About Company
Malabar Investments Indian Small & Mid-Cap Manager
Malabar Investments is a major India-focused investment business that was established in 2008 with the support of reputable institutional value investors from the United States and Asia. Malabar is recognized for producing wealth through careful, long-term investments, and it has a focused portfolio of high-quality firms. The research and investment team, which consists of six members, has total expertise of over 60 years, with each team member displaying a love for value investing. Malabar focuses on discovering small to mid-sized businesses that are market leaders, have a sustained competitive advantage, have shown pricing power, and have a long runway to financially develop. These businesses have high return ratios, solid cash flows, strong balance sheets, and are managed well. Malabar invests in such great firms as value investors when their valuation is less than their cautious assessment of their real worth. Malabar conducts in-depth proprietary research, maintains a focused portfolio, and invests for the long term. Their investing philosophy demonstrates their unwavering dedication to intellectual honesty, logic, integrity, and brilliance. Since 2016, Malabar has been registered as a reporting manager with the Securities and Exchange Commission (‘SEC’). SEBI regulates both the FPI and the AIF side of our funds. The business has instilled a strong compliance culture among its employees, which is guided by the “investor comes first” principle. Malabar is a UNPRI signatory as well (United Nations Principles of Responsible Investment). Our investing methodology is based on ESG principles, and we formalized our commitment to these values by signing the UNPRI in early 2020.
Fund Snapshot
| Share Classes (by commitment): | A1 (Rs 1 cr to Rs 5cr); A2 (Rs 5 cr to Rs 20 cr); A3 (Above Rs 20 cr) |
| Preferred Rate of Return: | 10% post-tax IRR compounded |
| Investment DrawDown: | In 2 to 3 tranches over 6 to 9 months |
| Lock-In Period: | 24 months from the date of last investment |
| Number of holdings: | 20 to 25 (with the top 10 holdings accounting for at least 70% of the allocation) |
| Investment horizon: | Investment in high-quality business with at least a 3 to 5-year outlook |
Investment Philosophy and Approach
We invest in well-run, moderately priced firms with deep and wide moats surrounding them, resulting in stable cash flows that can be successfully redeployed to build their businesses over time. We think that by employing this strategy, we may achieve high-rate compounding of returns and long-term outperformance while taking on fewer risks.
Our investment strategy guarantees that the firms we consider have a proven track record of excellent economics and growth. The investment strategy is intended to assess the long-term viability of these factors.
MALABAR MIDCAP FUND
Fund Objective
Over the next 3 to 5 years, generate higher profits by investing in a focused portfolio of firms that can expand their earnings at a 20%+ CAGR over the fund’s lifetime.
Investment Universe
Listed enterprises with a market capitalization of more than INR 5,000 crore and private companies with a market capitalization of more than INR 5,000 crore in the next two years Due to our target market capitalizations, the portfolio will comprise a mix of bigger small and midcap firms.
Investment style
A cash-generating, return-on-capital-focused investing strategy that emphasizes buying at a discount to intrinsic value.
Typical portfolio company
A company that is a market leader in a growing area, is effectively managed and is well positioned to dramatically scale up.
What do we avoid?
Enterprises that need a lot of capital, sectors with little distinction between participants, industries with a lot of government engagement, and very esoteric businesses that the team doesn’t understand
PORTFOLIO CONSTRUCTION
Focused Portfolio: We think that for creating significant long-term returns, a concentrated approach to portfolio management is necessary.
- We can do a high level of on-the-ground investigation on the firms and management teams since we invest in a smaller number of them.
- After 15 securities, the benefits of diversification begin to erode.
- Having big allocations to your highest conviction ideas can help you generate long-term alpha.
Key Levers used in Position Sizing
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- The business’s moat’s long-term viability
- The management team’s quality
- Runway for growth
- Variability in growth outcomes
- Incremental return on incremental capital employed
Diligence Process
Understanding the underlying growth drivers in great detail, analyzing the depth and longevity of the competitive moat, and determining management’s capabilities and objectives are all part of our due diligence approach. We do thorough due research to achieve this goal, which includes interacting with a variety of stakeholders, including management, rivals, regulators, suppliers, distributors, and retailers, as well as visiting factories, depots, and retail locations.
A significant deal of our work is also spent determining if the management team has the motivation and capability to take the company to a level that is several times higher than it is now.
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