Prospero's investment objective is to provide our investors with high net compound annual internal rates of returns, primarily in the form of long-term capital gains. Though flexibility is essential, our investment focus extends over a number of years. Prospero's management has extensive experience running a variety of portfolio strategies. The current fund, Beaumont, is the combination of three separate strategies (long only, long/short, and market neutral) that were successfully deployed in the past. By aggregating the three, Prospero has created one fund that utilizes the successful aspects of each strategy in order to generate superior returns. In doing so, Prospero is better able to concentrate on identifying promising long and short positions while utilizing its hedging expertise to alter the overall market exposure of the fund. Through this strategy, Beaumont targets a return of 11%-13% per annum, net of fees and expenses. Prospero Capital also strives to minimize income tax burdens by investing in companies with the potential for long-term growth and then holding those positions for several years.
Prospero adds value at each step of the investment process, from sourcing, analyzing and monitoring investee companies to ultimately deciding when to exit an investment. By adhering to the stringent criteria listed below, Prospero consistently disciplines its positions. This enables us to concentrate on compelling opportunities while quickly ruling out companies that do not fit the model.
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Long Investments
Prospero follows a highly-differentiated investment strategy focused on investing in growing companies that have the potential for superior value generation. In doing so, the fund specifically targets companies with:
- strong customer loyalty
- recurring revenue business models
- sustainable competitive advantages
- high cash returns on invested capital, and
- excellent management teams
Most companies cannot meet these exacting criteria. Those that do, however, have the potential to create substantial value for shareholders. Prospero invests in such companies, but only when the stock is trading below its intrinsic value and when that value is likely to increase significantly over the next several years. Identifying such dislocations from intrinsic value not only generates higher returns but also provides significant downside protection. -
Short Investments
Prospero's Beaumont Fund also deploys short selling strategies using individual securities. The value of these holdings increases as the underlying stock price declines. Prospero strives to find companies that lack the five characteristics above and that are trading at prices above intrinsic value. Doing so provides additional downside protection vis à vis the long positions.
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Exit Strategy
The strategy for exiting a position is just as important as the initial decision to invest. The factors that lead Prospero to sell an existing position include:
- the market value of a security approaches or exceeds its intrinsic value
- a change in management or the sale of the company
- a change in business strategy that causes us to lose confidence in a company and its management
- concerns that the company's competitive advantages are likely to erode in the future, and
- the need to deploy capital towards more compelling investment opportunities
Prospero expects to hold most of its investments for three or more years.