Culture-Led Global Equities Investing

Igor Bekker: 

Hi, Elana. It's my pleasure. Thank you for having me on. 

Elana Margulies-Snyderman: 

Absolutely, Igor. So, to kick off the conversation, tell us a little about the firm and how you got to where you are today. 

Igor Bekker: 

So, my journey began in Ukraine, where I was born and raised and, growing up there, shaped my views on risk resilience and the value of opportunity. In the mid-90s, I came to Canada, age 16, with only basic English skills, which I improved considerably by watching TV show, Seinfeld, so that was a big help. Five years later, I started in the investment business in equity research on the sell side, and after another five years I've joined Ontario Teachers’, where I've spent most of my career as an active equity investor and leader based in Toronto. Most recently, I was a global co-head of high conviction equities responsible for $12 billion in AUM and more than 30 investors across our four global offices. In 2022, I opened up 42KM, because I think long-distance running and long-term investing have a lot in common, so it's a marathon, or 26.2 miles in the U.S. The firm is focused on culture-led long-term investing. We offer a single product, a concentrated portfolio of about 20 quality businesses selected from a globally listed universe. These are the businesses that align culture, strategy, and stewardship to deliver sustainably high returns on capital over the long term, which then drives the returns. 

Elana Margulies-Snyderman: 

Igor, I loved hearing your journey, so given your focus on culture-led investing in global equities, I would highly welcome you to discuss your high-level outlook for the space. 

Igor Bekker: 

Maybe I'll start by providing some context. Unlike someone who might be trading oil or real estate, we don't have a specific outlook that underpins the investment thesis, and this is by design. Instead, our approach is rooted into three key beliefs. Number one, quality companies can earn excess returns far longer than the market gives them credit for, which often makes them structurally undervalued, even though, on a near-term headline basis, they might look expensive. Number two, cultural analysis helps identify exceptional winners and avoid disasters. Really, this is our secret sauce of the approach. I've spent years framing quality through culture, which led to this proprietary cultural assessment framework. It makes sense, right? Because culture guides strategic priorities, it informs capital allocation, it even dictates company's risk appetite, so it's kind of an all-encompassing concept that is quite tricky to analyze but yields a lot of benefits if you get it right, so that's number two. And number three, as investors extend their time horizons from days to decades, the significance of culture soars, so it's difficult to see the impact of culture over days or quarters, but the right, long-term decisions tend to aggregate and manifest themselves in strong performance over a full business cycle or even decades. The approach is evergreen, so it's irrespective of the macro environment. Our confidence stems from the quality of the business, their modes, and the management team, and our patience is grounded in the durable earnings power of these businesses. 

Elana Margulies-Snyderman: 

Igor, more specifically, what are some of the greatest opportunities you see in your space, and why? 

Igor Bekker: 

We see the greatest opportunities in finding companies that have high chances of delivering long duration, above trend growth. What do I mean by that? Well, it's companies that can deliver returns on capital in the high teens or twenties for decades. I mean, sure, rather short-term hyper-growth is sexy, but to me, finding companies that can deliver above trend growth for 20 years is the ultimate value proposition. Typically, these businesses have common characteristics. It's things like stewardship mentality, passing on the business's next generation in better conditions than you inherited it. Directional consistency, so not changing your strategic focus. Sensible decentralization with a lean center, so having slim headquarters and a bunch of autonomous business units with delegated authority and responsibility, and things like plain common-sense language. When you read an annual report, you can understand what the company is talking about, are some of the things that stand out to us. I think another huge opportunity is finding this exceptional cultural strategy alignment early in the life cycle of the business, which then gives you a longer timeframe for the compounding to work. I think that's really interesting, is to kind of recognize these companies as they just begin their journey. 

Elana Margulies-Snyderman: 

Igor, on the other hand, what are some of the greatest challenges you face in your space, and why? 

Igor Bekker: 

I'd highlight two challenges, one analytical and one behavioral. On the analytical side, it can often be difficult to cut through the cultural facade of the corporate brochures and the websites, and get a sense of, really, what the culture is like. So, what we do is we like to test our cultural hypothesis against data from various and correlated channels to get a real picture. It could be a number of things: analyzing communications with employees, investors, suppliers, analyzing the number of strategic changes and their rationale, looking at staff turnover. Where do they get their best people from and why people leave? Interviews with industry experts and checking references to get a fuller picture of the cultural DNA, so that's one. The second one is more behavioral. We live in a time when the timelines for everything appear to be compressed, and you're constantly bombarded with different notifications, stimuli, and are encouraged to act, buy, sell, whatnot. So, even though long-term investing is very easy to understand, and it's a very compelling preposition, it's very difficult to actually do. So, we've designed our investment process around active patients, and that includes months of research on a new name, one year seasoning of a new name thesis, and explicitly focusing on what will drive the company the value of the business over five to seven years, as opposed to next quarter next year. I like to call it a noise-canceling headphones for long-term PMs, and we do measure ourselves based on the turnover rate, the number of changes in the portfolio, to make sure that we are aligned with our stated investment horizon of five to seven years or longer. 

Elana Margulies-Snyderman: 

Igor, I wanted to shift gears a bit and discuss ESG, which is prominent in your investing space and how you integrate it. 

Igor Bekker: 

ESG is an important part of our investment process, and we typically start with governance, because I do believe that good governance incorporates environmental and social considerations, both from a risk management and impact perspectives. Then, we focus on the E and the S, more specifically looking for cultural anomalies in the company's behavior over time, particularly during difficult periods, such as a global financial crisis, COVID, or natural disasters, to really gain a better understanding of how does the firm make decisions, especially when things are tough, and what their main goal and motivations are. We do try to be balanced in our assessments, recognizing that benefits always come with costs, right? So, the lower oil consumption of electrical vehicles needs to be offset against battery materials, mining, and recycling. So, try to be dispassionate and scientific in the analysis, but ultimately we do believe that, over time, a true quality company delivers more value to its broader ecosystem than it does to its owners, which then creates a positive win-win feedback loop, which further reinforces growth and profitability, so that's our kind of ESG lens. 

Elana Margulies-Snyderman: 

Igor, we've covered a lot of ground today and wanted to see if there are any final thoughts you'd like to share with us. 

Igor Bekker: 

In terms of our priorities, in the short term, we are looking to build on our strong track record and scales of business by aligning ourselves with like-minded investor partners, and in the long term, I'd want my investor partners to tell me I've earned their trust, this is my why, and also to get significantly better at the craft of culture-led investing. I do think that if both of the things are true, it's highly likely that our long-term performance will have been excellent as well. 

Elana Margulies-Snyderman: 

Igor, I wanted to thank you so much for sharing your perspective with our listeners. 

Igor Bekker: 

Great. It was my pleasure. And thank you for inviting me. 

Elana Margulies-Snyderman: 

And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics and join us for our next EisnerAmper podcast when we get down to business. 

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