Three primary characteristics differentiate the investment process at Arete Asset Management from processes at other investment management firms. First, we apply fresh thinking to everything we do. As an independent, emerging manager, we are not constrained by any of the legacies that affect many competing investment managers such as industry-based research organization, inadequate incentive compensation structures, and embedded soft dollar arrangements, among others. Essentially, we apply the research and analytical skills we have developed in the business to the business. We think about the best way to do things, we determine the best way to implement them, and then we do them, pure and simple.
A second differentiating characteristic of our investment process is our orientation to issues at the “margin.” Many, if not most, research organizations focus on accumulating information. While generating copious amounts of research may give superficial comfort to many, it often does very little to identify mispriced securities. The reason this is so is because most facts get discounted by the market relatively quickly and accurately. We believe this is an extremely inefficient way to conduct research. Instead, we focus our research efforts on issues at the “margin” which tend to not be discounted by the market as efficiently. By continuously prioritizing and re-prioritizing our research targets on the basis of which projects have the greatest opportunity to benefit performance, we believe we get more efficient production from our research resources.
The third main differentiating characteristic of our investment process is our focus on good decision making. Regardless of how well a process works, it doesn’t matter if the right stocks don’t make it into the portfolio. While we strive to make our research process wide open to all ideas, we believe the decision making process is executed most efficiently when one person is responsible for an investment strategy. We differentiate our decision making by having a long-term perspective, targeting a low turnover rate (20 - 40%), being patient, and being flexible. We also believe that by remaining independently owned, the decision maker for any product has has the freedom to focus solely on making the best investment decisions for clients unencumbered by other considerations.
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