Intrinsic Value Investors (IVI) LLP (“IVI” or the "Firm") is a London-based private investment
management firm whose investment focus is on the preservation and long-term growth of our
clients' capital by taking advantage of inherent market inefficiencies. IVI’s Client portfolios will
ordinarily be invested in European listed equity securities.
IVI believes that this dual objective can best be met by a portfolio containing the securities of
between 10 and 100 different issuers - a number allowing for sufficient diversification to
minimize individual issuer risk but at the same time also sufficient focus fully to capitalize on
the performance of strong conviction ideas. Our investment strategy is further discussed in
Item 8 below.
IVI does not employ other investment strategies.
IVI currently manages on a discretionary basis approximately $2.152 billion as of the date of
this Brochure. The Firm was established in July 2005 under UK law and is owned by Adriaan
de Mol van Otterloo, Julian Gould and Graeme Hastings.
The Firm provides discretionary investment management for a pooled investment vehicle, the
IVI Umbrella Fund plc, and its sole sub-fund IVI European Fund (the “Fund”) and segregated
accounts, both foreign and domestic (the Fund and other entities or persons advised by IVI
hereinafter the "Client" or collectively the "Clients"). IVI generally does not tailor its advice to
the individual needs of investors in the Fund, although the Firm is flexible with Clients in
segregated accounts.
Clients investing in the IVI European Fund are required to invest a minimum amount of
€10,000 in the Euro Share Class and £10,000 in the Pound Sterling Share Class at the
inception of their relationship with the Fund.
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IVI generally receives an annual management fee based on assets under management under
the following schedule:
• IVI European Fund 1.25% (reducing to 1.10% from 1 July 2019)
• IVI Segregated Accounts 1.00% (reducing to 0.85% from 1 July 2019)
IVI’s fees are generally not negotiable.
Fees are included in the NAV calculation and are deducted from the IVI European Fund on a
monthly basis. Fees for segregated accounts are generally invoiced quarterly.
Fund investors may also expect to pay custodian, administrator, transfer agency and legal
fees in connection with the Fund as well as incur trade execution brokerage and other
transaction costs, discussed in Item 12 below. Clients of segregated accounts are in charge
of the administration of their own accounts and are not charged these fees by IVI.
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IVI’s Clients consist of collective investment vehicles and segregated accounts on behalf of
institutions, pension plans, endowments and high net worth individuals.
The minimum initial investment requirement for any segeregated account is $50,000,000. The
Firm may increase and/or waive this requirement in its sole discretion.
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IVI’s investment strategy is to take advantage of inherent market inefficiencies, as we simply
do not believe that the European securities markets are perfectly efficient at all times. On the
contrary, at any given point in time we would fully expect these markets to offer the
fundamental investor abundant opportunity to construct a satisfactorily diversified portfolio of
securities trading well below their actual ultimate intrinsic value. Further, it is our belief that by
virtue of rigorous and intensive proprietary fundamental analysis we will be able to identify
such undervalued securities in order to purchase them for our Clients to hold until such a time
as the market has repriced them up to our estimate of their intrinsic value.
Process IVI’s investment objective is the preservation and long-term growth of our Clients' capital. We
estimate that this dual objective can best be met by a portfolio containing the securities of
between 10 and 100 different issuers - a number allowing for sufficient diversification to
minimize individual issuer risk but at the same time also sufficient focus fully to capitalize on
the performance of strong conviction ideas.
The initial selection and subsequent day-to-day management of the Client's holdings works
as follows:
• New idea generation and evaluation
New ideas for investment can arise from a large number of sources including company
meetings and press releases, financial and trade newspapers, periodicals and newsletters,
broker research and, of course, our own personal contacts, experience and observations.
When we come across a situation in which there appears to us a reasonably substantial
chance that the market may be significantly under-valuing a particular security, we focus on it
in greater detail in order to be sure that we fully understand the issuer's business model and
the economics of its industry.
Once we are comfortable on these points, we will then attempt to determine the security's
intrinsic value via an in-depth analysis comprising considerations of the issuer's discounted
cash flows, franchise value, over-the-cycle earnings power, liquidation value and/or private
market value.
Assuming that the results of this analysis still suggest to us that the security represents good
value, it is at this stage that we would look to set up a meeting with the company's management
in order to sense-check the key assumptions underpinning our valuation work.
• Stock selection and portfolio management
Securities that our full evaluation process suggests to us are trading at a significant discount
to their intrinsic value (and we would normally target a discount of at least 40% at the time of
purchase) are then added to our portfolio, subject to a number of other factors. These would
include a consideration of the ownership structure and potential strategic value of the issuer,
any forms of signaling by management (e.g. insider transactions or stock issuance/buy-backs),
the strength of the management team and its track record with respect to capital allocation
and corporate governance.
Once we are, however, fully confident that a security under analysis offers better overall value
than at least one other already held in the portfolio then the latter is sold to finance the
purchase of the former. This new holding will then remain in the until either the market
eventually reprices it in line with our view of its intrinsic value (a process that investors should
be aware can take a number of years) or until such a time as we find something even cheaper
to replace it within the Client porfolio.
• Rationale behind our approach
A long-term, fundamental approach gives us the best chance of delivering superior
performance to our Clients - it is how we have always invested and, moreover, we believe it
is the only rational approach to investment.
Further, a long-term, fundamental approach also confers certain inherent benefits:
1. The cheaper a security is in relation to a thoughtful and thorough assessment of its intrinsic
value at the time of purchase, the lower should be the investor's risk of permanent capital
loss should his analysis prove in some way flawed or the broader asset class fall from
favor with the investment community at any stage
2. The longer a portfolio's average holding period (and, in this case, it is between 3 and 5
years), the lower its annual turnover and hence costs borne by its investors
3. Finally, since we are explicitly not attempting to replicate the performance of any particular
index, to hold any more than 100 securities in the Fund or to hold on to our Clients' capital
irrespective of the availability or otherwise of appropriate investment opportunities,
portfolio risk should be minimized since there is simply no need for us to hold securities
for which we struggle to identify any real absolute upside and/or whose business models
offer only very limited visibility.
It should be noted that investing in securities involves a risk of loss as well as gain, which
Clients should be prepared to bear. Past performance is not a guide to the future and prices
of investments may rise as well as fall. Investors may not get back the full amount invested.
Investing in IVI’s European equity portfolios involve general risks – market risk, volatility,
foreign exchange market risk, emerging markets risks – that are comprehensively disclosed
in the Fund’s offering memorandum.
Market Risk
Investments within the Client portfolios are subject to normal market fluctuations as well as
subject to risks inherent in investment in international securities markets. As such, there is no
guarantee that appreciation will occur. Stock markets can be volatile and stock prices can
change substantially. Debt securities may be subject to price volatility due to changes such as
interest rates, market perception of the creditworthiness of the issuer and general market
liquidity.
Currency Risk
Investments held in the Client portfolios may be acquired in other currencies to the base
currency of the relevant portfolio. As a result, exchange rate fluctuations may impact the base
currency of the portfolios. Adverse movements in currency exchange rates can result in a
decrease in return and a loss of capital. IVI does not currently employ currency hedging
although it may choose to do so in the future to reduce currency risk.
Liquidity Risk
Investments held in the Client portfolios are considered to be liquid and readily realizable, as
they are all listed on European stock exchanges. However, some investments may have lower
average daily trading volumes than the most liquid holdings. In such cases, selling an existing
investment may take longer in the market. IVI monitors and manages the liquidity position of
Client portfolios on a daily basis.
Political and/or Regulatory Risks
The value of the assets within Client portfolios may be affected by uncertainties such as
international political developments, changes in government policies, taxation, restriction on
foreign investment and currency repatriation, currency fluctuations and other developments in
applicable laws and regulations.
Developing Market Risk
Investments held in Client portfolios may be domiciled or listed on exchanges in developing
market countries. Such investments may be more exposed to greater market, currency,
liquidity, political and regulatory risks and may incur greater settlement and custody charges
than those investments in developed markets. IVI monitors and manages such exposure on a
daily basis.
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IVI is not a registered broker-dealer nor does it intend to register as a broker-dealer.
IVI operates pursuant to the exemptions to registration provided by Commodity Futures
Trading Commission Rule 4.13(a)(3).
Maitland Administration Services provides the Firm with back office and operations support.
IVI does not maintain a business relationship with any third parties that create material
conflicts of interest.
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Personal Trading
IVI has adopted a compliance manual that includes a Code of Ethics (the "Code"), which sets
out the standards of business conduct for the Firm and its employees. The Code is based on
the principle that the Firm and its staff have a fiduciary duty to act in the best interests of IVI’s
Clients. The Code includes, among other policies, a Personal Trading Policy and an Insider
Trading Policy, and is used to establish principles of conduct and to assist in detecting,
managing and to the extent possible avoiding conflicts of interest, which may arise between
employees and Clients as a result of personal investing activities.
The duties of the Firm’s staff under the Code are summarised below:
Staff are required to submit to the CCO an initial and annual report listing their securities
holdings and a quarterly report of transactions. All personal securities transactions, other than
those specifically exempted by the Code, are preapproved by the CCO or his delegate.
The Code sets forth record keeping requirements and the responsibilities of the CCO with
respect to review of personal securities transactions, personal holdings and trading reports
and monitoring compliance with the Code. The Code also outlines policies for sanctioning staff
who violate the Code.
Staff are also subject to restrictions on participating in initial public offerings and private
placements. The Firm reserves the right to request that its staff disgorge any profits from a
transaction, after the event, that is deemed to conflict with the interests of Clients.
Staff must comply with federal securities laws, certify that they have read and understand the
Code and report any violations of the Code to the CCO. The Code sets forth limitations on
staff receiving gifts from third parties. Staff may not solicit gifts from any party with whom we
conduct or could conduct business.
Staff are prohibited from trading either in their personal accounts or Client accounts on the
basis of material non-public information.
The Firm’s Code requires all staff to acknowledge that they have read and understand the
Code, and reaffirm such acknowledgment at least annually.A copy of the Code will be provided
to any Client or Investor or prospective client or investor upon request.
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• Broker Selection Policy
IVI generally assumes responsibility for selecting brokers and dealers for the execution of
securities transactions recommended on behalf of its Fund or segregated accounts. The Firm
is not affiliated with any broker/dealers and does not execute securities transactions as a
principal. Accordingly, the Firm selects unaffiliated third-party broker/dealers to execute all
Client transactions although, as permitted by applicable law and described in more detail
below.
In selecting brokers, the Firm takes all reasonable steps to obtain the best possible result
("best execution") for Clients when executing an order. The best possible result is not limited
to execution price but can also be determined by:
• Quality of execution
• The nature and character of the relevant markets on which the transactions will be
executed
• The broker's execution experience, integrity and credit-worthiness
• Operational efficiency
The cost of all research services are borne by the Firm.
The Firm ordinarily reviews its active broker list on a periodic basis and assesses each broker
on a combination of factors including those listed above. Where issues arise or expectations
are not met the Firm may review the relationship and the services being provided.
Any brokerage furnished by brokers through which the Firm effects securities transactions
may be used by the Firm in advising other Clients and the Fund and not necessarily the same
investment portfolio.
As a UK investment manager impacted by “MiFID II” regulations, IVI remunerates brokers for
research services and trade execution which are priced separately with each relevant broker.
IVI pays for research directly and does not utilise "soft dollar" arrangements.
IVI may elect to cross transactions internally. This will usually be for the purpose of reducing
transaction costs or rebalancing Client investment portfolios. This normally occurs where
inflows from one Client coincide with outflows from another Client for which the Firm also acts
as an adviser. In the event that the Firm causes one Client to purchase securities from or sell
securities to another Client, the Firm uses its best efforts to mitigate potential conflicts of
interest by causing the transaction to occur at the then prevailing market price of the applicable
securities and by considering the interests of all Clients that are parties to the transaction. The
Firm will use unaffiliated third-party brokers to facilitate these cross transactions at market
price.
• Allocation of Investment Opportunities
IVI endeavors to act in a manner that it considers fair, reasonable and equitable in allocating
investment opportunities among its Clients. When the Firm determines that it would be
appropriate and feasible for more than one Client to participate in an investment opportunity,
the Firm may place combined orders for all such Clients simultaneously and, if the order is not
filled at the same price, the Firm will average the prices paid over a particular trading day or
such longer period consistent with the accumulation or disposition of a particular position.
Similarly, if an order is placed on behalf of more than one Client and the order cannot be fully
executed under prevailing market conditions, the Firm may allocate the trade execution among
different Clients on a basis that the Firm deems equitable. This is normally achieved by pro-
rating actual trade executions among Clients in accordance with the total number of shares
outstanding on each Client's order and rounding such executions to reflect minimum trading
sizes, minimum allocations necessary to avoid undue costs being realized by Clients (such as
transaction and foreign exchange costs triggered by certain allocations having a
de minimis
value) and efficiencies inherent in trade reporting. Situations may occur where a Client could
be disadvantaged because they participated in the aggregate order.
The Firm anticipates that the substantial majority of its trade executions will be allocated
between Clients in a pro-rata manner. Where the Firm determines that this pro rata allocation
methodology may not be in a Client's best interest or the best interests of all Clients, the Firm
may, in its reasonable discretion, make an adjustment to the pro-rata allocation.
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IVI provides investment advice to the IVI European Fund as well as segregated accounts. IVI’s
fund managers and operations staff are responsible for monitoring performance and execution
purchases and sales on behalf of the Fund and segregated accounts. The fund managers
review the portfolio on a daily basis and the operations staff reconcile the accounts on a daily
basis.
All Clients receive the quarterly shareholder letter of IVI European Fund from the Firm. Clients
invested in IVI European Fund also receive quarterly holdings statement from the Fund’s
administrator detailing the number of shares held in the Fund and the market value at the
relevant period end. Clients invested in the Fund also receive the Annual Report and Audited
Financial Statements plus an Interim Report and Unaudited Condensed Financial Statements
semi-annually from the Fund’s administrator. All Clients holding segregated accounts with the
Firm will receive a monthly statement from the firm which includes: account valuation, holdings
positions and values reconciled to the Client’s custodian data plus details regarding
transactions on the account, accrued dividend income and withholding tax returns.
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IVI is not authorized by the UK Financial Conduct Authority to hold Client assets and as an
offshore investment adviser to an offshore fund is not subject to Rule 206(4)-2 (the “Custody
Rule”) in relation to its Fund. However, the Firm generally complies with its requirements by
delivering audited financial statements to the Investors in the Fund within the applicable
required time frame.
IVI does not have custody in respect to its separately managed account clients.
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As investment adviser to the Client portfolios, IVI is granted the discretionary authority to
manage its Clients’ accounts, including authority to make decisions with respect to which
secutuities are bought and sold, the amount and price of those securities/investments, the
broker-dealer to be used for a particular transaction, and commissions or markups and
markdowns paid. The Firm will manage each Client portfolio in line with that Client’s stated
investment objectives and when selecting securities and determining amounts, IVI observes
the investment policies, limitations and restrictions relevant to the Client.
The basis for this discretionary authority is found in organizational documents and/or the
investment management agreement as applicable to each Investor or Client.
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The Firm understands its fiduciary duty when assessing proxy voting responsibilities on behalf
of its Clients. The Firm also recognizes the need to exercise its proxy voting obligations with
a view of enhancing its Clients' long term investment values. The Firm believes that both are
generally compatible with good corporate governance as this generally provides the best
operating environment for each underlying portfolio company to cope with competitive
commercial pressures. To help achieve its objectives, it is IVI’s policy, subject to the
considerations described below, to use its best efforts to vote proxies arising on all shares
held on behalf of its Clients.
The Firm has a commitment to evaluate and vote proxy issues in the best interests of its
Clients. The Firm will generally vote proxy proposals, amendments, consents or resolutions
relating to Client securities, including interests in private investment funds, if any, (collectively,
"proxies") in accordance with the following guidelines:
• Consistent with our fundamental analysis, the Firm will generally support a current
management initiative if our view of the Issuer’s management is favorable;
• The Firm will generally vote against management if there is a clear conflict between
the Issuer’s management and shareholder interest;
• In some cases, even if the Firm supports an Issuer’s management, there may be some
corporate governance issues that the Firm believes should be subject to shareholder
approval; and
• The Firm may abstain from voting proxies when it is determined that the cost of voting
the proxy exceeds the expected benefit to our Clients.
• The Firm may abstain from voting proxies in companies listed on markets where
market convention for ‘share blocking’ could limit the Firm’s ability to manage the
holding of shares in the Clients’ best interests.
Generally, all proxies are evaluated and voted on a case-by-case basis, considering each of
the relevant factors set forth above. The Firm, in all cases, will vote for any proposals that we
believe will be most advantageous to our Clients.
Given IVI's position that the inherent risks associated with voting in a share blocking country
may outweigh the benefits of voting, IVI will generally abstain from votes in a share blocking
country unless a Client specifically requests in writing that IVI vote on an issue. In such case,
IVI will vote only those shares held in that Client's portfolio and will abstain from voting shares
of the security held by other Clients. The Client whose shares are voted recognizes it will be
subject to any regulations or limitations placed on those shares.
Although highly unlikely, there could be an occasion when a conflict may arise between the
interest of the Client/s and the interest of the Firm. IVI will always strive to address such a
conflict in the best interests of the Client/s. If a perceived material conflict of interest arises in
connection with a proxy vote, IVI may resolve such conflict either by delegating the voting
decision back to the Client/s or the Firm may inform the Client/s of the perceived conflict and
obtain consent to vote the proxy as recommended by the Firm.
IVI does not take positions outside of the portfolios it manages and therefore does not
anticipate a situation where there would be a conflict between maximizing investment returns
for Clients and the interests of the Firm or its staff. In fact, as shareholders in IVI European
Fund the interests of the owners and staff of the Firm are fully aligned with those of its Clients.
In the highly unlikely event that such a situation should arise, the management team will review
and evaluate the proxy proposal and the circumstances surrounding the conflict to determine
the vote, which will be in the best interests of the Client. Records of IVI’s Proxy Voting Policy
and voting history are available from the Firm upon request.
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IVI has no financial commitment that impairs its ability to meet contractual and fiduciary
commitments to Clients, and has not been the subject of a bankruptcy proceeding.
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