27 Jan

EPIQ Partners Annual Letter

We are thrilled to report on 2013, our first full year as an investment advisory firm. We sincerely thank our founding partners for believing in us and sharing our vision for EPIQ Partners and what is possible when it comes to personalized investment management. 2013 was an affirming year. What began as a concept late in 2012 now has a solid infrastructure and investment process to deliver the best of what is possible for our clients. We have grown our client base purposefully and assembled an advisory board with members who have a wealth of knowledge and expertise.  We are fortunate to have their guidance to help steer our growth and strategic direction.

Over this short period, we benefitted from strong U.S. equity markets led by healthcare (especially biotechnology), financial and technology sectors. In general, small- and mid-sized growth- oriented businesses were all the rage while investors in high quality, fixed-income investments were challenged to recognize a positive return. We took advantage of pockets of opportunity, and identified attractively priced securities issued by companies with strong cash flows and balance sheets, resulting in solid returns.

 

 

As fundamental investors, we believe having a strong investment policy is key to building success. As we look at potential investments of any type, we answer 3 initial questions:

  1. Do we understand the 'what' and 'how' of a company's value-added product or service?
  2. Is the business properly financed?
  3. Do we believe the right people are managing the business?

Numbers one and two are fairly objective and in today's connected world, detailed and reliable data is readily available. The third one is far more subjective and difficult to handicap for a variety of reasons, but is what makes the "invest/not invest" decision interesting and challenging.

At EPIQ, we have confidence that we are partnering with effective management teams in favorable industries that operate their companies well in both up and down market cycles. We gain additional comfort as we review how key decision makers and organizations have performed in the past. These periodic evaluations give us perspective and guide us to determine the merit of a current or potential investment.

The due diligence gained by answering these three questions offers us information to evaluate our direct investments. Over time, as hands-on equity investors, we believe we are building our portfolios with positions that will be rewarded with increased value.

When it comes to deploying capital in lower-risk, credit investments, 2013 proved challenging. Nevertheless, we are pleased with our results and positioning. We continue to build portfolios with securities that have shorter duration and prudent credit exposure.  In the period ahead, we suspect that we will look at 2013 as a transitional year for the bond market. The U.S. experienced the final stages of a measured decline in interest rates that lasted a generation and was extended over the last five years by unprecedented intervention by the Federal Reserve. The result: for decades now, bonds have generally returned more than their stated coupon and unless interest rates turn negative (where you pay the bank instead of getting paid for your deposits), these returns can't continue forever.

As the Federal Reserve embarks on 'tapering' which is the process of reducing open market bond and mortgage purchases, we suspect that interest rates will eventually move higher in real terms and compensate buyers for future inflation expectations. Longer term, this is a very healthy sign for both stock and bond investors.

In short – stay the course and be vigilant. Expect fluctuations and take risk where it can be assumed. Have a plan and revisit it often. Make your story EPIQ.

Feel free to contact us as we look forward to continuing the conversation.

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2919 Knox Avenue South, Suite 200
Minneapolis, MN 55408

612.843.4800 office

EPIQ Partners is committed to building long-lasting relationships

Our managing partners believe client intimacy and professional advocacy are what makes this firm special and different from other investment firms. We bring a partnership approach to all of our relationships.

We offer a retainer-based, fee-for-service model to ensure the highest level of transparency and alignment.