by Tom Bradley

Last week we emailed our clients to inform them that we’re changing the manager of our Global Equity Fund. Effective immediately, London-based Silchester-Velanne Asset Management Ltd.* (Velanne) will be managing the Fund.

The previous manager, Edinburgh Partners Ltd. (EP), has been with us since inception in 2007. We still consider EP to be a leading firm with a deep team and disciplined approach. What prompted the change, however, was the firm’s sale to Franklin Templeton. As part of the sale, Sandy Nairn, EP’s founder and CEO, has taken on an advisory role with Templeton’s global equity team (he had worked previously with Sir John Templeton). Salman and I were disappointed to hear of these additional duties as Sandy was a big reason for our patience with EP’s performance.

Velanne Asset Management

The founder of Velanne, Anne Gudefin, has established herself as a leading manager. She built her reputation working at Franklin Mutual Series (yes, we see the irony of another manager with Franklin ties) and subsequently at PIMCO, where she was recruited as the firm’s first active equity portfolio manager. Anne has been managing global equity funds since 2003 and has over 25 years of experience in the business.

In 2016, Anne found herself in a position to start her own firm when PIMCO, which has a focus on bonds, decided to abandon its effort to build an equity division. We’re excited to be on the other end of that trade. Indeed, Anne’s situation is one that we’re constantly searching for — an established, successful fund manager from a large firm, who goes out on his/her own. In this case, Anne has attained a stature that allows her to be uncompromising in how she invests and runs her business.

Clients may remember that the hiring of Galibier Capital Management (Small-Cap Equity Fund) two years ago was a similar situation. In that case, it was Joe Sirdevan who’d gone out on his own.

Velanne is majority owned by its working partners, with Silchester Partners Ltd. owning a minority stake. Silchester is a private UK-based firm which, in addition to its investment management business, has backed nine associate firms since 1999 (Velanne is the ninth). This structure has proven to be highly successful, with Silchester providing financial, operational and strategic support, and the affiliates focusing on what they do best — investing.

Contrarians at work

Anne has put together an experienced team in London which manages only one mandate – global equities – and brings to our clients an established, disciplined approach to stock picking and portfolio construction. They do intensive research on companies to assess the underlying strength and sustainability of a business. As opposed to some value managers, their focus is not on broken down or shrinking companies, but rather high-quality ones that are going through a rough patch for a specific reason.

Going forward, the Fund will consist of approximately 50 stocks and will continue to look nothing like the index. Its focus will be on companies that are trading at reduced valuations but have a path to more normal levels. This path, or unlocking of value, may come from a new CEO and management team, a restructuring program, or a merger or change of ownership. Needless to say, Velanne is seeking to take advantage of opportunities arising from the market’s emotion and short-term thinking.

The Global Fund will go through a transition over the next few weeks. We expect the substantive changes will happen quickly and the transition will be completed by quarter-end. The changes will be fully reviewed in our Q3 Report. There will be capital gains realized on some of the stock sales, which will be reflected in the December fund distribution (remember, capital gains are exempt from tax if you hold the Global Fund in a registered account such as an RRSP, RRIF or TFSA).

For those who want more information on Velanne, I encourage you to read the Fact Sheet Scott has put together and the transcript of an interview Salman did with Anne. And as always, we can be reached at 1-888-888-3147 if you’d like to speak with us about the change.

The Fine Print

A final note: Technically, until early October, the manager of the Global Equity Fund will be Silchester. When Velanne receives its independent registration in the UK, the team will move from Silchester to Velanne and Velanne Asset Management will be the fund manager.

Below is the full explanation, complete with legalese.

*Effective August 20, 2018, Silchester International Investors LLP (“Silchester”) replaced Edinburgh Partners Limited as the portfolio adviser for the Fund on an interim basis. On or about October 1, 2018, upon completion of its independent registration in the United Kingdom, Velanne Asset Management Limited (“Velanne”), an associated firm to Silchester, is expected to replace Silchester as the portfolio adviser for the Fund on an on-going basis. The personnel at each of Silchester and Velanne providing advisory services to the Fund will remain consistent despite the change in entity providing the direct service.