Barrow Brings Private Perspective to Public Investing03.14.2016
From an investment perspective, there’s a big difference between private and public equity, and managers of each asset class are their own animals.
Stamford, Connecticut-based Barrow Funds is unusual in that it manages public equities, but its senior executives have private equity backgrounds.
“We’re all former private equity investors,” said David Bechtel, principal of Barrow Funds. “About eight years ago we asked ourselves, what would happen if you gave us a crack at running common stocks using our private equity experience?”
“We wanted to one, bring to bear our PE experience in a way that was unique and differentiated from other investment strategies, and two, to do so in a way that made people money and outperformed,” Bechtel told Markets Media.
Barrow offers two mutual funds, the Barrow Value Opportunity Fund and the Barrow Long/Short Opportunity Fund. Bechtel and fellow principals Nicholas Chermayeff and Robert Greenhill are also principals at private equity concern Barrow Street Capital.
Barrow Funds launched in late 2008 with partner capital only, according to Bechtel. “We now find ourselves with a couple mutual funds that have been growing nicely and performing really well,” he said. “We’ve learned a ton about the mutual fund industry. Not having come from it, it was all a matter of first impression for us.”
Barrow manages about $300 million in total, $220 million in private equity and $80 million in public equity. The company’s client ‘sweet spot’ is mid-sized registered investment advisors which manage between $250 million to $2.5 billion.
With the public-securities portfolio, “we take a private equity approach, which means we’re looking at fundamental financial data of every company that we invest in,” Bechtel said. “We don’t look at technicals, statistical factors, or macro trends. We’re very bottom-up, fundamentally oriented, but hyper-quantitative at the same time. We’re not putting qualitative judgment calls into play when we invest; it’s driven by proven financial performance.”
Barrow has unique views on risk and volatility, according to Bechtel. “When we look at risk, fundamentally we’re looking at the risk of permanent loss of capital, and we’re looking at the importance of diversifying,” he said.
The investment firm doesn’t hold concentrated positions. “With our approach, when you use computational and data-processing power across the entire equities universe, you don’t really have to lower your standards to get 200 very high quality names trading at an attractive discount to their intrinsic value,” Bechtel said.
“Our investment process allows us to manage risk in a way that most qualitative fundamental analysts can’t, just by virtue of the number of securities that we can consider for investment,” he continued. “We avidly avoid concentrated positions, because you never know when you have an Enron, Worldcom or AIG in your portfolio.”
Passive investments will make up nearly a quarter of institutional assets by 2020.
Arth Veda's Gupta expects the ETF market to return to a fundementals-oriented value investment in 2016.