Activist investment manager Teleios Capital somewhat stands out from the competition.
The hedge fund manager, which invests in European small- and midcaps as a long-term investor that works alongside management teams for positive change, has just celebrated the 10th anniversary of the launch of its first fund, which it has now reopened after more than five years.
It’s celebrating with about $1.2 billion in assets under management, according to a filing with the SEC. Just over 20% of global hedge funds have over $1 billion in AUM, according to data from HFR.
A big differentiator is that more than 70% of its investor base commit their capital to a four-year lockup period — something that co-founders Igor Kuzniar, also CIO, and Adam Epstein highlighted as being unusual in the space. More than 70% of investors committed to that lockup period are U.S. endowments and foundations.
“That is very rare for an investment strategy that focuses predominantly on public markets,” Epstein said in an interview at the firm’s London office. “We had to build the business in such a way that it was aligned … with our LPs. These are investors that understand time arbitrage … (and take) a view to be partners for extended periods of time.”
The lockup period “benefits us because, to execute this strategy with integrity, we need that kind of a capital commitment,” Epstein added. “Four years is long enough to deter the flightier investors who are not going to support us to engage with companies over the long term.”
The firm typically holds 10 “chunky" positions in companies that may have been poorly managed and need help to realize their full potential, Kuzniar said in the same interview.
Those “chunky” positions give Teleios the power to work with companies to improve governance, allocation of capital and better business strategies, he added.
They closed the hedge fund to new investments in 2018, in the “context of putting investors first. We wanted to ensure performance before we decided to grow further. We have very carefully expanded individual by individual,” Kuzniar said, explaining that the team has grown from its four founders to 17 across Switzerland and the U.K.
The team stuck to that commitment to clients “very rigidly. We didn’t take more money during COVID because we didn’t believe we were ready. And now we believe we are,” Epstein said. “What we have certainly learned is that building out the team, processes, applying that good governance and process-oriented philosophy (that’s applied to portfolio companies) inwards is absolutely integral,” Epstein added.
Teleios executives declined to comment on performance, but a source familiar with the firm said it finished 2023 with 20% gains and has delivered 4% in annualized alpha gains. Cumulative net returns since inception totaled 165% as of Dec. 31, the person said.
While the firm prefers to remain behind the scenes as it works with management teams and boards of directors, the executives outlined a number of success stories, including work with Icelandic food processing company Marel, which in January received an offer from Chicago-based John Bean Technologies that valued it at $3.9 billion. The takeover offer expires on Nov. 11. It also facilitated PepsiCo’s acquisition of SodaStream in 2018 — the investment delivered a more than 420% return.
Company approaches
Teleios’ publicly disclosed holdings include Irish housebuilder Glenveagh Properties, U.K. greetings card retailer Card Factory and Polish logistics company InPost.
Companies “do increasingly” come to Teleios seeking their backing, Epstein said, which he added “reflects the care that we take in developing the reputation in the marketplace …(as a) shareholder and a partner for those companies, that behaves as a long-term business owner would.”
That reputation is clearly important to Epstein, Kuzniar and the rest of the team — and, as such, executives also spend time on educating clients, prospects and the wider market.
“It is sometimes important for us to debunk our craft vs. the U.S. paradigm,” Epstein said. “Certainly, shareholders have a view that is heard and respected in a different way (in the U.S.) … But nowadays, I would say (there’s) too much bemoaning of European capital markets that they’re somehow lacking in risk appetite, growth mindset.”
For Teleios, “that is an opportunity that we can do something about — and that task begins with us as owners: minority owners, but we take that very seriously. We take time to understand how these businesses can be more commercial, (promote) sustainability and longevity, and (have) the smartest people round the table,” Epstein added.
And the fact that private equity is increasingly focused on European smidcap companies “I think adds another dimension of value creation optionality for us,” Kuzniar said, whether that is protecting company independence, helping firms whose continued independent existence is “predicated on change,” or where company units are better owned by another firm.
“If you can support these companies to get their houses in order, there is no reason for them to go private,” Epstein added. “That is the silent killer of these European companies: These boards who are presiding over a managed decline. There’s not a huge fraud (or problem), but a lack of impetus to pursue a more ambitious course of action,” Epstein said.
