2021 has been a very unusual year. It seems appropriate to reflect on a year that has been characterised by isolation, distance, and virtuality. While 2020 imposed this strange new world upon us, 2021 became the year of the ‘new-normal’. For most of us, this past year has seen our social circles dwindle dramatically, and our online, virtual lives come to fruition. For me, this year has been most challenging due to the restrictions on seeing loved ones. As for everyone, we have had to adjust, to be resilient, and find new and alternative ways to continue to grow.

I recently found an article titled “64 Things You Forgot Happened in 2020 and 2021”. It was quite an eye-opener when we look back at all we have been through, the highs, the lows, and the continued persistence of our community through such turbulent times. The first event highlighted in the article was the Australian bushfires burning throughout the country for four months, continuing through the start of the 2020 year with millions of people displaced and countless animals perishing.

It was on January 7, 2020 when the World Health Organization (WHO) announced that Chinese authorities had identified a novel coronavirus of Wuhan when a person was hospitalised for pneumonia. On 11 January, China reported the first death to the pandemic which has paralysed the world and from March 10, 2020 we began our journey toward the new normal with Italy becoming the first country to implement a nationwide lockdown and Government-approved funding packages for their communities in what was the largest bailout the world has ever seen.

Over the past year, the world has been teased with their freedoms, gradually emerging from lockdowns, with ongoing regional lockdowns being implemented. Many of the major sporting events that were scheduled for 2020 and postponed due to the COVID-19 pandemic were hosted in 2021, albeit in most cases without the public in attendance.

Sadly, as the world gradually opened up, the number of reported deaths continued to climb, reaching five million in November 2021. On a positive note, the number of vaccines administered worldwide exceeded 1 billion in June 2021.

While world health officials were focused on how to combat different variants of the virus, businesses were struggling to survive and consumers were fearful of disrupted supply chains, low inventories and rising inflation. For the world community, being resilient in these testing times is the only attribute that has kept us all going.

Despite the frantic and dramatic backdrop, equity markets have delivered a remarkable run. While some have been less fortunate than others, those that have invested in businesses that demonstrate these same resilience characteristics have proven to outperform.

At ECP, we suffered from the same pandemic-related effects, however, we have used the opportunities that arose when others were hesitant to invest. From an organisational point of view, we have heavily invested in infrastructure and our people, ensuring that we have a strong foundation from which to grow.

We signed a ten-year lease in the Pavilion, a brand-new building at 388 George Street, which is in the heart of the Sydney business district and our thanks go to Hammond Studio and Forma Projects as we now have a modern ergonomically designed world-class work environment.

From an investment perspective, we continued to outperform the benchmark as evident in the table below:

We are incredibly proud of our outstanding investment performance, and each member of our team has contributed meaningfully to this performance. Our team has ensured the forensic research upon which these results are founded continues unabated, and I am pleased to mention that we have added two new members, Justin Breen and Justin Warton, to our investment team. We deliver, quite simply, the best quality growth in the business. It is truly sustainable and truly resilient and has been proven again and again.

In any business, it is all about the clients and I am proud that our team has continued to deliver this in a proactive and professional manner. As we continue to grow as a firm, we are excited to continue to build on our service to our clients and to this end we have also added two new members to our business development team, both of whom join us in the New year. Watch this space.

Any successful business owner makes decisions for the betterment of their long-term business. Having sustainable practices and a long-term mindset is vital for any operator in this modern, rapidly changing world. Sustainability has long been part of our investment process. Since we see ourselves as business owners (and not share traders), we invest along similar principles where sustainability and competitiveness are central to any investment analysis. As a fund manager, we have a clear responsibility for how we invest clients’ capital. While we must steer clear from making ethical judgements on behalf of others, making clear commitments known to all stakeholders is simply prudent investing.

Over the past few years our industry, and society more broadly, has continued to evolve with higher expectations being made of businesses and their social licence to operate. Being a good corporate citizen is only part of it. Being a good corporate citizen that is compassionate, committed to its people, planet, and the community is mandatory. At ECP we are committed to ensuring that our business employs best practices to position our organisation so that we can continue to sustainably grow through time and to this end have produced our first annual Corporate Responsibility & Sustainability Report. We appreciate our role in the investment community and we will continue to grow our clients’ financial wealth, but also we hope to contribute to the societal well-being of future generations.

As a business, we recognise the importance of balancing the interdependent relationship between nature, people, and our planet and as of January 2021, we are now a supporter of the Task Force on Climate-related Financial Disclosures (TCFD). Moreover, this year we introduced our Climate Change Position Statement.

From an investment perspective, there have been several IPO’s this year, with most of them well bid, and it is great to see the capital markets functioning in the current environment. As long-term investors with a strict investment process, we preclude ourselves from getting too caught up in the hype around these primary issues, even if it means leaving some short-term upside on the table.

Notably, we did participate in the GQG Partners (ASX: GQG) and Judo Capital Holdings (ASX: JDO) initial public offerings as we believe these businesses can expand their economic footprint over our investment horizon and provide us with excellent investment returns.

GQG is a large-cap, quality equities manager with US$85bn in FUM that has delivered top quartile alpha with bottom quartile beta, through a low-fee focused strategy, delivering unprecedented success. We estimate they have US$150bn capacity in their Emerging Market linked global funds and substantially more if developed market funds are carved out. The company has built an incredible global distribution network aligned with consultants to unlock this opportunity.

Judo is a service orientated SME lending bank with a good runway of growth ahead. It was founded by career business bankers and it is focused on positive credit assessment when making lending decisions. It has successfully taken advantage of an opportunity that has opened up in the marketplace and will need to focus on its funding structures and the product portfolio over the next few years to achieve ROE targets in the forecast period.

Looking at our portfolio, we do not see an improvement in the P/E ratings of the companies from current levels. The short-term financial metrics for the companies in the portfolio, including organic sales growth, earnings and dividend growth, should provide the impetus for an improvement in valuations or at least be supportive of the current valuations in the future — all of this equates to a current estimate of the expected IRR for the portfolio to be ~12%.

From the entire team here at ECP, we wish you and your families a very Merry Christmas and a happy and healthy New Year. We sincerely hope 2022 is a more normal time for everyone and as the year draws to a close, I wanted to thank you all for your ongoing support.

Manny