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strategy profile Ex Goldman Sachs team finds value by keeping to what it knows best EnTrust Capital is an independent investment manager specialising in managing alternative investments for public, corporate and Taft- Hartley pension funds, foundations, endowments, funds of hedge funds and high net worth individuals and families. EnTrust Capital is an independent investment advisor registered with the US Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940 and has just under $5 billion under management. EnTrust Capital offers a range of alternative strategies including a value-driven global long/short equity strategy along with a fund of hedge funds platform. The principals have earned a reputation as successful alternative asset managers by providing longterm risk-adjusted returns, extensive transparency and unparalleled personal service. This is achieved through a high level of communication, performing its own due diligence and using a proprietary risk management system. The company’s principals have been together for over 15 years and between them have more than 73 years of collective investment experience. The three partners were originally at Goldman Sachs, mainly working in private wealth with high net worth individuals. In the late 1990s the three wanted to pursue independent research so left Goldman. EnTrust’s founders decided to form an independent money management company free from the conflicts of a large investment banking institution. They believed the client relationships they had built up were strong and performance results were solid. EnTrust was formed with $600 million plus assets under management from existing clients while at Goldman Sachs. The investment focus of the global long/short equity strategy is on bottom-up fundamental-driven research. The analysts and portfolio managers work in a collaborative, team-orientated atmosphere. The investment strategy is easily defined. EnTrust is a free cash flow-driven investor looking for sustainable levels of cash that each business can generate. It is also looking for companies that are well managed. Since the investment managers are long-term investors, the quality of management is a critical component to the investment thesis. “We don’t want to be short well-managed companies as they will find their way around industry roadblocks and we don’t want to invest in poorly managed enterprises despite valuation,” explains Mark Fife, a managing partner of EnTrust Capital and portfolio manager of the global long/short equity strategy. 26 | Access to Islamic Hedge Funds Supplement | November 2008 www.hedgefundsreview.com
strategy profile entrust capital global long/short equity strategy senior investment team Mark Fife has been a managing partner of EnTrust Capital since April 1997. Prior to forming EnTrust, Fife spent 14 years at Goldman Sachs where he managed money for high net worth clients. He is also the portfolio manager of the global long/short equity investment team. Two analysts work with him on the fund. Brian Delaney, a managing director of EnTrust Capital, has been with the company since August 2001. Prior to joining EnTrust he was a manager at PricewaterhouseCoopers, which he joined in 1994. Adam Comora is a partner of EnTrust Capital and has been with the company since July 1998. Prior to joining EnTrust, Adam was an associate at Chase Securities, which he joined in 1994, specialising in distressed securities. “We want to invest in companies that have strong balance sheets so when the economic or market environment is difficult the company can initiate their own value-creating catalysts by repurchasing stock or making accretive acquisitions,” he said. The focus is also in finding companies with high and/or increasing returns on invested capital. Companies that can generate attractive returns without having to constantly reinvest large amounts of capital in the business are inherently more valuable than companies that are large users of capital, believes EnTrust. “We want to invest in companies that have strong balance sheets so when the economic or market environment is difficult the company can initiate their own value-creating catalysts by repurchasing stock or making accretive acquisitions.” mark fife, entrust capital Investment process EnTrust has a repeatable investment process. It goes through the same checklist or process on each and every potential investment idea. First step is to start with the financial documents attempting to ascertain the quality and sustainability of cash flow and earnings. The next step is to spend time meeting and speaking with the management teams of the companies targeted to determine whether or not these are people EnTrust wants to be in business with. Some of the questions the analysts ask are: how do they think about capital allocation, how much of a stake do they own in the company, what is the company’s history of results under their leadership? EnTrust speaks with industry consultants and participants, former senior employees and competitors of the company. This provides a greater insight into industry dynamics and the particular corporate culture of the entity. EnTrust follows a disciplined investment strategy and attempts not to “play away games”. By this EnTrust means it only wants to invest where it believes it has the greatest edge – just like sports teams have at home. Investors often make mistakes by going outside of their circle of competence, believes EnTrust. The investment team does not look to invest in every industry or country. “We want to stay in our own sandbox and only play where the odds of winning are greatest,” says Fife. The sectors EnTrust focuses its efforts on are retailers, industrial manufacturers, business services, media and entertainment, gaming and lodging, restaurants, and energy. Low volatility goal Risk management is critical to the way the portfolio is managed. The goal is to continue managing a relatively low volatility portfolio. Entrust continuously reviews the sector, geographic and capitalisation breakdown. In addition, all position sizes are listed. “We do not allow any sector to be more than 15% net long or net short. No individual stock short position can be larger than 3% of the portfolio at market value. Our largest long position can be up to 6% of the portfolio,” explains Fife. EnTrust invests in publicly traded equities. On rare occasions it may hedge the portfolio by using options but this is always a very minor part of the portfolio. In some circumstances trades will include event driven, special situations and pair trades, to name a few. The great majority of positions both long and short are longer-term investments. “Our average holding on the long positions is one to three years and shorts average six to 24 months. Occasionally, we invest in stub and pair trades,” says Fife. Liquidity is important, particularly when some positions are held for longer periods. EnTrust handles this aspect by keeping the portfolio highly liquid. “We invest in very few turnaround situations. Our portfolio is very liquid. As a matter of fact, if we were just 20% of the trading volume in a stock we would expect that we could liquidate 54% of our portfolio in a day, 76% in a week and 93% of the portfolio in 10 days,” confirms Fife. The three senior investment team members of the team have all been fundamentals of entrust capital global long/short equity strategy Name of manager: Address of manager: Contact: General company overview: together since 2001. Four additional analysts have been added in the last several years. There has been little turnover throughout the company’s history. EnTrust believes it can manage significantly more money in the strategy. “We have been looking at many more internationally headquartered companies in the past several years and we plan to continue to expand our research team if assets under management increase,” concludes Fife. n EnTrust Partners 717 Fifth Avenue, 25th Floor New York, NY 10022 Marc Zwebner, managing director of business development Approximately $4.8 billion assets (including multi-strategy fund of hedge funds platform), 49 employees, offices in the US (New York City, Washington DC, Chicago) and the UK (London) Global long/short equity strategy: Approximately $670 million AUM in strategy as of October 1, 2008 Target annualised return: 10%–15% Target annualised volatility: 4%–7% Geographic focus: “Our portfolio is very liquid. As a matter of fact, if we were just 20% of the trading volume in a stock we would expect that we could liquidate 54% of our portfolio in a day, 76% in a week and 93% of the portfolio in 10 days.” mark fife, entrust capital US, Canada and Europe www.hedgefundsreview.com November 2008 | Access to Islamic Hedge Funds Supplement | 27
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