The aim of AVI is to deliver superior investment returns. AVI specialises in investing in securities that for a number of reasons may be selling on anomalous valuations.

What is AVI’s history of investing in holding companies?

Ever since AVI were appointed as the investment manager in 1985, familycontrolled holding companies have accounted for a significant portion of the portfolio. At the time there were several French holding companies that had complex cascade structures that attracted discounts upon discount. We were able to align capital with thoughtful long-term orientated families that owned attractive quality assets, with significant upside potential from discount narrowing and corporate restructuring. These fundamental attractions remain at the heart of our approach today.

How has AVI’s approach evolved over time?

The basic tenets of the approach remain unchanged. We are looking to buy durable, quality businesses, that are growing in value; that trade at deeply discounted valuations; and where there is a potential catalyst or event to unlock and grow value. Within that though, I would say that in recent years the third leg – the event or catalyst – has become an increasingly prevalent part of the strategy and something upon which we have placed increased emphasis.

Schibsted and FEMSA are prime examples of this, as they both took significant steps to simplify their corporate structures, narrowing the discounts at which they trade. In the current portfolio, News Corp, D’Ieteren and Bollore all fit this bill.

What are your observations on the current environment?

To us, it is interesting that whilst global equity markets have been led to new highs by an increasingly narrow and expensive band of US technology companies, such ebullience is not found in the niche parts of the market on which we focus.

Holding company discounts are wide by historical standards and for many investors, holding companies simply aren’t relevant. For us, however, we believe this is a stockpickers’ market and one where a focus on thorough fundamental research, catalysts and events will be key to unlocking value.

After nearly 40 years why does the opportunity persist?

Whilst we are taught that equity markets are largely efficient, our experience shows that certain types of companies – such as holding companies – attract inefficiencies and are prone to mispricing. We believe there are many structural reasons for this.

First and foremost: complexity. Holding companies can be complex beasts and this runs in contrast to what equity markets and investors desire, which is simplicity. The types of company on which we focus are often conglomerates in nature, with multiple and varied businesses; they may have a dual-share class; they may form part of a cascade structure; the accounting often doesn’t match economic reality, for instance if a company owns a listed stake in another entity which accounts for a large proportion of its enterprise value, but the earnings are not consolidated.

All these issues are compounded by a lack of research coverage. The companies that we own typically have little or no sell side coverage.

And this really comes to the fore with unlisted assets. We often do our best work where we can build a high conviction differentiated view on the value of an unlisted business, and then look for an event or catalyst, such as an IPO, sale, or corporate simplification that will make the market wake up and re-value it.

Finally, we believe the market fundamentally misunderstands the attractions of investing alongside families in controlled companies, with the consensus view being one of scepticism. We believe the ability to think in generations not quarters is a real competitive advantage and there is significant literature on the outperformance of family-controlled businesses to back this up.