WELCOME TO
GRESHAM HOUSE STRATEGIC PUBLIC EQUITY

A STRATEGY OF GRESHAM HOUSE

About Us

Gresham House Strategic Public Equity is an alternative investment strategy which targets superior returns through investment into UK and European smaller public and private companies, by applying private equity techniques and thorough due diligence alongside a long-term investment philosophy.

The strategy has a value philosophy and focuses on investing in profitable, cash generative companies that the investment team believe are undervalued.

We take a hands-on approach to engaging with investee company stakeholders, including management, shareholders, customers and suppliers to exploit market inefficiencies and support a clear equity value creation plan, targeting above market returns over the long-term.

The experienced, multi-disciplined Gresham House investment team has a successful track record of public equity investing and seeks to add value through constructive engagement.

Why Invest in Gresham House Strategic Public Equity?

We believe that our Strategic Public Equity investment strategy creates value through capitalising on opportunities to invest primarily in public, quoted companies that are perceived to be undervalued and that could benefit from strategic, operational or management initiatives.

The strategy has a focus on smaller companies as we believe that significant market inefficiencies often exist amongst such companies. The investment team is actively engaged with investee companies through the following differentiated and specialist investment strategy.

 

The Market Opportunity

Source: Bloomberg 29 December 2017

Strategic Public Equity investment combines the approach and disciplined processes used by private equity with constructive corporate engagement and a strong value investment philosophy.

We believe that the approach will deliver superior investment returns over the long term and that there is an attractive opportunity to implement the investment strategy in the current market environment.

This belief is underpinned by several strong themes:

  • Applying a private equity approach to public company investments has distinct characteristics including a focus on smaller companies. This area of UK public markets has generated 3.4% p.a. outperformance since 1955.
  • The smaller companies market is increasingly inefficient through a lack of liquidity, broker research, access to capital, and corporate advice. This provides pricing dislocations and opportunities to make supernormal returns. Smaller companies are attractively priced. The valuation differential between large companies above £250m market cap and smaller, less liquid stocks is significant, providing a meaningful opportunity to generate superior long-term returns investing in good quality, intrinsically undervalued smaller companies.
  • The Strategic Public Equity approach can support corporate growth and hence equity value creation through provision of development or growth capital, investor relations support, a corporate advisory role or facilitation of corporate activity such as public to private or trade consolidation.
  • A combination of factors supports the view that medium term returns from equity markets will be relatively low compared to history. The Strategic Public Equity approach is an alpha driven strategy, which targets significantly undervalued companies and is uncorrelated to a market index. It is implemented through a concentrated portfolio based on substantial research and a variety of private equity and industrialist inputs.  The investment team believes this approach can deliver enhanced returns targeting 3x forecast equity market returns over the next five years.
  • There are few investors competing in this space. Private equity investment funds typically have limited access to public companies due to constraints and a lack of understanding of public markets whilst many public market institutions are constrained by lack of trading liquidity in smaller companies.
  • The Strategic Public Equity approach potentially facilitates public to private (P2P) transactions, should that be appropriate to create long term shareholder value. As such, it could be viewed as being competitively advantaged to execute P2P transactions.

The Strategic Public Equity strategy is strongly positioned to benefit from all of these themes. The private equity approach and engagement with management provides a forum in which management and investors agree a value creation plan, incorporating clear milestones, catalysts and an exit plan, together with actions which aim to ensure the milestones and catalysts are achieved. We believe that this style of investing leads to superior investment returns.

The Investment Opportunity

The investment team has successfully used the Strategic Public Equity investment approach in many different situations focused on smaller companies that the investment team believes could benefit from strategic, operational or management initiatives.

These situations include:

  • Growth / development capital – primary capital raising opportunities to support M&A or organic investment, working capital requirements or to reduce debt
  • Change of culture / strategic focus – these opportunities tend to be operationally focused and have often involved introduction of a non-executive director or a change in chairman to catalyse the change
  • Public to Private – supporting management in taking the business off the public markets
  • Pre-IPO / private investments – providing growth capital in advance of a planned flotation
  • Off market / private deals – links into private equity and alternative investment opportunities leading to alternative investments
  • M&A catalyst – supporting management through a process of being sold into industry consolidation.

The Investment Process

The Strategic Public Equity investment strategy targets superior long-term investment returns by applying a private equity approach and techniques to investing in quoted companies.

Strategic Public Equity is based on an approach which significantly reduces company specific risk within a focused portfolio by adopting a value investment philosophy and private equity-style techniques and due diligence. This includes an investment committee that draws on the expertise of a distinguished and experienced advisory group with industrial and private equity backgrounds.

We seek to provide growth and acquisition capital alongside significant block stake investments in primarily smaller public companies.

The private equity techniques applied to investing in public companies ensure a rigorous and deep understanding of each investment. This sits alongside an approach of considerably higher levels of engagement with stakeholders (management, shareholders, advisers, customers, competitors) and influence in support of a clear equity value creation plan which results in a de-risking of investment. This approach invests with a three to five year horizon and whilst short-term volatility exists, the risk to permanent capital should be reduced due to several factors:

  • Investment philosophy (value-bias)
  • Private equity style, diligence process
  • Significant and constructive engagement with management and influence
  • A clear equity value creation plan and identified catalysts.

Qualitative assessment matrix

The investment team applies a qualitative assessment matrix (quality-score) to all investment opportunities.

They do this by looking at:

  • Market characteristics and dynamics
  • Positioning within the market, ability to grow and the quality of those prospects, pricing power, client/customer quality, extent of differentiation and competitive advantage
  • The strength, quality, experience and alignment of management
  • Financials, focusing on issues such as customer concentration, sustainability of margins, capital intensity and cashflow characteristics, stability and predictability
  • M&A dynamics and attractiveness of the company to larger trade buyers and private equity
  • Our ability to acquire a stake and assist in value creation and enhancements

 

Please note that any returns are not guaranteed and capital is at risk. Please refer to the risk section for further information.

How to Invest in Strategic Public Equity?

Gresham House Strategic Plc (GHS) is an investment company, quoted on the AIM market on the London Stock Exchange (LSE). Its shares are freely tradable on the LSE, please contact your broker to invest in the fund.

The Gresham House Strategic Public Equity LP is no longer open to new investment.

Gresham House Strategic Plc Board of Directors

Investment Team

Investment Committee

Advisory Group