Hedge Fund Awards 2015 www.acquisition-intl.com 28 Best Performing Niche Hedge Fund (Five Years) and Excellence in Value Investing Castellain Capital LLP We spoke to Robert Goldsmith, Portfolio Manager at Castellain Capital LLP, to find out how the firm’s fund is generating superior returns for its clients The Castellain Value Fund aims to profit from the mispricing of listed closed-end funds relative to their intrinsic value, using an event driven approach, says Robert Goldsmith, Portfolio Manager. “The first leg of the strategy entails identifying those funds that are trading at a price that is below our estimate of their intrinsic net asset value. The second leg is to invest in those funds where there is a potential catalyst/event that can close the discount and unlock value for shareholders. In implementing the second leg, we actively liaise with the management of our investee companies, making recommendations for potential action. Our core focus is on closed-end funds listed in the UK and Western Europe.” Castellain uses an actively managed proprietary database that tracks closed-end funds that the firm has researched in the past, says Goldsmith. “Using this data, we monitor a wide array of key metrics that may not be easily available elsewhere. Potential investments are flagged up both automatically and through manual due diligence. “We adopt a research intensive approach to analysing potential invest- ments, placing emphasis on primary sources e.g. financial accounts, offering documentation etc. We analyse the investment’s capital structure, its shareholder base, the make-up of its board, as well as its constitutional and other supplementary documents such as manage- ment contracts. This enables us to build a comprehensive snapshot of the company, its assets and to understand the reasons why it trades at a discount to our estimate of its intrinsic net asset value. “We then undertake an exercise to identify catalysts that could reason- ably be expected to narrow the discount to NAV at which the company trades. This process draws on our considerable experience and exper- tise of previous events that have taken place in the closed-end fund sector. These catalysts are diverse and could include, amongst other things: liquidations, sales of assets, repayments of debt, corporate governance improvements, tender offers, share buybacks, re-organi- sations, mergers or takeovers. “Our universe broadly consists of around 600 non-US listed closed- end funds with a combined market capitalisation of over US$300bn.” Castellain operates within a space where there are only a handful of other funds operating. “The Castellain Value Fund focuses on Euro- pean listed closed-end funds, a sector in which I have been working for most of my career,” says Goldsmith. “With close to 15 years of experience, I have been an activist investor in the sector, having been involved in a range of corporate activity such as takeovers, board po- sitions and restructurings. I have also been involved in the structuring of such closed-end funds, having been part of a team that raised over EUR1bn in the closed-end fund space. This buy-side and sell-side experience has led me to develop a unique and intricate insight into the sector. “Most importantly, the weight of money in the sector stems from the wealth management and multi-asset firms. These firms have a very different approach to the closed-end fund sector than me or my peers – utilising it principally for making asset allocation decisions. These fund flows often provide the deepest source of buying and selling opportunities for Castellain. As a smaller fund, we can be nimble in taking swift advantage of these opportunities.” The initial investors in the Castellain Value Fund were the founding partners, and together they remain the largest shareholders in the fund. “Our client base principally comprises high net worth individuals and family offices hence we tend to have direct relationships with the underlying providers of capital,” Goldsmith says. “Both these points help to align our interests with those of our clients. Our primary focus throughout the firm’s life has been on managing the investments rather than aggressively seeking to grow assets under management. We believe that in the long term this will help us to be more successful with the performance of our funds, our clients’ satisfaction, and the growth of our business.” Castellain has recently expanded its fund range, with the Castellain Income Fund being run by Stephen Ackerman. “This is a new long-only multi-asset fund based on an established strategy. The fund has a one year track record, having returned 9.7% in 2014,” says Goldsmith. “In addition, we have expanded our team, having made hires in the areas of Investment Research and Marketing. Our current investor base com- prises of family offices and high net worth individuals. We are seeking to broaden our investor base to include suitable institutions.” On being given the awards for Best Performing Niche Hedge Fund (Five Years) and Excellence in Value Investing, Goldsmith says, “We are very pleased that the strong performance and longevity of the Castellain Value Fund has been recognised. Our fund specialises in an inefficient sector that not every investor is familiar with, namely the listed closed- end fund sector. By staying within our area of expertise, we have been able to demonstrate our ability to generate superior returns, as well as the sustainability of the strategy. The strategy has been running for over five years and has annualised over 23% since inception.” n Company: Castellain Capital LLP Name: Robert Goldsmith Email:
[email protected] Website: www.cascap.co.uk Address: 34 New Cavendish Street, London, W1G 8UB Phone: +44 (0)20 7034 1916 Fact File Best Performing Niche Hedge Fund (Five Years) and Excellence in Value Investing