Archipelago Partners

22 Pages·2014·0.62 MB·English

by  Felipe Borschiver

Archipelago Partners
AN INTRODUCTION

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Archipelago Partners is a Brazilian equity investments company with a very long-term
horizon. We manage a single concentrated portfolio of listed companies in the few sectors
in which our operating background and the Archipelago Network provide us with an edge.

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We are long-term value investors. What makes us different?
The Invisible Matters
We deliberately overweight the qualitative and subjective matters that financial models are usually not able to capture.
People Lead, Financials Lag
People's decisions and behaviors build and destroy businesses over time. Our analysis of the future returns of any business is people-
centric: capital does not allocate itself.
True Partners
We help our invested companies' shareholders, board members and business leaders to address the strategic long-term issues that really
matter.
The Archipelago Network
The collective intelligence and experience of our network of business leaders and board members improves our research and adds value to
our invested companies.
Asymmetrical Concentration
Wars are asymmetrical or reckless. So is investing. We focus on the few companies and sectors in which we have asymmetrical analytical
and network edge.

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About Us
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Archipelago Partners is a Brazil-based equity investment boutique. We focus on managing our own money and serving a few qualified
institutional investors and family offices with a very long-term horizon.
Our research is people-centric. We believe that the most important things you can learn about a company in order to gain investment perspective
are not to be found within our 4-walls, but in the frontlines of each business, where the real action takes place. Accessing and organizing this
knowledge is the essence of our investment process. For that, we turn to the Archipelago Network: a group of business leaders, board members
and long-term investors that share a passion for improving their investing and business skills. These are relationships that we have cultivated
throughout our lives and that make us better individuals and investors.
We manage a single strategy, long-only fund of listed equities concentrated on our very best (up to 12) investment ideas in the very few sectors
where we have investing, operating or board experience: namely consumer goods, retail, IT-enabled services and selected industrials.
We are absolute-returns oriented. We can and will actively raise cash and patiently wait when we don’t find enough attractive investment
opportunities. We don’t let any artificial benchmark interfere with our work: we ignore market indexes and short-term “performance” rankings,
keeping track of our performance in rolling 60-month windows (using 36 months as a lead indicator). We offer fund terms aligned with our long-
term investment horizon, encouraging the right clients to self-select.
We are only interested in fighting asymmetrical wars. We focus strictly on companies in which: a) our frameworks/mental models, our network
and our operational/investing experience can provide us with a clear analytical advantage; b) we sense the opportunity to co-create long-term
value together with their leaders.

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About Us
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We don’t believe in “buy and hope”, thus we take an active, strategic role in our investments. We help our invested companies’ key people
(shareholders, board members and top executives)address the few strategic issues that matter, drawing on our experience and the Archipelago
Network. We go beyond the typical activist toolkit: financial public relations, one-off cost cuts, opportunistic spin-offs and special cash dividends.
From sales and marketing to organizational structure and talent management we are ready to help.
We believe quality is the ultimate margin of safety. Even though we take an active investment stance, we invest in dominant high quality
“compounding” or “cash machine” businesses with solid balance sheets and return drivers we understand. We don’t like wishful-thinking
turnarounds or strictly asset-backed investments of poorly-ran businesses.
In buying shares of these great companies at reasonable prices, we capitalize on the market players’ misperceptions and misunderstandings. We
benefit from the fact that many market participants have short-term horizons, a short-term oriented client-base, misaligned internal incentives
and lack an understanding of many of the real-world nuances of the businesses they invest in. Quite a few also don’t understand (or simply don’t
care about) the critical role played by non-financial factors that significantly influence future cash flows and returns of the businesses they buy,
such as: a) their key people and governance systems, b) their “invisibles and intangibles” such as culture, organizational structures, tacit and
explicit internal incentives, brands, and business systems.
Finally, we are process makers, not takers. We deliberately design the way we consume information in order to protect us from a few of the key
behavioral biases that haunt all investors. We built our information supply chain in order to help us consume more information that we pull from
the sources we want when we want, rather than noise that is pushed to us (and everybody else) through the usual channels.

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Our Purpose: Why We Exist
One can say that at a functional level we exist to significantly compound our clients’ wealth together with our own over long periods of time
without taking big risks of permanent loss of capital. Fair enough. Still, we understand our role in the world more broadly.
We want to change the way people think and experience equity investing: a claim on long-term business value creation, not a financial casino.
We want to challenge the short-term thinking and misalignment that permeate both the business and investing realms, as well as the profound
and widespread misunderstanding about investing and its risks.
We want to influence the current and future leaders of our invested companies with our values and principles, so that they focus on the long-term
health of their organizations, taking into account the interests of all relevant stakeholders.
We are about joint long-term value creation, not opportunistic exploitation.
We want to inspire and help companies and leaders raise their self-awareness level and performance standards while being perceived as a true
strategic partner, not a “necessary evil”. We focus less on financial engineering and short-term results and pay more attention to people, culture,
organizational structure, strategy, marketing, sales, business systems and capabilities development.
Ultimately, we are people-oriented. We exist to help the people and companies within our social ecosystem – the Archipelago Network – discover
and achieve their full potential. We at Archipelago Partners, start by being highly committed to help each other achieve our goals and live
meaningful, interesting and balanced lives.

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Values
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The 8 values that underpin our behavior

Generosity
We start by understanding and empathizing with the people in the companies we invest in. We take the lead in building and nurturing long-
term relationships: going first, regardless of reciprocation.
Imagination
Reflection is under-rated. We think for ourselves and don’t take any data or concept for granted: we adopt a radically inquisitive mindset. We
challenge every now and then our closest-held assumptions. We leverage multiple disciplines, experiences and mental models for insights
and perspective. We listen to the Archipelago Network.

Simplicity
We avoid all unnecessary complexities and focus on the few things that matter most.

Clarity
We are candid. But we don’t mistake it for rudeness. We over-communicate: each of us is responsible for the other party’s understanding.
Sharp synthesis is even more important than deep analysis.

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Values
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The 8 values that underpin our behavior

Humility
No one knows everything. We listen and build upon the ideas of others. We acknowledge and learn from our mistakes. We challenge our
own premises: only the intellectually honest strive in our business. We pay due respect to Mr. Market.

Achievement
We focus on the things that matter most and deliver on all commitments. We aim for best-in-class and don’t settle for less.

Mastery
Each of us is committed to self-improvement and domain expertise. We look for our genius zones and invest relentlessly in perfecting our
craft. We are aware of our partners’ and collaborators’ strengths and weaknesses and work with them to improve our group performance.

Prudence
To finish first, you must first finish. We select and ponder very wisely all the risks we are willing to take. We prepare thoroughly and diligently
– months and years ahead. When assessing evidence, we look for hard data and be mindful of its source. We are creative on fathoming risks
and yet pragmatic to weigh them wisely. We are bold enough to wait. We have patience to wait for the few asymmetrical “no-brainer”
investment ideas.

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Alignment
Our commitment to each other and our investors
No bonus, just equity
Team members are rewarded with gradual equity changes for building knowledge and a sustainable network in companies and sectors within our
focus, not for making short term calls.
This prevents opportunistic behavior and unproductive bonus discussions, while keeping everyone focused on the long term sustainability of our
investments.2. We believe in deep, meaningful relationships.
Our own money invested and reinvested
All of our partners have a substantial part of their wealth in Archipelago. Our portfolio is managed to reflect our intended holdings, rather than a
mere ‘product’. We believe that investment conviction and financial interests must always be linked.
Long-only, long-term equities
A diversity of strategies pushes managers to focus on the highest grossing products, leaving many shareholders unattended. Multi-strategy
managers trade perspective and insight for scalability. We don’t.
Executive partners only
All partners are deeply involved in the business and the investment process (selection and value adding).
Long-term clients
The Fund's features are designed to self-select clients with a very long investment horizon and no short-term cash needs, which keeps both sides
of our "balance sheet" aligned.

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Principles
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Our 9 principles that define our conduct
1. We are a principles-based investment company
We do what is legally, ethically and morally right irrespectively of how we are formally and informally rewarded. Our choices are coherent with our
values, purpose and strategy. When in doubt, we always follow the more conservative approach.
2. We believe in deep, meaningful relationships
We genuinely care about the well-being of our clients, business partners, co-workers and the companies in which we invest. We believe it is our
mission to help people, companies and institutions achieve their full potential financially, socially and intellectually. We proactively develop and
cross-mentor one another.
3. We believe in collective action, not in stars or divas, and come to better answers as a team than as individuals
We support each other. We are a “One-Firm” firm, with no silos and no “brilliant jerks”. The Archipelago is a network of relationships – inside and
outside our 4-walls. We believe that to find, nurture and coordinate its collective intelligence is immensely more powerful than to rely mainly on
our internal team IQ.
4. We are real economy investors, and not financial wizards
We believe great businesses governed and managed by lucid, honest, competent people, are the world’s most powerful wealth and productivity
linchpin. Owning shares in a few of these exceptional companies for long periods of time is one of the most rewarding investments one can make.
Still, perfect companies do not exist: we aim at finding and helping out the very few that can become great investments. Margin of safety is so
much more than the supposedly objective price-value discount you pay at entry.

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