The interview below is part of a series from the McGuireWoods Emerging Manager Program featuring impressive emerging managers. The McGuireWoods Emerging Manager Program supports emerging managers throughout the most critical stages of a fund’s evolution. It offers a differentiated and proprietary approach to connecting emerging managers with limited partners, providing intelligence on market terms and preferences, and advising emerging managers on all components of building a durable brand as an investor. To recommend an emerging manager for a future interview, please email the team at MWEMC@mcguirewoods.com.

Tom Molosky (TM): We focus on identifying and investing in undervalued companies that have publicly traded equity securities. We manage concentrated portfolios — 20 individual positions when fully invested in a separately managed account or a limited partnership format — and conduct rigorous fundamental analysis of those businesses. Speaking with the senior management of those businesses before we make an investment is a critically important part of our diligence process. At the end of the day, we believe people run businesses, and we want to make sure we understand where and how those people are driving the businesses.

Q: How did you think about assembling your team?

JP Geygan (JPG): Assembling the investment team is very much an ongoing process. Our strategy was born in 1987 when portfolio manager Jeff Geygan started in the industry, with that strategy developing in many ways over the ensuing 35-plus years. Around 2015, we started to think seriously about expanding the investment team and bringing in different perspectives.

In 2017, we opened an office in central India, where we currently employ two associates. They bring a number of skills to our research table, but one that’s particularly notable is they bring a different worldview — a non-Western worldview — which helps us synthesize information through a different lens and understand global developments that could affect our portfolio companies in ways we might not understand through a strictly Western perspective. They are studious people who not only do a lot of data aggregation for us but who are actively involved in the investment process from cradle to grave.

We currently have three research team members in the United States. All five of the investment committee members meet daily. Besides evaluating investments and portfolios, we talk about broader ideas, like how we think about the world and risk, and even how personal experiences can change or color our process.

I think everyone who has come and gone from the investment team — and there have been a few changes over the years — has left a mark in a positive way. We have learned a lot from each other and, as a result, our process has evolved quite a bit as we bring in fresh perspectives.

Even in periods where we don’t have new people added to the investment team, we challenge ourselves to think about things differently. From an intellectual point of view, it’s almost akin to expanding the team.

TM: When adding members, we don’t want wallflowers. We want people who have an opinion, are willing to voice it and are willing to back it up with facts and figures. This expectation forces a constructive dialogue amongst the team as we seek to identify our best ideas.

Since we run concentrated portfolios, we only have 20 positions we’re looking to identify and hold at a given time. We want to make sure there’s a vigorous debate internally before committing capital. Someone who just sits there doesn’t add value to our overall process. That’s what we’re trying to drive: value for our clients and for ourselves.

Q: What were the most important considerations for you when choosing clients to pursue for partnership?

TM: They must understand and value our research process. We focus on rigorous fundamental analysis of individual businesses. Philosophically, we have to be aligned around the fact that this matters. If they wholeheartedly believe in efficient markets, we’re not going to be a fit because they don’t see where there could be a value-add there.

Ultimately, a client needs to believe that price greatly matters. There are many companies we would love to add to our portfolios, but if they are not priced attractively, we’re going to hold off. We don’t need to always be 100% invested. This allows for times of opportunity where we can more fully allocate the portfolio at prices that are attractive and make sense. If a prospective client were to come to us and say the mandate is for us to be 100% invested at all times, we would say that, looking at our historical track record, we’ve been very well served by raising cash when the market is at a higher point and where we feel companies are overvalued. When these factors coincide, and we have available cash to redeploy during these periods of elevated price volatility, we can invest at far more attractive valuations.

In addition, having that cash on hand allows us to be opportunistic when making purchases, which typically occurs during times of uncertainty and negative price pressure. This strategy has served us well over nearly four decades. Some clients understand that, and some don’t. For the latter, it’s best not to get started in the first place.

JPG: We’re not a fit for everyone. We’re looking for clients who understand what we do and give us latitude to execute our strategy in a nimble and opportunistic manner. I think all our clients have come to appreciate our approach to managing money.

Q: What did you consider and prioritize when developing an investment strategy for your initial fund?

JPG: I think our investment strategy has been highly iterative. There are only a few basic criteria for our investments. The company needs to publish regular audited financial statements, we need to have access to senior management, and we need the ability to buy and sell the security of the company. This means we have a large investment universe consisting of many U.S. listed companies and many companies listed outside the United States, as well as all the companies in the world that meet our criteria but are not listed somewhere.

Beyond that, there’s a checklist of approximately 80 different criteria we look for throughout our due diligence process. The most important is the potential for the investment to provide a requisite return. We measure our investment performance on a security-by-security basis to hold ourselves accountable. When we sell investments, we know which have worked out and which have not. When something works out, we study it to figure out where we got the thesis right and how that played out. When something doesn’t work out, we study it to figure out where we went wrong and resolve not to make that same mistake again.

Even over my tenure at the firm, the investment process has evolved in a rigorous and significant way. I expect the investment process will continue to evolve as the world around us changes and the realities of investing in public companies continue to evolve as well.

TM: One thing we don’t talk about much but is essential to us is the use of the checklist process to help expand and adjust our strategy over time. As things positively or negatively impact the portfolio, if we identify a factor that can strengthen our investment process, we will add it to our checklist. That way, for any new investment, we will be covering the factor on a go-forward basis.

Many of our clients truly appreciate that our checklist is evolving because they want to know we’re evolving and learning over time. If there were mistakes made in the past, we’ve ingrained something in our process to try to avoid those in the future. When there are positive developments, we try to identify more in the future.

Q: With emerging manager programs on the rise, what do you foresee with respect to LPs’ willingness to invest with emerging managers?

TM: As we look out across the universe, we find advisers and institutional investors clamoring for unique, bespoke strategies that aren’t just an index. They usually have that area of their portfolio covered, and their clients are asking them for more. They want something that goes beyond what some adviser down the street can offer and what they’re often being sold on a day-by-day basis.

We found that if you have a unique strategy that’s concentrated, LPs enjoy this as it makes what we offer different from a general fund that’s available to the market. Our focus on 20 individual positions, deep research and targeting companies where we can have conversations with senior management before committing capital and throughout our holding period makes us unique compared to other offerings. I think the sky is the limit in that regard.

I think there will always be institutional investors looking for that next strategy, especially considering the area where we tend to focus, which is smaller companies. Plenty of managers have been capped out by too much asset raise. Investors are always looking for another place to put their capital, but they want it to be a unique strategy.

JPG: We run a pretty small strategy, so it allows us to look at a lot of investments that are simply too small or too lightly traded for larger managers. Since we’re concentrated, we can focus our effort on a small number of those often-overlooked or significantly mispriced securities. Our portfolios end up looking quite a bit different than many mutual funds in that we’re more concentrated. When clients look at the list of our holdings, they tend to recognize maybe one or two of the 20 names. The reason is we search high and low across the globe for interesting companies in which to invest and companies where there is a discrepancy between price and value that suggests outsized returns over a long investment time frame.

Q: What is the best piece of advice you were given when raising your first fund?

JPG: Part of whatwe do to hone our investment discipline, on company-specific and philosophical bases, is talk to and listen to other managers. One piece of advice stands out to me. This person said, “As a value manager, you need to cling to your discipline, with your fingernails, if necessary.”

We’ve gone through times where it’s been difficult to be a value manager — where we’ve had underperformance relative to headline indices, not that we manage to headline indices. We get calls from clients who question what we’re doing. Every time we’ve departed from our strategy or discipline, even in the slightest way, we end up regretting it. We’ve learned over a very small subset of departures — none of which, if my memory serves me correctly, has been a complete failure — that you must draw a line in the sand and decide never to cross it. We’ve done a good job institutionalizing our processes to make sure there’s no mission drift, and we don’t depart from our DNA as a manager.

TM: On the client side, I would echo JP’s statement. We’ve talked to a number of managers who are a little bit longer-tenured in their career about what they thought as they were getting started and what they wish they would have reflected on and maybe held dearer. One of them said you need to stick to your ideal client — since those individuals and firms are more likely to be long-term partners — versus trying to take every asset that someone might want to offer you. This is hard to do when you’re smaller because every little bit matters. But at the end of the day, you want people who believe in you and your strategy, as opposed to those shorter term in nature. Focusing on your ideal investor will serve you much further in the long term.

About JP Geygan

JP Geygan is chief operating officer, senior vice president and portfolio manager at Global Value Investment Corp. (GVIC), a value-oriented investment research and advisory firm. GVIC invests in public equity and corporate debt securities from issuers across sectors and geographies, building concentrated positions and adopting a long-term investment horizon. Geygan’s responsibilities at GVIC include oversight of GVIC’s initial and ongoing investment due-diligence process, portfolio implementation and designing various legal and activist strategies employed by the firm. Geygan is also involved in formulating and disseminating the firm’s thought leadership on topics such as investment philosophy, capital allocation and corporate governance.

Prior to joining GVIC in 2017, Geygan held various roles with Wells Fargo & Co. He holds a B.S. from the University of Wisconsin.

About Tom Molosky

Tom Molosky is vice president of advisory at GVIC. His responsibilities at GVIC encompass overseeing all of the firm’s current and prospective institutional client relationships as well as marketing efforts for the firm.

Prior to joining GVIC in 2014, Molosky worked at JPMorgan Chase & Co. in its private bank. He holds a B.S.B.A. from Marquette University.