I. General Disclaimer

PLEASE READ THIS IMPORTANT INFORMATION BEFORE PROCEEDING FURTHER.

This page contains legal and regulatory notices relevant to the information contained on this website. By accessing the site you agree to be bound by the following terms and conditions.

The information on this site ("Information") is provided for general information and is not an offer to sell, or a solicitation of any offer to buy, any interest in the investment funds managed by Chikara Investments LLP (the "Chikara Funds"). In particular, this website is not intended as marketing of any Chikara Fund in any member state of the European Economic Area for the purposes of the EU Directive 2011/61/EU on Alternative Investment Fund Managers.

II. Information on this Site

The Information is issued by Chikara Investments LLP, a limited liability partnership incorporated in England and Wales under number OC310342 ("Chikara"), authorised and regulated by the Financial Conduct Authority ("FCA").

The Information is not directed at any person in any jurisdiction where it is illegal or unlawful to access and use such information. Chikara disclaims all responsibility if you access or download any Information in breach of any law or regulation of the country in which you reside.

The Information is not directed at any person in the United States and this site is not intended to be used by any person in the United States other than persons who are "qualified purchasers" (as defined in the United States Investment Company Act of 1940, as amended) and/or "accredited investors" (as defined in Rule 501(a) under the United States Securities Act of 1933).

Accordingly, all persons who access this site are required to inform themselves of and to comply with all applicable sales restrictions in their home country.

Compliance with Certain Restrictions Relating to the Chikara Funds

SWITZERLAND

Apart from as noted below, the Chikara Funds have not been and cannot be registered with the Swiss Financial Market Supervisory Authority (FINMA) and cannot be distributed in Switzerland.

Chikara Funds plc, one of the Chikara Funds, may be distributed in Switzerland to both non-qualified investors and qualified investors.

The representative in Switzerland is 1741 Fund Solutions Ltd, Burggraben 16, CH-9000 St. Gallen. The Swiss Paying Agent in Switzerland is Tellco Ltd, Bahnhofstrasse 4, CH-6430 Schwyz. The prospectus, the articles of association, the Key Investor Information Documents, as well as the annual and semi-annual reports in relation to Chikara Funds plc, may be obtained free of charge from the representative. In respect of the units distributed in and from Switzerland, the place of performance and jurisdiction is the registered office of the representative.

III. No Advice

The Information is provided for informational purposes only and on the basis that you make your own investment decisions and do not rely upon it. Chikara is not soliciting any action based on it and it does not constitute a personal recommendation or investment advice. Users of this website should be aware that Chikara is not acting for, or advising them, and is not responsible for providing them with the protections available under the UK regulatory system to those who are clients of Chikara. Compensation will not be available from the UK’s Financial Services Compensation Scheme. Should you have any queries about Chikara Funds, you should contact your financial adviser.

IV. Accuracy of Information

The Information (including any expression of opinion or forecast) has been obtained from, or is based on, sources believed by Chikara to be reliable, but is not guaranteed as to its accuracy or completeness and should not be relied upon. The Information is provided without obligation on the part of Chikara and on the understanding that any person who acts upon it or changes his investment position in reliance on it does so entirely at his own risk. The Information does not constitute an offer to buy or sell or an invitation to make an offer to buy or sell shares in any Chikara Fund.

Information is current only as at the date it is first posted and may no longer be true or complete when viewed by you. All Information may be changed or amended without prior notice. Chikara does not undertake to update this site regularly.

V. No Liability

No representation, warranty or undertaking is given as to the accuracy or completeness of the Information by Chikara or any of its associated companies and no liability is accepted by such persons for the accuracy or completeness of such Information. In no event will Chikara or any of its associated companies be liable to any person for any direct, indirect, special or consequential damages arising out of any use of the Information, or on any other hyper-linked site, including, without limitation, any lost profits, business interruption, loss of programs or data on your equipment, or otherwise, even if Chikara is expressly advised of the possibility or likelihood of such damages.

You should be aware that the Internet is not a completely reliable transmission medium. Chikara does not accept any liability for any data transmission errors such as data loss or damage or alteration of any kind, including, but not limited to any direct, indirect or consequential damage, arising out of the use of the products or services referred to herein.

The above provisions are not intended to exclude or restrict any duty or liability that Chikara has to its customers under the regulatory system in the United Kingdom.

VI. Indemnity

You agree to indemnify, defend, and hold harmless Chikara, its affiliates and licensors, and the officers, partners, employees, and agents of Chikara and its affiliates and licensors, from and against any and all claims, liabilities, damages, losses, or expenses, including legal fees and costs, arising out of or in any way connected with your access to or use of this website and the Information.

VII. Material Interests

Chikara and its partners, officers and/or employees may have holdings in the Chikara Funds and may otherwise be interested in transactions that you effect in those funds.

VIII. Linked Websites

This site may be linked to third party websites or contain information provided by third parties. Chikara does not make any representation as to the accuracy or completeness of such websites or information, has not and will not review or update such websites or information, and cautions browsers that any use made of such websites or information is at their own risk. Chikara does not accept any liability arising out of the information contained on any linked website or Information provided by a third party and the use of such sites and information is at your own risk.

IX. Copyright, Trademarks and Other Rights

Copyright, trademarks, database rights, patents and all similar rights in this site and the information contained in it are owned by Chikara, its licensors or relevant third party providers. You may use the Information and reproduce it in hard copy for your personal reference only. The Information may not otherwise be reproduced, distributed, stored or transmitted without Chikara’s written consent. Nothing on this site should be considered as granting any licence or right under any trademark of Chikara or any third party.

X. Governing Law

You agree that your use of this site and any dispute arising from the use of this site is subject to English law and you submit to the jurisdiction of the English courts.

XI. Privacy, Data Protection

Chikara is committed to safeguarding the personal information which you may provide to Chikara through this site and to the extent that Chikara collects any personal information, Chikara will hold it in confidence in accordance with the General Data Protection Regulation (Regulation (EU) 2016/679).

For further information on how we safeguard the personal information which you may provide to Chikara please see our Privacy Notice.

XII. Use of Cookies

Chikara uses cookies on this site. By using this site, you agree to the placement of certain cookies on your computer. Please see our cookie policy for more information. If you do not wish to accept cookies from this site, please either disable cookies or refrain from using this site.

A "cookie" is a piece of information that is saved to your computer's hard disk by the web server. Confirmation of reading and accepting these terms and conditions will place a cookie on your computer's hard disk. This will ease your navigation around this website by not popping up these terms and conditions again during this browser session. This cookie is temporary and will be removed when you close your browser. The cookie is not used for any other reason. You may set your browser to notify you when you receive a cookie. Many web browsers allow you to block cookies. If you do block cookies you may not be able to access certain parts of this website. You can disable cookies from your computer system by following the instructions on your browser or at www.allaboutcookies.org.

Capital Preservation and why we believe it is valuable to investors

  • May 2023
  • | Chris Grey
  • | Global Emerging Markets team

Adam Smith observed that “The chance of gain is by every man more or less over-valued, and the chance of loss is by most men under-valued….” 

It is for this reason, he continues, that we buy lottery tickets when we know the odds are against us and yet hesitate to insure our homes against disaster (mortgage providers require it nowadays of course). In the Global Emerging Markets team at CCAM, we try to avoid such instincts. We believe that our first task is to preserve our clients’ capital and define risk as the failure to do so. To some, such a focus may appear to contain the makings of dull long-term performance. To the contrary we believe that it is from a protected base of capital that attractive long-term returns may follow.

The power of capital preservation

There are various reasons why we believe emphasising capital preservation is valuable to long-term investors.

First, our clients’ capital is hard-earned and irreplaceable. We aim to treat it like we would our own and are unwilling to take risks that might jeopardise it.

Second, capital losses create steep mountains that are arithmetically challenging to climb. We see the world as replete with painful episodes of economic crises and corporate malfeasance. To avoid or dampen these episodes is therefore valuable. An investment that loses 50% of its value will need to gain 100% to return to its starting point whereas one that loses 25% needs ‘just’ a 33% gain to return to the same starting point, a far less strenuous climb. Emerging markets lost more than 60% of their value in dollar terms in between October 2007 and October 2008, requiring more than a 150% gain to return to their starting point. 

Third, as Smith recognised nearly 250 years ago, humans are fallible. We all know that investing is in theory as simple as ‘buy low, sell high’ but in the real world that is a mantra more easily recited than practiced. It is human nature to fall prey to both undue optimism and pessimism. All too often investors can find themselves ‘investing’ in objects of speculation when they are at their most expensive only to sell at trough valuations. There are indications that an average fund investor’s return can fall far short of the funds in which they invest for this precise reason. A focus on capital preservation should result in shallower troughs that make it easier to stay the course; it helps protect us from our ourselves.

Achieving capital preservation

Achieving capital preservation can be challenging. It requires an approach that we believe will at times lead to marked underperformance as it avoids the most fashionable, but ultimately fragile, investments. In our opinion, some fund managers are unable to apply an investment approach that appears to be ‘wrong’ for an extended period: that may be because an intellectually competitive streak leads to the abandonment of investment philosophies in order to keep up with peers; or because they may find themselves labouring within institutions that have little tolerance for short-term underperformance. In our view, incentivisation structures and career risk can weigh heavy on a portfolio manager who refuses to adopt a fluid investment philosophy.

We believe that it is far easier to achieve capital preservation within a small and supportive team that understands there will be challenging periods just as there will be rewarding ones, and this is only possible in an understanding and patient institution. With these rare ingredients in place attention can turn to constructing portfolios that truly align with an investment philosophy.                

Ultimately, we see that a portfolio takes on the characteristics of the companies contained within. We focus on three broad and interrelated questions when trying to identify suitable companies:

Who? We seek owners and managers of companies that display integrity, humility and competence. These individuals typically have unusually long-time horizons, with a keen interest in the durability and evolution of their companies.

What? We are looking for companies with demonstrable resilience and hard-earned competency. These companies can consistently generate cash flows from attributes that are difficult to replicate. Examples include consumer companies with top quality brands and industrial companies who sell to businesses who are truly reliant on their products. Such unusual traits provide pricing power.

How? The companies should be run in a way that recognises that enduring success requires partnership and collaboration with various stakeholder groups. They say ‘no’ to many enticing but risky short-term sources of profits. They do not resort to financial gasoline to turbo-charge growth. They consistently invest in their businesses to help ensure long-term evolution and relevance.

No company is perfect but when we find high quality people looking after durable businesses operated for the long-term, we are willing to pay what we appraise to be a reasonable price in order to become part owners. And then we offer them patience. There is little point in identifying companies with an eye on the distant future if we cannot offer similar in return. By seeking these high standards, it is our aim that our portfolios become infused with similar characteristics. This is how we endeavour to achieve capital preservation and attractive long-term returns.

Important Information

This document does not purport to provide investment advice and should not be relied on for the purposes of any investment decision. It is not an offer to sell or the solicitation of an offer to purchase shares. In particular this document is not intended for distribution in the United States or for the account of U.S. persons (as defined in Regulation S under the United States Securities Act of 1933, as amended (the Securities Act)) except to persons who are "accredited investors" (as defined in Rule 501(a) under the Securities Act).  Chikara Investments LLP (Chikara) is not registered with the United States Securities and Exchange Commission as an investment adviser.  This document and its contents are confidential and must not be copied or otherwise circulated to any other person. Certain assumptions may have been made in the calculations and analysis in this document which have resulted in returns detailed herein. This document is based upon information which Chikara Investments LLP (Chikara) considers reliable, but no representation is made that it is accurate or complete and nor should it be relied upon as such. All information and research material provided herein is subject to change and this document does not purport to provide a complete description of the funds, securities or other investments or markets referred to or the performance thereof. All expressions of opinion are subject to change without notice. This document is issued for the purposes of section21 of the Financial Services and Markets Act 2000 by Chikara Investments LLP (Chikara), 31-32 St. James’s Street, London SW1A 1HD, who are authorised and regulated by the Financial Conduct Authority.