Legatum’s investment approach is straightforward. Success has been built by investing in easily understood businesses that possess durable competitive advantages and a consistent earnings history. Legatum is entrepreneurial and focuses upon owning a share of a business, not simply trading stocks. While price is important in the investment decision, business quality is even more so.
Legatum’s investment approach can be condensed into seven guiding principles:
A Long-term Perspective
Unfettered by short-term performance constraints, Legatum is free to focus on making the long-term commitments required to maximise the absolute return on investment. A long-term perspective permits a patient approach and a tolerance for the short-term volatility inherent in investment markets. Once invested, Legatum waits for the investment theme to unfold, which can sometimes take years.
Optimal Allocation of Capital
Capital is a scarce resource which, when allocated productively, creates wealth, a key foundation for accelerating the rise of prosperity. This requires rigorous research, disciplined execution and a prudent level of tolerance for assessed risk.
Supporting Transition
When companies and countries are in transition, heightened uncertainty leads to a scarcity of capital. Legatum supports positive transitions by providing capital during such periods of increased risk, which can also generate asymmetric returns for patient investors.
Investment, not Speculation
By investing in great businesses with long-term potential, speculation in financial trends or fads is unnecessary.
Concentration, not Diversification
A long-term approach releases the fund from the need to hedge against market volatility and investments can therefore be both narrow and deep, remaining manageable and concentrated on the
best ideas, free from the pressures of redemption risk.
Leverage is Incompatible with Volatility
It is essential to distinguish between volatility and risk. Unleveraged investments can endure significant price volatility, which is a common attribute of transitioning markets. Eschewing debt is fundamental to risk reduction in highly volatile long-term financial investments.
Macro Themes with a Contrarian Twist
Legatum invests in distinct macro themes but is also opportunistic in identifying hidden value, and consequently is sometimes considered contrarian in its investment style. A selective approach, thorough research, attention to detail and a prudent understanding of risk, create opportunities, leaving only the challenge of moving capital towards them at speed.