Dear Investors and Friends,

 

We are excited to announce the launch of the Variis Partners Emerging Markets strategy on October 4th, 2023, after a year of preparation. The strategy is invested in a concentrated yet diversified collection of 22 high-quality, attractively priced Emerging Markets businesses.

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At launch, strategy assets include significant capital from the four Partners of Variis Partners LLP, plus external capital from clients—friends, former colleagues, and family offices. We are deeply grateful for the substantial support from our network.

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We built Variis with a first-class infrastructure while maintaining lean costs. We will be break-even from the outset, enabling us to take a longer-term perspective. With a solid foundation, we believe Variis is well-positioned to serve high-quality institutional clients as a differentiated Emerging Markets investment partnership.

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Why we created Variis

The four of us—Leila, Eko, Rufus, and Jamie—joined forces with a shared vision to build an Emerging Markets investment management firm that stands out in our industry, with six attributes that make us different:

• Variis has female leadership and majority ownership, reflecting our commitment to diversity and inclusivity.

• We fully align with our clients. Our own capital is in the strategy. We own 100% of our business and have funded all set-up and operations ourselves.

• The Variis strategy includes a resolute commitment to high conviction investing and absolute returns, avoiding any tendency to mimic market indices.

• Sustainability is core to our investment process. We have a pragmatic stakeholder perspective that avoids superficial checkboxes, which is particularly relevant in the nuanced context of Emerging Markets.

• We crafted Variis with clear capacity limitations to prioritise long-term investment returns, different to an industry that often chases scale over excellence.

• Our fair fee structure prioritizes our clients' success, as we believe net returns matter most.

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Variis’ culture and values

Our core values are diversity, collegiality, and simplicity. Variis is diverse across multiple dimensions: our founders have diverse backgrounds, we venture into diverse markets teeming with varied investment opportunities, and our team welcomes diverse viewpoints and cognitive perspectives.

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Leila, Eko, and Rufus form a tight-knit team, undertaking a single strategy, and operating within a unified process. We have a complete focus on investing. With Jamie, we have built an operating platform that blends excellence with strategic outsourcing to best-in-class providers.

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This last year pre-launch has been demanding but thoroughly enjoyable. We chose a pet friendly office, where Binti the Cockapoo keeps us delightful company whenever Leila brings her in. Starting a business is an intense experience, and the additional level of camaraderie we have forged has enriched each of us. The culture we’ve nurtured will serve as a solid foundation for years to come.

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Key attributes of our investment approach

We have aligned our team and processes with our philosophy around achieving exceptional returns within Emerging Markets. Our conviction is that a concentrated strategy, consisting of carefully selected longer-term investments in attractively valued, high-quality businesses, is the best way to deliver superior investment returns over time.

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From thousands of Emerging Markets businesses, we focus on selected companies—the best-managed, less-cyclical, exceptional franchises that benefit all stakeholders involved—a roster we refer to as our Focus List, which includes around 120 such businesses.

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Our investment team has, over the course of the last year, carefully researched this Focus List. Leveraging a standardized multi-scenario valuation methodology, we have analysed each candidate in-depth. Out of this analysis has emerged a subset of just over 20 names for strategy inclusion. These are the companies in which we hold the highest conviction and that have the greatest upside to fair value.

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While our investment approach primarily relies on bottom-up stock selection, Emerging Markets investing requires a diligent awareness of macroeconomic and political vulnerabilities. We are prudent in configuring the strategy to mitigate these inherent risks. The result of this thorough process is an investment approach characterized by a lower level of risk, composed of resilient enterprises poised for fast growth—an alignment that fits with our objectives, both for our own capital and that of our external investors.

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The strategy has less overlap with benchmark indices such as the MSCI Emerging Markets Index, or the portfolios of larger, established Emerging Markets funds. We aim to surpass these benchmarks by a significant margin over time.

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Emerging Markets equity investments are particularly attractive now

We believe the landscape in Emerging Markets investments is attractive.

• Prospects for attractive returns: A strategy anchored in high-conviction stock selection in Emerging Markets stands a better chance of yielding index-beating returns, especially over market cycles. This is due to the broader range of business and management quality, from remarkably excellent to consistently poor, in Emerging Markets compared to Developed Markets.

• Opportunities for experienced investors: Emerging Markets, which are less price-efficient, offer a wide range of opportunities for investors who adhere to a robust and consistent investment framework. This environment is well-suited to those with the expertise to navigate the market's complexities, which we believe our Variis investment team is well-positioned to do.

• Sustained growth prospects: Anchored in the long-term thesis of income expansion and the continued penetration of services, Emerging Markets represent an ongoing opportunity for faster growth well into the future.

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We believe that now is an exciting time to be starting an Emerging Markets equity strategy, and we are backing this thesis with our capital. We are finding that many outstanding enterprises are currently trading at levels below what we conservatively estimate as their fair value. This is not surprising, given that while Emerging Markets have delivered superior returns compared to a global universe since 2000, they have generated lacklustre performance in the past decade, averaging around a modest 3% annualized total return.

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The underlying causes for this subdued performance include currency depreciation and a decline in valuation multiples. However, with inflation in most Emerging Markets under control and valuation metrics modest, we believe that the outlook from this juncture is markedly more positive.

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Concluding thoughts

We look forward to building long and fruitful relationships with our prospective clients. For those who are already onboard, we deeply appreciate your trust.

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Thank you!

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Leila, Eko, Rufus and Jamie

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Disclaimer

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FOR PROFESSIONAL INVESTORS AND ADVISORS ONLY

The contents of this document are communicated by, and the property of, Variis Partners LLP. The information and opinions contained in this document are subject to updating and verification and may be subject to amendment. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by Variis Partners LLP or its directors. No liability is accepted by such persons for the accuracy or completeness of any information or opinions. As such, no reliance may be placed for any purpose on the information and opinions contained in this document. The information contained in this document is strictly confidential. The value of investments and any income generated may go down as well as up and is not guaranteed.