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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.

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The Importance of an Oath

  • Mar 2024
  • | Jonathan Asante
  • | Global Emerging Markets team

“Show me the incentive and I will show you the outcome”. Charles Munger

When describing how we invest for clients we often try to start off with our team’s oath which is shown below.  The oath was the idea of a former colleague many years ago and the reason we highlight it is we feel it is key to understanding how we were able to deliver long term acceptable results for our clients in the past. Put simply it was because we put our clients’ long-term interests ahead of our own.

This meant not buying the many companies which became temporarily popular in Global Emerging Markets (“GEM”) indices over the decades in favour of ones which we felt were more likely to offer far stronger returns (and lower risk) in the long term.   It meant closing funds in 2013 rather than investing in a set of large lower quality companies for clients.  And it meant writing letters and telling clients when we felt the returns might no longer justify the risk of investing in even the best set of companies in places like Latin America or China.

We continue to review how to best prioritise clients’ interests. This starts with the work we conduct before we make investment decisions for clients.  We undertake all our own analysis because we aim to invest in companies for the long term.  The short term-driven views of investment bankers are not greatly useful to do this.  We are happy to share our work in person with clients and discuss the pros and cons of all investments made on their behalf.  

Taking care of clients’ interest naturally extends to how we charge you relative to ourselves. We seeded the Chikara Global Emerging Markets (“GEM”) Opportunities fund with our own money in the most expensive share class, which feels like the right thing to have done.  All clients can access cheaper share classes. The last two decades offer numerous examples where financial misalignment delivered poor outcomes.  We believe that properly deferred remuneration is a powerful way to align client and fund manager interests. Lastly, we feel it is in clients’ interests to have as flat a team structure as possible so aim to share equally in the earnings because hierarchy in investment teams creates unnecessary distraction.

The GEM team’s Oath for Financial Stewardship

 In the daily course of working in funds management the EM team will endeavour:

  • To put clients' interests ahead of our own and to treat others as we would wish to be treated
  • To recognise that business conduct should reflect how we invest clients' money
  • To focus on the long term because nothing enduring can be created in the short term
  • To launch funds offering acceptable long term return prospects for clients after fees
  • To admit our mistakes
  • To strive to keep a balanced view and avoid falling victim to investment fads and fashions
  • To focus in conversations with clients just as much on what could go wrong as could go right
  • To remember capital preservation is as important in achieving client returns as capital growth
  • To advocate where possible for financial sector reform to further the aims above

The Opportunity as We See It

We have written at length on how we invest in companies operating in lower income countries and there are several written pieces on the Chikara website addressing issues that may be of interest to clients.  Over the last two decades we have narrowed down the investible universe of emerging markets to a small group of companies in which we have a high degree of confidence long term, and we invest only when we estimate they can provide acceptable returns for the risk we are taking in owning them.  The companies are based all over the developing world, a few are even based in the developed world (but possess large GEM businesses).   We have been waiting for many years for share prices of some to fall to levels that we believe provide an attractive investment opportunity. The reason we launched a fund last November was because we felt enough now did so.  

It makes little sense from an investment viewpoint to have all clients’ money exposed to simply one country as things can always go badly wrong with even the strongest looking set-up.  Diversification therefore plays a role in how we make decisions, but over or underweighting countries does not.  This is because in the past, we have benefitted as a few well-run companies in countries like Chile, South Africa, or Brazil, performed better than ones we would never own in countries like China and India.  Our approach therefore has little to do with predicting flows of capital affecting large indices and everything to do with the operating performance of specific companies over five to ten year periods.

We offer no forecast as to where GEM markets or indices will go.  We do not believe the future is greatly forecastable and we have never believed indices to be an effective representation of the GEM opportunity.  At 95% (March 2024), the active share of the fund suggests that we have fully backed these beliefs in the 30 portfolio holdings (March 2024).  We would hope we have already proved in the past that a portfolio of the best quality GEM companies can offer acceptable returns for clients while making more money with lower risk than the GEM index in the long term.  For us, a minimum long-term return threshold of 10% per annum at the portfolio level seems sensible for the risk being taken.  A hundred dollars grown at 10% per annum is worth USD 259 dollars in ten years’ time and USD 673 in twenty.  Many of our biggest holdings could offer far higher returns than this if those running the companies do a decent job.

Whatever the future holds will be navigated by those running the companies in which we invest.  Because of this we focus on their competence, integrity, and risk awareness before we even start to look at business franchises and stock market valuation.  We also try to apply this harsh lens to ourselves as far as is possible with varying degrees of success. Ultimately, we know that clients will be the best judge of whether they can trust us with their money and all we can do is behave in a manner consistent with our beliefs.

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.