For investors, the two key challenges are to select a manager that can perform over the long term, and to remain invested during periods of difficulty in both absolute and relative performance. When a performance setback occurs, the natural human instinct is to cut losses and move to a different strategy that currently “works.”
Chasing performance through strategy hopping, as banks and advisors that stand to profit from transaction volumes often encourage, is likely the single biggest reason why most investors obtain disappointing returns in the public equity market. Staying invested is the only way to benefit from the almost magical long-term compounding potential of outstanding public companies.
At 2Xideas, our mission is to address these challenges. Our four core tenets are:
- Achieve strong risk-adjusted returns.
- Build direct and lasting relationships with our investors.
- Offer unrivaled insight and transparency.
- Ensure alignment of interests.
Achieve strong risk-adjusted returns
Our entire firm is dedicated to a single team-based investment process. We believe in collective intelligence that is supported and amplified by technology.
We constantly work on enhancing our process and invest heavily in our own business to build the capabilities needed to achieve attractive returns. Our target is to generate a long-term average return of 10–15% p.a. while at the same time maintaining a balanced risk profile. We focus on risk management as extreme performance swings make it harder for investors to remain confident in a manager, thus deteriorating their long-term investment outcome.
Build direct and lasting relationships with our investors
In our opinion, it is easier to remain confident during difficult performance periods when the investor knows their manager well and is familiar with its investment philosophy and process. This is why we focus on building direct and lasting relationships with our investors. We communicate openly and proactively, especially in periods of underperformance.
Offer unrivaled insight and transparency
We provide unrivaled insight and transparency to our investors through our Quarterly Review reports and various Research publications. Our Investment Cases give investors a better understanding of the quality and growth potential of many of the companies constituent in our Library.
We also publish frequent Industry insights and present them in detailed webinars so that investors can follow our thought process when it comes to comparing business models. Traveling the world to meet management teams, we compile Logbooks to provide our investors with the key takeaways from those encounters.
Ensure alignment of interests
We win and lose together with our investors. The partners and employees of 2Xideas have collectively invested over USD 100 million into the firm’s strategies. This allocation continues to grow, fed by private investments and our own pension plan.
We also directly link compensation to the success of 2Xideas via a profit-sharing mechanism that includes all employees. As we continue to emphasize strengthening our capabilities by expanding our team over optimizing short-term profitability, this mechanism ensures a self-selection of long-term-minded individuals.
We apply the same long-term mindset and collective decision making when it comes to managing 2Xideas as a company. The ownership is currently shared among 13 partners. This setup avoids key-man risk and leads to a very high level of governance, further supported by our four-member Board of Directors, of whom three are independent.