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Selection criteria for entrepreneurs include a 10-15 year track record, strong alignment of interest, no potential for conflict of interest with other owned operations. The manager will also try to assess the motivation of the entrepreneur in order to identify their longer term objectives, i.e. whether the entrepreneur is primarily focused on maximising short term gains via a spin off / IPO, or trying to build a business over the longerterm.
Company criteria include a minimum free float of 20%, low debt levels and a current valuation which offers a low price earnings to growth ratio (PEG) of < 1.0. Positions are automatically sold when the PEG exceeds 2.
Portfolio diversification is achieved by type of entrepreneur (deal makers, turn around specialists, or business creators) and by ensuring that the portfolio companies source of revenues are not focused on any particular region of the world.
The fund will tend to be biased towards retail, consumer staples, consumer discretionary, media, boutique financials and technology industries, where entrepreneurial talent tends to be more prevalent. On the other hand exposure to utilities, integrated oil companies and banks will be small due to the limted number of entrepreneurs operating in these sectors.