Keeping you Informed: Black Creek

Speakers:
Richard Jenkins, Chairman and Managing Director
Heather Pierce, Director of Global Equities
Samir Jhaveri, Director of Global Equities

Black Creek Overview:

  • Our firm is on very sound footing, and this is not a time for us to step back from looking to the future. It’s a time for investment managers to try to figure out where new opportunities lie.
  • Since our firm was founded, we have never had a period of such high activity, with more new investments and trades.
  • We have seen unprecedented levels of financial activity from central banks. We have seen program after program across country after country.
  • This is not 2008/2009; there's ample liquidity in the financial system. We have issues with supply, and with demand, and that is why the fiscal programs are now coming at us from both sides to address both temporary demand (programs to sustain incomes, programs to sustain supply through employment or by keeping businesses functioning).
  • Trends that are emerging in the short term are a large number of companies cancelling discretionary spending, discretionary capital expenditures, and deferring or cancelling their dividends for 2020 to keep their liquidity high.
  • In the last down cycle, because it was balance sheet and financial system related, there was a restriction of credit to housing, construction, etc. We are not seeing that at all this time. We are seeing governments wanting to step up infrastructure.
  • Companies are operating in a very professional manner, doing what their governments are instructing them to do.
  • In Europe, 75 to 80% of employee salaries under certain circumstances are covered for three to six months. Canada has now adopted this strategy as well. It means far less strain on government systems, and ultimately allows the demand side to come out at the other side of the downturn; it is much smoother and much faster.
  • When this is finished, we are going to see elevated debt to GDP of governments around the world, and over the next decade, we increasingly think we will be facing some kind of taxation headwind to pay for it.

Black Creek’s positioning:

  • You will likely see us purchase businesses that we know well by having followed them for the last five to 20 years, receiving regular updates; we are therefore comfortable investing in them. You want to make sure that a firm can survive and get to the other side of this deep valley.
  • Even in these unprecedented times, our strategy doesn't change. We continue to search for companies that are market share leaders at what they do. We run concentrated portfolios, so there are a lot of fish in the pond that are not in the portfolio. Our watch list/wish list has about 1,200 companies on it.
  • We want to identify companies that have organic demand, are gaining market share, and are leaders in their field. We are looking for companies with reasonably good balance sheets who can survive through a difficult period of time with limited to no revenues. They should have strong, competent, shareholder-friendly management teams, independent boards, and are investing for the future.
  • Generally, turnover in our funds is between 20% and 30%. We have had periods of time where it is significantly higher, and this may be one of those times, as we are being served many more opportunities.
  • We have had the opportunity to upgrade to businesses that have stronger underlying demand and the finances to make their way through a more challenging period of time.
  • Our goal is to outperform our competitors and benchmarks over a 10-year period. Over the last year or so, we've recognized where we are in the cycle and done a lot of work around company balance sheets; how they would survive a shock and how the company looks through a recession. Through that preparatory work, we have the ability to react quickly, and we are positioned where we want to be.
  • We’re looking to continually upgrade the names we have in the portfolio, to companies that are discounting more than we expect in terms of their long-term prospects.
  • We do not believe in effective market timing, especially in an environment where you're not getting paid to have significant levels of cash, so we traditionally have very low cash levels. What we have done is sell our lowest potential return ideas and upgraded to higher potential ideas, maintaining diversification.
  • We remain substantially underweight the U.S., driven mainly by more attractive valuations outside the country, where we’ve found far better opportunities for companies that we want to hold for the next 10 years.
  • Over the span of a week we have moved almost 12% - 14% of our portfolio.

IMPORTANT DISCLAIMERS

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or an offer or a solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.

The opinions expressed in the communication are solely those of the author and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed

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Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Investments Inc. has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.

Black Creek Investment Management is portfolio sub-advisor to certain funds offered and managed by CI Investments Inc.

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Published April 2, 2020.