Management quality: how we identify teams built to last

At FSSA Investment Managers, we invest in businesses we expect to be part of our portfolio for decades to come. That’s why we put such a premium on the quality of management teams, choosing leaders who we believe have the skills to build strong franchises and deliver long-term growth.

The emerging market landscape was very different when the FSSA team first started investing in the late 1980s¹.

In the wake of the Asian financial crisis of 1997, the region was seen as risky. It was essential to carry out extensive due diligence into businesses and the people who ran them. As investors, we needed to ensure we could trust them to guide their firms into the future.

Competitive advantages, financial fundamentals, company valuations and the size of the market opportunity naturally had their roles to play in stock selection.

But we found management quality was just as significant a factor when it came to choosing companies to invest in – and we remain firm in this belief. While a company’s financials and franchise strength are of course hugely important, without the right people to guide the business, we would not invest.

Our commitment to carrying out in-depth, in-person research into companies has given us a key advantage and, we believe, helped to deliver sustained growth for our clients.

Our unwavering focus on management quality is far from typical in emerging-market investing.

We put in the time and go the distance. Our portfolio managers regularly travel to destinations around the globe to meet management teams face-to-face, directly in the places they do business.

This represents a key step in our process of understanding how companies operate and identifying the leadership teams capable of turning promising business models into long-term success.

We’re looking for a sense of stewardship. Does this leadership team consistently ‘do the right thing’, not just for themselves but for other stakeholders? How do they treat minority shareholders, or employees?

Management’s past performance, especially during downturns and more challenging trading conditions, makes up a significant proportion of our analysis. Our in-person experience helps us fill the gaps in our initial research and understand how the company has adapted to the external environment, as well as whether it has taken any shortcuts to reach its current position.

With a portfolio of, at most, 45 businesses, the FSSA Global Emerging Markets strategy rejects far more companies than we move forward with. If we encounter certain red flags in terms of governance or a history of misdemeanours, for example, we will move on to other opportunities.

No matter how compelling the growth opportunity or the current valuation, we simply will not invest unless we have faith in management and their ability to sustain the business through the cycles. 

Our assessment of management quality does not end the moment we make our initial investment. As long-term, patient investors, FSSA Investment Managers seek to establish long-term partnerships with investee businesses.

We believe we have a useful role to play in providing support and promoting growth as emerging markets continue to develop in areas such as corporate governance and sustainability disclosure. We regularly engage with firms on topics such as capital allocation and board diversity, and share best practices across our portfolio companies.

As the emerging market landscape evolves, our ethos remains the same. It has served us and our clients well, and consistently enabled us to partner with companies we believe will be the long-term winners.

¹ FSSA Investment Managers has a long history of investing in Asia Pacific and Global Emerging Market equities as part of the former Stewart Ivory & Company Limited, which subsequently became known as First State Stewart. After years of organic growth, the team split in two in 2015 and First State Stewart Asia was formed. We subsequently renamed the team FSSA Investment Managers in 2019.