Having an influence over the way a company is managed can deliver strong returns for investors, according to Francisco de Juan, managing partner and chief investment officer of the Alantra EQMC strategy.

He says this has been the secret to the success of many private equity ventures, but it is also an approach that investment managers can benefit from.

“This is why we seek to own around 20-to-25 per cent of a listed company so our investment is similar to private equity. We have influence in how a company is run, but without having control, which can lead to better investment outcomes in companies,” said Mr De Juan.

“This influence can be an accelerator to shareholder growth, with merger and acquisitions activity also potentially adding shareholder value too.”

He is looking forward to the opportunities in 2025, and says there is greater scope for merger and acquisitions activity in small and mid-sized companies that target global markets which could boost valuations this year.

He also expects an improvement in the valuations of small to mid-sized companies.  

“We are starting to see small-cap valuations in European equites rise, and we expect that these valuations could improve further if M&A activity picks up this year, especially if economic growth slows,” he said.

Significantly however, Mr De Juan does not invest in banks.

“The banking sector is highly consolidated and there aren’t many players in the small cap space to choose from. It is hard to assess banks on a cash flow basis, and as an investor, I want predictable cash flows and typically with banks, it is very difficult to assess the quality of their balance sheets as banks are not a traditional cash-flow investment,” Mr De Juan said.

“Nor do we invest in gold mines, real estate developers, commodity or biotechnology companies or in any sector in which we can’t easily predict cash flows.”

Instead, the fund favours several categories of investment: companies investing heavily in capital automation, industrial/technology, aerospace companies and other less cyclical sectors.

Boeing’s recent production problems, for example, have created opportunities for other companies involved in producing aeroplanes. “Today, people are flying a lot but due to Boeing’s production problems and the recent strike, global plane production has dropped. Before Covid, there used to be 1,800 planes produced each year but now it is around 1,300. Yet plane traffic is above pre-Covid levels. So, there is an imbalance between supply and demand. This is an area where we believe the production of planes will improve as demand for planes is exceeding supply,” he said.

Mr de Juan also likes companies in the healthcare, food and beverage, defence and technology sector with resilient business models. He also likes media streaming and content creation and movie production companies, such as Netflix and Amazon.

“Our investments meet strict value metrics, present opportunities for value enhancement and have management teams typically open to improving shareholder returns in the medium to long-term,” he said.

Alantra’s EQMC strategy is award-winning in the European, listed small and mid-cap space. The fund has an active ownership strategy, focusses on companies with global reach and has achieved double digit net annualised returns since its inception in January 2010.

“These returns are comparable to those you can obtain in private equity, but we believe we can obtain it with less risk.

“Our investment strategy targets seek quality at acceptable prices. We invest in public companies of up to €2bn market capitalisation with a global scope. This offers our investors access to an ample marketplace, with excellent underlying analysis and intelligence,” he said.

The fund has outperformed indexes by 170% to 220%+ as well as most hedge funds, with controlled risks while typically holding a small net cash position with no leverage. Its portfolio of 12 to 15 companies is managed by an investment team which is held to strict value metrics for the investments it makes.