We focus on the quality of the company. It has to have an attractive business model and convincing management. On the financial side, we expect to see a solid balance sheet, stable cash flows, and sustained profitability. Most of all we are looking for companies that invest their capital profitably to generate returns that consistently exceed the costs of capital.
When selecting bonds we consider whether the lender is able and willing to service interest and repay the principal. Besides the official ratings we do a quantitative and qualitative assessment on issuers. A bond’s yield to maturity should adequately reward the credit and maturity risks involved.
Our quantitative analysis focuses on evaluating the balance sheet and profit and loss. We look for companies that have sufficient cash flow to cover their interest expense several times over and are in a position to amortize their debts. Our qualitative analysis centers on an assessment of the management and potentially dominant individual shareholders.
We see convertibles, high-yield bonds, senior secured loans, and cat bonds as an interesting supplement to traditional fixed-income investments.
We define non-traditional assets as investments in private equity and debt, hedge funds, and infrastructure, precious metals, and commodity investments.
When assessing non-traditional investments we always consider the three criteria of our investment philosophy – quality, value, and momentum – plus any costs, disclosed or hidden.