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By Andrew Macken
At the beginning of this year, Jon Gray, COO of alternative asset management giant Blackstone was in discussion with Nicolai Tangen, who runs the world’s biggest pension fund, the Norwegian Wealth Fund.
Gray said something really interesting.
He was explaining how Blackstone had evolved over time when he told Tangen that Blackstone had moved from being “classic value investors” that could invest in anything to a high-conviction investor looking for “better businesses in better places”.
Under its new guise, Gray said Blackstone spends a lot of time trying to answer the questions: “What are the areas of the world that we believe are going to get better? What’s a good neighbourhood?”
We found this interesting because Gray’s words could have equally applied Montaka’s own evolution over the last decade.
We, too, have moved beyond simply valuing assets, to identifying and investing in exceptional businesses operating within thriving sectors undergoing significant, often underappreciated transformations – ‘good neighborhoods’.
Of course, detailed valuation continues to underpin every investment decision we make. But we’ve found, as Blackstone has, that by narrowing our focus to advantaged businesses within large transformations, probabilities of more reliable growth over longer periods of time are higher.
And this means probabilities of higher future investment returns for Montaka’s investors.
Below we look at two particularly good neighborhoods and highlight how Montaka’s investment process has uncovered investment opportunities.
Good Neighbourhood 1 – Riding the Structural Shift in Alternative Assets
The first ‘good neighborhood’ is the alternative asset management industry. We are seeing a powerful wave of new investor allocations to alternative assets driven by three structural tailwinds:
- The structural growth in Asian wealth combined with increasing allocation to alts in the region;
- The structural growth in US$85 trillion global private wealth allocations to alts; and
- The increasing strategic partnerships between insurers and alts managers, which unlocks access to manage the US$30+ trillion assets of the insurance industry.
This confluence of factors will drive growth within the alternatives space, with industry assets under management forecast to grow from US$13 trillion (2023) to US$30 trillion (2034).
However, not all alternative asset managers are created equal. We don’t just want to buy into the best neighbourhood but also buy the best house on the best street.
We applied a rigorous filtering process to identify the firms most likely to ‘win’ in this expanding market.
Blackstone and KKR emerged as standouts.
Both possess the unique combination of exceptional brand recognition, a long history of strong performance, substantial scale, access to best talent and deals, and robust distribution networks.
Having identified these promising candidates, we subjected them to further scrutiny, rigorously testing their valuations and assessing their risk profiles. This involved detailed financial modeling, valuation analysis and scenario testing.
Our analysis continues to show that both Blackstone and KKR represent attractive investment opportunities because they offer a compelling combination of substantial growth potential for acceptable risk.
Good Neighbourhood 2 – Enterprise digital transformation
Another ‘good neighborhood’ ripe with opportunity is the structural trend known as “enterprise digital transformation”. This is the unstoppable transformation that is taking place in the IT systems of substantially all companies (and governments) around the world – including their ongoing migrations of workloads to the public cloud.
Companies need to become more cloud based in order to unlock productivity gains and valuable insights from their internal datasets – especially in the age of AI. Security, scalability, and outsourced R&D are many of the other advantages that come with evolving towards a more cloud-based technical infrastructure.
Today, 80-85% of enterprise workloads still reside ‘on-premise’ – many of which will ultimately move to public clouds.
These dynamics are driving a 5x uptick in the addressable market for public cloud services from 2024 to 2030, according to Goldman Sachs as illustrated in the chart below.
The supply chain of companies leveraged to enterprise digital transformation, however, is vast and complex, encompassing everything from chipmakers to cloud computing platforms to enterprise applications.
To navigate this landscape, we again employed a meticulous filtering process:
- We began by identifying the companies participating in the enterprise digital transformation ecosystem.
- We then evaluated each company’s competitive position, focusing on factors such as economies of scale, barriers to entry, technological leadership, network effects, and customer relationships.
Our goal was to identify the companies best positioned to capitalize on this transformative trend over the long term. This yielded a select group of exceptional companies, including ASML, Nvidia, TSMC, Amazon, Microsoft, Alphabet, ServiceNow, Salesforce, SAP, and Guidewire.
Finally, we subjected these companies to rigorous valuation and risk assessment. This involved in-depth financial and valuation analysis.
Our analysis revealed that Amazon, Microsoft, Alphabet, ServiceNow, and Salesforce currently offer the most compelling investment opportunities within this dynamic sector. These five stocks balance growth potential with acceptable risk.
As with Blackstone and KKR, all five opportunities uncovered in the enterprise digital transformation space are in Montaka’s portfolio today.
Driving long-term performance
At Montaka, we believe that the most significant investment returns are generated by investing in the best businesses in the best neighborhoods.
These neighbourhoods are benefitting from powerful, long-term structural trends that are often underappreciated by the broader market.
By combining rigorous fundamental analysis with a deep understanding of these transformative forces, we can uncover exceptional investment opportunities.
Our investments in alternative asset managers like Blackstone and KKR, and in enterprise digital transformation leaders like Amazon, Microsoft, Alphabet, ServiceNow, and Salesforce, exemplify this philosophy.
We are confident that this approach will continue to drive strong investment performance for our clients over time.
Note: Montaka is invested in Blackstone, KKR, Amazon, Microsoft, ServiceNow, Alphabet and Salesforce
Andrew Macken is the Chief Investment Officer with Montaka Global Investments. To learn more about Montaka, please call +612 7202 0100 or leave us a line at montaka.com/contact-us
Podcast: Join the Montaka Global Investments team on Spotify as they chat about the market dynamics that shape their investing decisions in Spotlight Series Podcast. Follow along as we share real-time examples and investing tips that govern our stock picks. Click below to listen. Alternatively, click on this link:
