Strategy

The manager invests the assets of the Prism Investment Fund according to a value investing strategy. This involves determining the intrinsic value of securities and buying securities whose price lies significantly below the calculated intrinsic value.

A significant part of the investment strategy will consist of ‘distressed debt’ instruments, as the relationship between risk and return is often attractive there. Distressed debt instruments are financial instruments such as bonds and loans issued by companies or governments in difficulty. Claims on bankrupt companies also fall into this category. The Prism Investment Fund selects distressed debt instruments that – on the basis of the outlook at the time of purchase – are expected to deliver a return exceeding that of regular financial instruments. These investments are often of limited marketability. Distressed debt investing requires specialist expertise in law and restructuring. This is an under-researched market.

The fund will moreover invest in quality businesses that achieve a high return on invested capital over the longer term. As a result these companies generate better cash flow, which benefits investors. This is made possible by a strong competitive position. The businesses are expected to be financially sound, so that they can also keep their heads above water in a recession. The businesses selected are usually those in which management has also placed its own wealth, so that incentives are aligned with those of shareholders. Shares in these businesses are bought when the price is below the estimated intrinsic value.

The fund has a contrarian investment style, which means it does not follow general market developments.

When investing, the fund also looks for a ‘trigger’ that can cause the undervaluation to disappear. Such a ‘trigger’ may be, for example: a spin-off, a sale of a division, a restructuring, or an expected increase in earnings. These events can lead investors to look at the investment with a fresh eye and reprice it. Searching for ‘triggers’ has the advantage that undervaluations can narrow more quickly.