By Tom Bradley

Last week I met with Edinburgh Partners Ltd (EPL), the manager of our Global Equity Fund, on their home turf. Here are the highlights.

The Firm

EPL has been in existence for almost 7 years and has been very successful. They manage C$11.4 billion for corporate, government and mutual fund clients. It’s a credit to their team and long-term record that they’ve been able to attract many blue chip clients, including a number of pension plans in Canada. To control their growth and ensure a proper transition for new clients, however, EPL recently closed for new business. They aren’t near maximum capacity, so I would anticipate they’ll reopen later this year or in 2011.

In step with their success, they’ve continued to invest in the business by adding experienced people (I met two of the new hires) and enhancing their risk management and IT systems.

Big Picture

Sandy Nairn, the founder and CEO, said that it’s not useful to have one economic theme right now. The world is out of sync. Developed countries are burdened with debt, have challenging demographics (in some cases) and are focused on stimulating economic growth. Their monetary aggregates have not expanded because the banks haven’t been lending. The less developed / emerging economies on the other hand, are well financed and in a position to continue growing at above-average rates. They are more concerned about inflation and have been trying to dial down the expansion.

As a result of this dichotomy, the EPL team is cognizant of where a company’s revenues come from. For example, Carlsberg, a fairly new holding, is based in Europe, but its growth and profitability is tilted toward the emerging markets.

European crisis

Without coming across as unconcerned or cavalier, my sense is that Sandy and the team feel that the crisis is overblown. Certainly the debt problems are serious, but Sandy does not see Spain being in jeopardy and the issue around Greece is its “competitiveness” more than its debt. For Greece to become more competitive, such that it can support its debt load and a reasonable standard of living, it may need to find a way to devalue its currency – i.e. bring back the drachma. How else can they make a 25% pay cut palatable?

The Fund

So far, the crisis hasn’t triggered any changes to the fund’s holdings. EPL felt at the outset that the global economic recovery would be slow and bumpy, and the portfolio is structured with this in mind. While the team wishes they owned “one less European bank”, they don’t want to sell any at current levels. As for buying, the team has been more focused on Japan and the U.S. than Europe, although that may change with the weakness of the last few days. EPL is always quick to jump on opportunities when they arise. There are no committee meetings or world-wide conference calls to schedule.

Despite all the turmoil, EPL is still projecting attractive returns for the portfolio (which obviously improve with every down day) and are maintaining a balanced approach, which means the fund isn’t tilted towards any one theme or economic factor. This is in contrast to their cautious stance in 2008 (when the portfolio was heavily weighted in health care, telecoms and cash) and more aggressive positioning in 2009 (when they acted on opportunities in the emerging markets and within the technology sector).