Decades, not quarters: Why Bay Capital the leading India focused investment manager believes in patient investing

“Our favourite holding period is forever,” investing legend, Warren Buffet once said when explaining his investment philosophy. It’s a sentiment that echoes with Bay Capital Partners, a leading independent, India focused investment manager that believes in ‘patient investing with a focused approach’ to investing. The asset manager manages several funds and special purpose vehicles.

“We invest the way we want our capital to be managed - with the utmost care. Hence, we are shareholders alongside our investors. The overreaching philosophy is to protect capital and always keep our investors’ interests ahead of our own,” says Siddharth Mehta, Founder and CIO of Bay Capital.

Founded in 2006, Bay Capital Partners’ predominant focus is on public investments in India. Based across Mumbai, Singapore and London, they manage money for both European and North American institutional investors, with around 90 percent of their money coming from institutional North American investors.

Bay Capital raises money on a quarterly basis and will continue to raise money to scale their evergreen public markets fund. 90 percent of their book is invested in India. Their public market fund is open-ended and they have a couple of private vehicles which they have used in the past for their legacy private deals.

Patient investing with a focused approach

Investing with patience may be an investor’s greatest ally. Conversely, a lack of it could be their worst enemy. Similarly, Bay Capital Partners appraises a business from an owner’s mindset and prefers managements who think in decades, not quarters. Expanding on the firm’s approach to investment and how it creates value for its investors, Siddharth said, “The fund aims to achieve positive absolute returns over the long term with a strong focus on capital preservation. As a result, the portfolio does reasonably well during favourable markets while limiting downside during volatile periods.”

The asset manager typically looks for ‘great businesses’ - companies with sustainable high Return on Capital Employed (ROCE) and impeccable corporate governance standards and sponsor history, available at reasonable prices. They also favour depth over breadth - only public equities and concentrated portfolios of 15-20 businesses. Their focus on 20 percent of the market allows them to avoid noise from 80 percent of the market.

They also don’t believe in trading much, preferring the power of compounding through long term holding and low turnover (5-20 percent). This has positive implications for expense ratio and for long term taxable investors.

The Bay Capital India Fund: leveraging the power of compounding

The Bay Capital India Fund (BCIF) is a culmination of decades of experience of the Bay Capital team in Indian financial markets. BCIF invests exclusively in publicly traded securities in India and aims to deliver consistent compounding returns by investing in a portfolio of companies that are market leaders with moats incredibly difficult to breach. They believe in an ‘equity yield curve’ where returns increase with time and therefore seek investors who share their belief in the power of compounding.

Speaking about the capital they manage, the average holding period and turnover, Siddharth says, “We manage about half a billion dollars across our various funds. The Bay Capital India Fund is the primary investment vehicle which follows a buy-and-hold philosophy. Therefore, the average turnover in the fund’s portfolio is less than 10 percent since inception with a holding period of eight to ten years.”

The factors that attract them to a company

When it comes to picking their investments, the firm looks at companies with the potential to generate high return on equity (ROE), have highly scalable opportunities, and are focused on catering to the needs of the Indian consumer.

“In an environment where the cost of capital is high, we place a lot of trust in high ROE businesses, in free-cash-flow companies which are debt-free, have dominant positions and a competitive advantage that is hard to replicate,” adds Siddharth.

The Bay Capital edge

Bay Capital Partners’ has to its credit, one of the largest and most experienced research teams with over 100 years of cumulative experience for a single country fund in India. Their on-ground presence in India enables intense research and in-depth due diligence. They also ensure that they are continually focused on risk and seek views which are against their thesis to avoid mental bias.

Last, but certainly not the least, they seek to engage with the management of their portfolio companies by highlighting areas of concern and providing differentiated insights. This constructive approach not only helps them build strong businesses but also strong relationships with their businesses as well.