GQG Partners marks growth spurt despite downturn in active management

GQG Partners is on a growth spurt.

The firm, founded just 18 months ago by Rajiv Jain, has seen assets under management soar to $10 billion from initial seed money of $100 million.

GQG specializes in emerging market, global and international equities, the same active investment strategies that Mr. Jain oversaw at Vontobel Asset Management Inc. until his surprise departure as chief investment officer and co-CEO on Feb. 29, 2016. GQG was established four months later.

While his investment focus hasn't changed, his day-to-day experiences most definitely have, Mr. Jain said.

"It's a big difference working in a large firm vs. a small nimble firm purely focused on money management," he said. "When you own your own business, you can afford to take a much longer-term view about how to invest in the business."

As majority owner of Fort Lauderdale, Fla.-based GQG, Mr. Jain said he is able to set the firm's direction, including his plan to close GQG's emerging markets strategy to new investors when it hits $10 billion in assets under management. The strategy now has more than $3 billion in AUM. But he said he doesn't see that decision limiting the firm's growth because its international and global equity strategies do not have size constraints.

Mr. Jain declined to go into specifics of why he left Vontobel but said he could not see "eye to eye" with new management. No members of Vontobel's 10-member investment team made the move with him. A new, nine-member team of GQG research analysts provides a fresh perspective, he said.

"Too much stability is equal to stagnation; you need to bring in fresh blood from time to time," he said. "I was very comfortable not bringing anybody."

Mr. Jain also said did not want to hurt Vontobel and has no animosity toward his former employer. His decision to start fresh was not a reflection on the competence of his former team members, he said.

At his new firm, which primarily serves institutional investors, Mr. Jain is aiming to extend his benchmark-beating track record developed during his 20-plus years at Vontobel. For the 14 years he ran a global opportunities equity fund at Vontobel until his departure, the fund had an annualized investment return of 8.3%, according to Morningstar Inc. By comparison, the MSCI Europe Australasia Far East index notched an annualized 5.23%, data show.

At GQG, similar strengths are showing. For the year ended Nov. 30, the firm's global equity strategy composite returned a net 28.66% compared to its benchmark, the MSCI All-Country World index, which returned 24.64%, GQG numbers show.

The firm's international equity strategy for the same period returned a net 32.1%, compared to 27.58% for the benchmark MSCI ACWI-ex U.S. And the emerging markets strategy for the year returned a net 32.25% vs. the MSCI Emerging Markets index return of 32.81%.

Growing fast

GQG's rapid growth is unusual for a money manager, said Tim Barron, Chicago-based chief investment officer at institutional consulting firm Segal Marco Advisors, Chicago. "The firm's growth seems to be more like an internet startup than a money manager," he said. "That's pretty terrific success."

Mr. Barron said it's even more unusual that the growth is coming at a time when investors are pulling assets from active equity managers.

Mr. Jain said 40% of his clients at GQG are former Vontobel clients that followed him. Publicly traded Vontobel reported net outflows of $15.23 billion from Mr. Jain's former investment team — almost one-third of the total AUM, show company financial statements.

Among clients that terminated Vontobel were the $16.6 billion Illinois State Board of Investment, Chicago; the $3.5 billion San Jose (Calif.) Police & Fire Department Retirement Plan; and the $2.1 billion San Jose Federated City Employees' Retirement System.

One consultant who is recommending Mr. Jain and his new firm is Elliot Greenberg at Ellwood Associates, Chicago.

"We had been invested with Mr. Jain at Vontobel through a number of cycles, so we knew that he wasn't a one-trick pony," Mr. Greenberg said.

Many of the clients Ellwood advises that were at Vontobel are now with GQG, Mr. Greenberg said. He said Mr. Jain alone would not have been enough to attract new clients if the firm had not also built a strong leadership team.

The team includes Tim Carver, the former CEO of Pacific Current Group, which owns a 5% stake in GQG. Mr. Carver left PCG in April 2016.

"Rajiv can focus on investing and managing the portfolio, which is his bread and butter," said Mr. Greenberg. "We don't want him spending all his time worried about operations and compliance and things like that."

The two San Jose funds were among clients that moved to GQG. Jay Kwon, an investment officer for both funds, said the police and fire system in July invested $48 million in Mr. Jain's emerging markets strategy, while the federated system invested $28 million.

Mr. Kwon said the strategy does not hug its benchmark, the MSCI Emerging Markets index. He called that an advantage because the pension funds wanted a more aggressive style, given other more index-like equity strategies in their portfolios.

Against the herd

Mr. Jain's market bets can definitely be called contrarian when compared to the indexes he tracks. For example, GQG has an approximate 12% weighting to Russia in its emerging markets strategy, even though the MSCI EMI weight is less than 2%.

"Russia is super cheap for the growth it's getting," Mr. Jain said, arguing companies have cut costs and increased dividends since the U.S. and the European Union imposed sanctions following Russia's annexation of Crimea in 2014.

Mr. Jain also is willing to change his position. He was bullish on companies that manufacture consumer staple stocks at Vontobel, but now considers them overvalued.

"Everyone thinks they're safe," Mr. Jain said of consumer staple stocks. "Unilever, Philip Morris, Kraft, Campbell, there is a whole laundry list of names that are struggling to grow."

Mr. Jain said it's important to change one's market views as conditions change.

"The reason I have survived is you have to have the flexibility to move around as the opportunities change,'' he said. "As you know, a lot of people did bad in financials and they didn't know what else to do and they never recovered. They never got their mojo back."