“The future is never clear, you pay a very high price for cheery consensus, uncertainty is actually the friend of the buyer of long term values”

Warren Buffett
The word partnership plays a critical and we believe differentiating role in our business. We believe very firmly in the concept of “eating our own cooking” and will at all times have the majority of our money invested in the fund. Furthermore it is a partnership between the investee companies and us
The fact that we have the whole world to choose from is an asset not a hindrance. Due to our concentrated nature we need not hold hundreds of stocks but have the flexibility to select only the very best available and are not constrained by geographical or benchmark boundaries

Fountainhead Partners is a specialized Global Equity Fund backed by anchor investor Reinet. The fund investment committee consists of myself - Andre Cillie, and two Reinet directors, Mr Dillie Malherbe and Mr Eloy Michotte. The fund is specialized from a concentration perspective and will as a result have higher short term volatility; we however do not equate volatility with risk. Our definition of risk is losing money.

Fountainhead Partners was started in response to what we saw as inefficiencies in modern day portfolio management, which prevents investors from achieving superior long term returns. The most important among these is the markets fixation on performance measurement over 3, 6 and 12 month periods. Secondly, diversification- relative rather than absolute performance focus. Lastly, moral hazard, that comes from investment managers allocating investors capital differently from their own.

Our core philosophy revolves around the following points:

1. Preservation of capital first and foremost, through the rigid application of the concept of margin of safety. For a stock to be included in the portfolio it must trade at price/intrinsic value (P/V) of less than 0.6. If the conservative assumption is made that intrinsic value grows at 5% per annum and the price reverts to intrinsic value over a 5 year period this will provide a minimum 15% compound annual return over the holding period.

2. We concentrate our capital in our best ideas (at all times we will hold between 5 and 20 companies, we currently hold 9). Our stocks have the highest margin of safety from a quantitative perspective and the companies are of the highest quality from a competitive standpoint, produce superior returns on capital and have management teams with long term track records of shareholder value creation. We strive to buy companies where the interests of management and the shareholder are directly aligned.

3. We take a minimum 5 year view on our stocks, which allows us the luxury of buying excellent value. These stocks are normally over-looked by the market due to its short term focus.

4. Our focus is absolute return in nature, as is our fee structure. Our hurdle rate is 4% per annum, above that we share in 20% of the profit. Having an absolute return mind-set ensures that we do not fixate on what is doing well in any given index and rather on what we believe will provide the best long term returns. We only share in the upside if we compound partners' capital in real terms. If we cannot find investments that meet our min 15% p.a. margin of safety target we will not invest capital and remain in cash until we find investments that meet this crucial requirement.

5. We believe firmly in the concept of "eating our own cooking". The fund is our only investment vehicle and any performance fees generated will be reinvested in the fund.

Raising capital was initially very difficult due to our insistence on adhering to our above core philosophies, unlike the current asset management industry. We decided that we needed a partner that shared our views on investing and there was really only one candidate, namely Reinet. We are honoured that they became both our partner and anchor investor. This allows us the opportunity to build the fund in a way that does not compromise the principals listed above.

We are currently 100% exposed to large cap US companies, which provide terrific value for investors willing to take a long term view. The fund trades at a P/V of 0.28 and will produce returns well in excess of our minimum hurdle rate of 15% p.a.