of return.
Investment Strategy
TechInvest applies rigorous qualitative and quantitative research and analysis to identify and invest in the securities of companies that have good prospects and are undervalued by the market and short sell the securities of knowledge industry companies that are overvalued relative to their future prospects. This strategy is applied to portfolios that may be either market neutral or long bias and may include leverage.
Research
TechInvest combines sound financial theory with the team's practical experience in valuing knowledge industry companies. Research includes direct contact with international participants at trade shows and industry conferences, as well as meeting with company management. This enables us to formulate views about new industry and company developments and their impact on investment opportunities.
Portfolio Construction
We conduct a rigorous analysis of each prospective company's financial position and historical performance, to assess the company's financial tenability and determine its suitability as either an investment or short sale. A risk-adjusted discounted cash flow valuation methodology is applied, as we believe it offers the most systematic, consistent and unbiased way of valuing firms against each other and through time.
TechInvest's Paul Davis wrote an article for the Alternative Investment Management Association Limited's Journal titled "Valuing Growth" in December 2004 that argues the merit of the firm's valuation approach.
Risk Management
TechInvest is aware that using short selling, derivatives and leverage as part of the investment strategy may introduce a heightened level of risk. Risk management is therefore an important and integrated element of TechInvest's investment process.
Risk is addressed at the company level by way of the application of higher discount rates to forecast future cash flows of companies judged to be higher risk and lower discount rates for companies judged to be lower risk.
Risk is also managed directly in portfolios by way of the following controls:
• Diversifying across a wide range of knowledge industries
• Diversifying across geographic markets
• Diversifying across companies at various stages of development
• Diversifying across companies with different levels of market capitalisation
• Investing in/short selling no more than 10% of the issued capital of any one company
• Investing in/short selling no more than 10% of any portfolio in any one company
Portfolio risk is monitored daily and formal risk reporting designed to indicate rebalancing opportunities is generated weekly.