Melbourne-based AFM Investment Partners has taken Microequities chief executive Carlos Gil’s funds boutique under its wing and is making institutional introductions, hoping to tap into funds’ momentum towards diversification.
Microequities has two funds, the oldest of which, the Deep Value Microcap Fund, was launched in March 2009.
Seeded with only $500,000, the fund is now around $30 million in size and has returned 31.05 per cent over the last 12 months. It is a concentrated long-only fund, comprising not more than 20 stocks at any one time and with a five-year investment horizon.
“We are value-based investors, but also see ourselves as co-business partners,” says Carlos Gil, a former Ord Minett broker who says he has been fascinated with the small-cap sector ever since he was inspired by high-school economics.
“Our ideal investment is one that never gives us a reason to sell. We’d love to own the business indefinitely.”
The Microequities universe comprises stocks with a market capitalisation of $250 million or less. Businesses must have a proven business model and have shown a minimum of two years operating profits.
The resources sector is excluded, because Gil says he has no specific “value to add” there, although mining services companies are included.
“We get to know the company and its management very well,” says Gil. “We visit them all the time and like to maintain our investments and watch them grow with the company. Because it is amazing how many brilliant entrepreneurs are out there in the small-cap space.”
Nothing if not optimistic
One example of a Microequities investment is entrepreneur Jason Ashton’s wireless company Big Air, which has gone from a market value of $6 million to around $90 million in the last three years.
So far, Microequities has taken no more than a 10-per-cent stake in any of the companies in which it invests, but this might change if institutional funds start to flow in. Currently there are around 60 investors in the two funds, and the minimum investment is $50,000.
Gil says his firm is not geared up to handle a large number of clients, but he is hopeful that institutional allocations might drive some significant growth. He is nothing if not optimistic.
“I think now is the right time in the evolution of our business to try and take it to the next level,” he said.