Chris Davis

Ken Feinberg

Target Manager Allocation: 33.33%

Size of Company: Mostly large companies

Stock-Picking Style: Blend

Through their research process, Davis and Feinberg seek to identify high-quality companies with sustainable business models that can be purchased at a discount to their estimate of intrinsic value. They believe the evaluation of company management is critical, and they and their research team spend considerable time conducting on-site visits to management teams as part of their research process. Davis and Feinberg believe that high-quality companies are evidenced by some or all of the following characteristics:

First-Class Management: proven track record, significant alignment of interests in business, intelligent allocation of capital

Strong Financial Condition and Satisfactory Profitability: strong balance sheet, low cost structure, high returns on capital

Strong Competitive Positioning: non-obsolescent products / services, dominant or growing market share, global presence and brand names

Davis and Feinberg seek to invest in companies exhibiting some or all of these characteristics at attractive prices and then hold them for the long term. Positions are built strategically when companies can be purchased at strong discounts to intrinsic value. They consider selling a position if they believe the stock market price exceeds their estimate of the intrinsic value of the company, or if they believe the risk of continuing to hold a company's stock outweighs the potential reward. Manager bio.

Peter Langerman

Philippe Brugere-Trelat

Target Manager Allocation: 33.33%

Size of Company: All sizes and global

Stock-Picking Style: Value

Langerman and Brugere-Trelat work closely with the Franklin Mutual team of research analysts who employ a value approach to investing that seeks to invest in securities selling at a substantial discount to their intrinsic value, taking into consideration, among other factors, the ratios of price-to-cash flow, price-to-free cash flow, price-to-earnings, and price-to-book value. Franklin Mutual considers companies of all sizes, although most of its investments are in mid- and large-sized companies. Franklin Mutual determines what a company would be worth if it were put up for auction and sold and then seeks to invest in companies at significant discounts. Consistent with this value approach, Franklin Mutual generally invests in three areas: (1) cheap stocks based on asset values, (2) arbitrage, and (3) bankruptcy situations. Investments in the latter two categories do not necessarily track broader market moves and, therefore, may tend to mitigate volatility in overall performance.

Franklin Mutual's research process is bottom-up, with new ideas often coming from news about a company such as corporate restructurings, spin-offs, tender offers, 13D filings and proxy fights. Franklin Mutual also analyzes companies whose share prices have suffered significant declines for reasons such as earnings disappointments and adverse legal judgments. After identifying a new investment possibility, Langerman, Brugere-Trelat and the analysts engage in intensive fundamental research of the company, which often includes meetings with company management, visits to facilities, and discussions with competitors and others knowledgeable about the business. In addition, Franklin Mutual sometimes takes an activist approach in its investments to try to influence management to create value for all shareholders.Manager bio.

Frank Sands, Jr.

Michael Sramek

Target Manager Allocation: 33.33%

Size of Company: Mostly mid- and large-sized companies

Stock-Picking Style: Growth

The team believes that over longer periods of time, stock prices track earnings growth. The investment objective is to identify companies that can sustain above-average earnings growth relative to the broader market, typically over the next three to five years. The team believes great investment ideas are rare, and runs a concentrated portfolio of high-quality, seasoned, growing businesses across an array of attractive and growing business spaces. Grassroots research—bottom-up and company focused—is the cornerstone of the team's investment process. All research analyses and conclusions are internally generated using a variety of internal and external data sources.

The team seeks to identify the potential leaders in attractive business spaces. To identify such companies, the team evaluates six key factors:

• Sustainable above-average earnings growth. The goal is to identify the key drivers of revenue and earnings growth that will allow a company to grow faster than the broad market for at least the next several years. The team generally invests in companies that have at least 15% to 16% annualized growth.
• Leadership position in a promising business space. The team looks for companies with large and preferably growing market share. These companies typically achieve greater profitability than their peers.
• Significant competitive advantage/unique business franchise. The team looks for companies with pricing power and significant barriers to entry. Simply put, the team seeks to identify companies with moats to protect the business franchise.
• Clear mission and value-added focus. The team examines management's historical ability to execute business plans and evaluate customer feedback. The team prefers companies with an independent board of directors, a low percentage of stock options going to top management, the CEO's salary aligned with shareholders' interests (not excessive), and conservative accounting practices.
• Financial strength. The team prefers companies with little or no debt, prudent use of leverage and rising levels of cash. The team frequently expects to see increasing return on invested capital over the period of time Sands Capital invests in a business.
• Rational valuation relative to market and business prospects. While the team focuses its work on the business aspect of potential portfolio companies, it also pays attention to valuation. When adding new companies to the portfolio, the team is willing to pay a rational price, often a perceived premium. Over time the team tends to ignore short-term stock price movements and rarely, if ever, sells an investment in a company based on valuation alone.

To determine whether a company meets these criteria, one or more members of the team build the investment case. The investment case includes a proprietary detailed earnings model, an explanation as to exactly how the company meets the six criteria listed above, the key metrics by which the company can be measured, the outstanding/unresolved issues relating to the company, and the hypothetical sell case for the company. This information is shared with the rest of the team, and a vetting process ensues. The vetting process can last from several weeks to several months, during which additional questions are asked and answered, and additional information is gathered. After all outstanding issues are resolved, and with significant input from the team, the final investment decision is made. Manager bio.