The 2023 PAM NextGen Leaders is based on PAM Insight's experience and knowledge of who is rising to the top quickly, and why.

An open call is made for nominations to allow readers to suggest those rising stars they feel should make the list.

Factors taken into account included the reputation or performance of the company that the nominee works for, feedback from senior executives, trajectory of promotion/business development success and relative years of experience, and active involvement in promoting good organisational culture.

COO & General Counsel, Arbion, 14 years' experience

Kirin is chief operating officer and general counsel at Arbion. She embarked on her legal career as a trainee at KLegal – the former legal arm of KPMG.

Following qualification, Kirin joined McGrigors’ corporate team, where she focused on corporate tax re-organisations and private equity deals. Whilst at McGrigors, Kirin took on two secondments, the first at O2’s head office assisting their in-house legal team for six months, then later in March 2010 she was seconded to the newly formed investment office, Signia Wealth (now Arbion).

Following a successful stint as a secondee, only three years’ post qualification Kirin was then offered the role of head of legal at Signia. In 2015 she was promoted to general counsel and in 2019 she also took on the role of chief operating officer. Subsequently in 2021 she was appointed to the firm’s board as an executive director.

Kirin has worked closely alongside the management team to focus on three priorities which underpin long term growth: they implemented a new investment strategy, restructured to strengthen corporate governance and grew the top line. Having successfully met these three initial objectives the firm entered into a new and exciting growth phase, which Kirin has been key to implementing.

The latest phase has culminated in the recent management buy out at the end of 2022, which has allowed Carnegie, Greg and key members of the management team, including Kirin herself to become shareholders of the business.

Outside of Arbion, Kirin is a keen traveller and foodie and already has visits in the diary booked for America, France and Indonesia this year.

Arbion's COO and General Counsel, Kirin Ohbi, named as 2023 PAM NextGen Leader

Head of fixed income rates and co-head of multi-asset, Arbion, 12 years’ experience

Chartered financial analyst Robert has been the head of fixed income rates and co-head of multi-asset at Arbion for just over eight years.

He is also a member of the firm’s asset allocation committee for the multi-asset strategies, including setting strategic and tactical investment policy for the discretionary business and advisory channels.

Prior to that, he was the head of fixed income a Signia Wealth for five years. There, he was a portfolio manager and fixed income specialist directly responsible for Signia’s global fixed income strategies and associated client portfolios.

He was also a portfolio manager for Coutts, responsible for the management of advisory and discretionary client relationships running global multi-asset class portfolios for onshore and offshore ultra-high net worth clients, families and institutions.

His nominator said: “Rob believes in sharing his experience with colleagues and has been a mentor to many members of his investment team and wider company over the years, both in a formal and informal manner, always looking at ways to give back and help others grow and develop.”

Arbion's Head of Fixed Income rates and Co-Head of Multi-Asset, Robert Lee, named as 2023 PAM NextGen Leader

Interview #6: Marco Pabst shares his investment strategy, how he thinks about risk management, and his top ideas.

Welcome to investor interview #6. I’m putting together

to bring you diverse experiences and perspectives from other investors.

. Marco has more than 30 years of experience in investing and his team currently manages several billion dollars across equities, fixed income, hedge funds, and private investments. You can follow his thoughts or connect with him on

Hi Marco, thank you for taking the time to do this interview. Excited to have you here! Can you please tell our readers a little more about your background and also about your investment firm Arbion?

I started as an equity research analyst on the sell-side, working for a large German private bank covering small and midcaps, and then focused on European software companies, working for UBS in the late 1990s. After the dot-com bubble, I moved to the “buy-side” and joined a multi-family office in London in 2004.

We subsequently grew this business to just under $5bn and then sold it to Swiss private bank UBP - Union Bancaire Privee - in 2018. UBP currently manages around CHF 140bn 

However, over time I felt that our clients preferred working under a multi-family office setup and, therefore, I left the bank last year, having been their CIO in London and Chairman of the global equity committee of the bank.

At Arbion with a team of 30, we manage several billion dollars across equities, fixed income, hedge funds, and private investments for around 200 families worldwide. On the liquid side, our core business is discretionary multi-asset portfolios but we also run tailored fixed-income and equity allocations for clients. In terms of structures, we typically run managed accounts but we also have a range of funds.

Incredible. Congratulations on your success. Something we are always curious about while interviewing fund managers is how much of their own portfolio is with their fund.

As I run or oversee most of Arbion’s strategies, logically all my liquid funds are in investments that we also own for clients. If I identify what I believe could be an interesting idea for clients, why would I not also invest my own money into it? So, yes, all my skin is in the game.

That’s nice. What made you get into investing and what’s your investment strategy?

As a student, I started trading stocks and warrants of Japanese companies at the tail end of the Japanese equity bubble in the early 1990s as they tended to be mispriced, trading in Europe versus their home market. I then focused on European deep-value names before moving into what we call growth stocks today. Alongside that, in macro terms, I was in the market during the 1994 bond crash, LTCM, the Russian, the Asian crisis, and everything that followed.

So whilst my primary interest is in equities and credit, I also spend a fair amount of time looking at the bigger picture. This blend of macro and micro is what I find the most interesting, where everything comes together, not always but most of the time. As most people just focus on one particular area, they often ignore signals from others. Ignorance is every investor’s worst enemy.

Leaving the macro part aside, and whilst I don’t mind the occasional trade, I would consider myself a medium to long-term investor. If I can find the right business to invest in, ideally I would like to own it for as long as possible.

Given the number of market crashes and hype bubbles that you have experienced, what has been your best learning? Can you tell us a bit about how your mindset toward money and investing changed over the years?

There are many things that I have learned over time, and almost all of them are associated with mistakes I made. This led to an investment process that has elements of risk management at every single step even if it is not explicitly called risk management.

As a result of this negative selection process, there are many areas and strategies that I don’t spend much time on anymore, as the odds of success in them, at least from my perspective, are stacked against me.

I tend to ignore most things that are exotic, illiquid, looking too cheap, or overly complex. Similarly, I would not spend much time on industries that are highly commoditized, very complex to evaluate, extremely capital-intensive, have no particular edge, or have not shown any attractive sector economics historically. Typically, this includes mining, airlines, football clubs, biotech, most oil companies, banks, and some others.

This has narrowed my focus towards companies with defendable strong business models, that are not too cyclical, generate high returns on capital, are run by strong and incentivized management, and are not overly leveraged. Therefore, stable non-cyclical compounders are the ideal bedrock for a great long-term portfolio. Whatever the macro worry might be, the best names also tend to bounce back the fastest.

This led to another important learning which is that time in the market is much more important than trying to time the market, which is what many people appear to be attempting primarily. However, I would be lying if I said we don’t also look at timing aspects. There are pros and cons to it but I admit, that less is more sometimes.

I strongly believe that there is no growth without value and no value without growth. When I look at many companies today, including large tech businesses, I would find it hard to categorize them - hence I tend to skip this whole debate.

I believe most people who own stocks today are not very familiar with them. I am convinced that the average investor spends more time choosing a $3,000 TV set than a $50,000 stock investment. Hence, I am convinced that someone who reads the company presentation from the investor relations section is already ahead of 75% of his co-investors in that company. Annual and quarterly reports contain a lot of interesting details that help build a good mental picture of the business in question and this accumulated knowledge then leads to a much steadier hand, holding this investment hopefully for the long term. From that base of knowledge, it is then easy to expand into the broader sector and other competitors. As a result, the time I spend reading it is increasing every month.

Yes. We have also observed this time and again where investors go all in without doing adequate due diligence. Historian Cyril Parkinson coined a thing called Parkinson’s Law of Triviality that fits here perfectly. It states: “The amount of attention a problem gets is the inverse of its importance.”

So, what’s your research process like? What are some of the common red flags and positive signs when researching a company?

The size and scope of our investment universe have not massively changed over the years. There are just not that many good companies out there that are worth considering for investment. Hence, the process is more gradual now as we keep processing new information to inform an existing view.

The fundamental selection process is fairly straightforward and not too unique: we look for not-too-cyclical businesses with high and sustainable returns on investment and a strong position in their core markets. In addition, management and balance sheet quality are also important. I am not a fan of too much leverage, i.e. anything higher than 3x EBITDA typically. So far so good. 

What I then like to do is to look at the whole capital structure and see if there is any other interesting angle. For instance, in some cases, I start investing via selling out-of-the-money put options because implied volatility was temporarily very high for the stock for some reason. In several cases, this is how an investment started – with a short put that typically yielded more than 20-25% annualized.

Sometimes, we also approach an investment from the bond side only. Spreads could be attractive for some reason or occasionally we also find the odd busted convertible that pays an interesting yield and has the call option upside. As always, there are many ways to skin a cat.

Looking at the whole capital structure is obviously generally quite informative as it reveals what other markets are thinking about a company. Very often, one can find cases where the stock price is under pressure but credit is trading fine – a clear divergence. Conversely, a weak picture on the credit side but unfazed equity would be a major red flag in my books.

Aggressive accounting or accounting changes in that direction are also always a precursor for exiting a position. Frequent management changes are another.

On the other hand, insider purchases are certainly a positive as are conservative accounting methods and incentivized management. A strong R&D profile in businesses where this is important, strong cash conversion, and sector leadership are also key elements we are looking at.

Once we have identified our target investments, I like adding a somewhat contrarian angle to it and maybe this is where an element of market timing is entering the equation too. I like entering such positions when they are somewhat out of favor (after a profit warning or another otherwise short-term issue). Equally, I am rather a seller when something is in unusually high demand. This general approach is not limited to stocks.

A good example was Brexit Day – the day after the 23rd June 2016 Brexit referendum. The result of the vote was unexpected and domestic equities crashed alongside the currency. We were heavy buyers of these names on that day and the day after when many of them lost 30% and more during the panic selling. Buying when others were indiscriminately selling for little fundamental reason turned out to be an exceptionally profitable opportunity for us.

Two other more recent examples maybe to highlight this approach outside direct equities: In the third quarter of 2019, equity markets were riding high whilst the yield curve was inverting, signaling some potential trouble ahead. Because of the bullish equity environment, implied volatility was low, so I hedged the majority of our equity holdings at little running cost. The insurance premium simply was so low that it almost didn’t matter, creating a very asymmetric potential return outcome. Then, as the COVID pandemic broke out, we were almost fully hedged and performance benefitted accordingly.

Another important allocation decision and similarly contrarian was when I drastically reduced fixed-income holdings in the course of 2021. Yields at the time were still very low but started rising and the risk of increasing inflation and more hawkish central banks was on the horizon. This simply created an environment for investment-grade bonds where there was little upside and a lot of downside. The rest is history. After the bond crash of last year, we have built back a lot of exposure in the space as the risk/reward has completely changed: bonds are now a very viable alternative for investors vis-a-vis equities and they also have a hedging value again - providing protection when risk markets decline.

There is a lot of research on how index funds are beating active fund managers – Where do you think the need for active management arises? How do you think the fee compression affects the asset management landscape long-term?

I believe active management still plays a very important role in asset allocation, i.e. deciding what areas in the market a client should be focusing on and developing appropriate strategies for it. Risk management is also critical in that context, i.e. managing net exposures in equities, managing duration, and credit risk within fixed income as well as currency overlays.

Passive strategies and index funds play an important role in our portfolios, especially in equities, when we are just looking for ways to get liquid exposure to broader sectors or geographies without trying to pick the best companies.

Within fixed income though there is still tremendous value in active strategies and “bond-picking” as indices are almost always tilted to the fundamentally worst, i.e. most-indebted, issuers. Here, one can add substantial value for clients. Also, in contrast to funds/ETFs where one is typically exposed to more or less constant duration, I can easily design fixed maturity portfolios that match a certain event in the future and run down into cash over time.

Fee compression has been an issue across the board, from ETFs to hedge funds with discretionary strategies sitting somewhere in the middle. I believe this trend is unlikely to stop anytime soon although we are approaching some kind of floor, certainly for the more active strategies.

There simply is a certain cost associated with a very tailored strategy that requires constant attention by professionals and this needs to be reflected in a fair price. At current levels, I don’t think that the price is very high. For commoditized strategies which can effectively be run by a machine, costs will continue to be kept under pressure by competition.

More generally speaking, the broader answer is of course, that a larger scale is required. The threshold to operate a financially sustainable business in terms of minimum AUM today is several times higher than what it was 20 years ago.

Interesting. So, what are some of your favorite ideas on your radar now? (Long/short companies and industries) 

More thematically, the areas I spend a lot of time on now are:

Credit, where I believe, now is the time to build a solid investment-grade short to medium-duration portfolio to lock in the yields and spreads on offer. Credit selection is key here to avoid any names and industries that would suffer from a further contraction in lending or any potential recession.

I find myself a lot more active in options markets this year compared to last year, selling covered calls as well as buying index puts for protection or selling single stock options to build positions. Flare-ups in volatility across markets and names this year have been very supportive of this strategy.

We are beginning to spend more time researching stressed names, looking at the equity as well as credit - typically in areas that are under heavy fire at the moment. I would mention European real estate as an example. There are signs of indiscriminate selling here, irrespective of actual or potential fundamental risks. No doubt, there are huge challenges in the space but for the right price, I am getting interested. Generally, I like such disconnects.

We have also been looking at EM credit where I believe there are some pockets of value, particularly in LatAm.

Within equities, it is harder this year considering the macro setup where it is not clear to me if the recent inflationary pressures will lead us into a severe recession or not. In that sense, with stocks near their highs in many markets, the setup is less asymmetric than I would like it to be and the valuation buffer is also not there. As a result, we focus on more defensive, stable, non-cyclical names that would also do well in a weaker economic environment.

What is the biggest mistake that new investors make? What can they learn to save themselves a lot of pain?

They overtrade and focus on how many screens they need. I see little to no value in that approach. There are simply not that many successful traders out there, although social media would have you believe otherwise.

Like in any other profession, be it as a painter, musician, or dentist, you need to know what you are doing. There is no substitute for sitting down, reading, and doing homework. Investing is simple but not easy, as they say. There is a lot of wisdom in that. I think understanding how companies operate, who owns and runs them, and industries, competition, risks, and opportunities they are exposed to is absolutely critical. With time grows experience and investors make progress on their individual learning curve – and there is one for absolutely everybody in our industry, whether professional or private investor.

The key in investing, especially early on, is to preserve capital and only then grow it – not the other way around. Make mistakes but make them with insubstantial amounts of money. Budding investors should make sure their portfolios are reasonably diversified and they should start investing in well-known large-cap companies. Don’t put 100% of your money into an exploration start-up.

We totally agree. Warren Buffett once said that having a large amount of leverage is like driving

a car with a dagger on the steering wheel pointed at your heart.

What are some of the most underrated and overrated ideas in investing?

On a very generic level, I think complexity is overrated and simplicity is underrated. People get easily lost in details and don’t see the forest for the trees anymore.

When I look back at sources of returns, positive and negative, it is always only very few investment calls, on a security or allocation level, that really moved the needle in any particular year or quarter. It is obviously difficult to know in advance which ones will work out and which won’t but as un-analytical as it sounds, it was very often a certain conviction associated with a positive outcome. Instinct and conviction are closely related and fairly underrated. In the end, they are the subconscious result of all relevant experience and knowledge in a particular situation.

As an example, investment cases on many emerging market stocks fall into this category: I have seen so much perfectly logical and well-argued research on why certain Russian, Chinese or Brazilian large caps were tremendously undervalued - and I am not saying this with the benefit of hindsight. Although up until recently one could make a great pitch for these names, ticking many of the analytical and valuation boxes, there was this experience from how foreign investors are typically looked at in many emerging markets, the lack of a rule of law and shareholder culture plus a number of red flags that simply ruled out investments at any price.

Investing is difficult enough and in order to keep my life manageable, I found that working backward by eliminating as many options as possible early on, leaves me with a reduced set of desirable investments. In that sense, risk management is applied early on in the process and, in an ideal world, returns then take care of themselves.


What’s the best investment decision you have made? And one investment decision you regret? What led to them and how did they affect your process going forward?

There were not really any single decisions that dramatically moved the needle either way and this is intentionally so 

(maybe with the exception of certain risk-mitigating asset allocation calls as described above)

 - as I have always been striving to avoid an outcome where a single investment or theme would have a massive performance impact. I always look at things from a downside perspective first: What happens to performance or the portfolio if this investment faces an unexpected outcome? 

This is in the context of knowing that whilst we get over 70% of our investment decisions right, taking into consideration our time horizon, from the outset, I would not know if the stock I am buying at the moment, is in the 70% or the 30% camp.

More generally, I can say that the banking crisis this year came unexpectedly for me. I have never been a big fan of banks as they are really hard to properly understand and analyze. It is near impossible to read a bank’s annual report and get a good understanding of where the real risks lie. Having said that, I felt that rising rates in general would be supportive for the sector to return to some more normal profitability which would be beneficial for bank stocks that have been trading at very depressed valuations up until late last year. The events and subsequent outcomes around SVB and especially around Credit Suisse were somewhat surprising in that sense.

On the plus side, we have been holding several of the great compounders, especially in the large-cap tech space for many years which have contributed nicely to performance over time. This kind of exposure is the bedrock for por

I tend to think of portfolios as a constant exercise in risk management: Trying to eliminate risks early before they grow into something bigger. There is nothing worse than a permanent loss of a large amount of capital, so pruning these areas swiftly and unemotionally early on is the most important task. Focusing on trimming the left tail of return distributions should then ideally lead to an outcome where performance takes care of itself and where our long-term investments really have the place and time to compound.

What are some of the books or resources that you really love and would recommend to our readers?

- Schwager’s Market Wizards series is a must-read in my view for every practitioner.

- Sylvia Nassar’s “Grand Pursuit” is a great book on the history of economic thought.

“The Economics of Inflation” by Turroni is the best account of the German hyperinflationary period, somewhat topical these days.

- Homer & Sylla: “A history of interest rates” is also a must-have. The title says it all. Does not make for a riveting bedtime reading or great prose but the best book on the topic by a mile.

- Hayek’s “Road to Serfdom” is required reading for anyone vaguely interested in the direction of politics.

- Joel Greenblatt: “The little book that beats the market” is short but very inspiring for a beginner and focuses in simple terms on the two most important concepts for investors: profitability and valuations.

Arbion Investor interview with Marco Pabst.  Featured in Market Sentiment.

Luigi F V Bellini joins the firm as a shareholder of Arbion group as well as the head of Arbion's private capital and family board services division.

Christopher Johnson, Citywire Wealth Manager reports

Arbion Group has announced the appointment of Luigi F V Bellini as a shareholder.

Bellini will focus on heading the development of Arbion’s private capital and family board services division.

Prior to joining Arbion, Bellini was a partner at ACPI Investments Limited for over 11 years, where he led the family office and institutional business building strategic and tactical asset allocation for clients.

He also worked as a managing director at Bear Sterns for over four years, where he built the investment management business focusing on institutional and family office investors across Europe and Latin America.

Prior to this Bellini held roles at Credit Suisse First Boston and was co-head of UBS private banking division, leading the firm’s offerings in Italy, Monaco and Switzerland.

Carnegie Smyth, chief executive of Arbion, noted Bellini had ‘an abundance of experience’ in the private capital space.

He added: ‘His contribution both as a partner and forthcoming shareholder to the success of the Arbion group will be immeasurable.’

Last week, Arbion announced the hire of veteran senior manager Alisevket Karaca as a partner.

Karaca has been tasked with helping to develop the firm’s business strategy as it continues to restructure following its rebrand from Signia Wealth.

In his new role he will work with Arbion’s investment team, focusing on building client relationships.

Read the full Citywire article 

Arbion bolsters private capital division with hire of ACPI veteran.  Citywire reports.

Alisevket Karaca is tasked with helping to develop the firm’s business strategy as it continues to restructure following its rebrand from Signia Wealth.


Christopher Johnson, Citywire Wealth Manager reports
- 26 October 2022, 10:36

Arbion has announced the hire of veteran senior manager Alisevket Karaca as a partner.

Karaca is tasked with helping to develop the firm’s business strategy as it continues to restructure following its rebrand from Signia Wealth.

Karaca was most recently managing director at UBP for three years. Prior to this he held director roles at both ACPI Investments and Julius Baer.

He also spent 19 years working at Merrill Lynch covering private clients, family offices and institutions as an investment advisor and portfolio manager.

In his new role he will work with Arbion’s investment team, focusing on building client relationships.

Karaca joins CIO Marco Pabst, chief executive Carnegie Smyth and Greg Malone as a shareholder of Arbion group.

Arbion chief executive Carnegie Smyth said: ‘Alisevket’s is the latest in a series of senior appointments to the business and his forthcoming addition as a shareholder to the Arbion Group will be invaluable to our ongoing success.’

Marco Pabst also joined Arbion as its new chief investment officer this week, after spending three years as chief investment officer of UBP London Wealth Management.

He also served as a member of the asset allocation and global investment committees at the firm.

Signia Wealth rebranded as Arbion last week to accompany the firm’s restructuring, led by Smyth and his business partner Greg Malone.

Smyth said the overhaul would enable the business ‘to operate more effectively’.

In its most recent set of results for the 2021 calendar year, Signia reported a turnover 53% higher at £9.9m. It achieved a profit of £600,000.

Read the full Citywire article 

Arbion hires heavyweight to oversee business strategy.  Citywire reports.

Marco Pabst will take on the role of group chief investment officer at the firm, taking charge of Arbion's investment offering to clients.

- Christopher Johnson, Citywire Wealth Manager reports
- 24 October 2022

Arbion – formerly known as Signia Wealth – has hired Marco Pabst as it seeks to expand its asset management team.

Pabst, who joins as chief investment officer, spent three years at UBP London Wealth Management as its CIO. He also served as a member of the asset allocation and global investment committees at the firm.

Arbion chief executive Carnegie Smyth said Pabst’s appointment was the beginning of an expansion programme.

He added: ‘Marco [Pabst] is a major addition to Arbion and the appointment of such a high-calibre individual to this crucial role is a clear demonstration of our commitment to building a leading investment office.’

Pabst was previously the chief investment officer at ACPI Investments, where he spent more than 17 years. He also worked at Sal Oppenheim and UBS as an equity research analyst.

 to accompany the firm’s restructuring, led by Smyth and his business partner Greg Malone.

Smyth said the overhaul would enable the business ‘to operate more effectively’. In its most recent set of results, for the 2021 calendar year, Signia reported a turnover 53% higher at £9.9m, and a profit of £600,000 versus zero in the previous year.

Exclusive: Arbion taps senior private banker as investment boss - Citywire Reports

Our fixed income team reviews the building market stresses in the global banking sector that have culminated in the recent forced acquisition of Credit Suisse by Swiss rival UBS.

Arbion Talking Points for March 2023

, provides Arbion’s Investment Viewpoints for March 2023.  

- Quickly climbing rates are beginning to expose weak actors in the system.

- As liquidity is receding and real rates are rising, investors should keep their focus on strong short-duration assets.

- The market’s response to the current crisis suggests we are nearer to the end of the rate hike cycle.

- Higher rates and inflation are putting pressure on valuations and the absence of earnings growth does not help.

- Investor sentiment has been poor for some time which implies that potential downside volatility is likely to be limited.

Arbion CIO Viewpoints for March 2023

, provides Arbion’s Investment Viewpoints for January 2023.

- The worst year for a typical balanced investor on record ends on a low note in terms of sentiment.

- Current one-way consensus points us to another, contrarian outcome: A goldilocks moment in 2023.

- Inflation is bound to fall drastically this year, reducing pressure on markets and the economy.

- Valuations have largely adjusted to a new normal whilst economies are still robust, putting a floor under markets for now.

- Although the earnings outlook is fraught with risks, equities and bonds tend to do well in a disinflationary environment.

Arbion CIO Viewpoints for January 2023

, provides Arbion’s Investment Themes for 2023: 

Corporate bonds: The highest yields in over a decade in a dislocated market is a dream come true for bond pickers Sovereign bonds: Investors get paid a reasonable yield to hold high-grade bonds that also provide a portfolio hedge

Equities: In this environment, lower-beta and defensive stocks perform best, too early to chase growth 

Option strategies: Elevated volatility can be used to sell covered calls or sell puts to generate extra income for a portfolio 

Betting on the end of rate hikes: It is too early to turn bearish on the dollar but rate steepeners are attractive after the end of rate hikes 

Asset allocation: defensive: Long-duration assets suffer during periods of rising rates. Cash is an asset class with high option value

Arbion Top Investment Themes for 2023

Here's the monthly update from our investment team, focusing on the impact the recent turmoil in British politics has had on UK asset performance

We also look at performance across global equities, fixed income, commodities and FX markets

Click to read: 

Arbion Talking Points October 2022 - The Cognitive Dissonance of British Politics

Please click here for a downloadable version of our article titled: 

Long term investors do not look for companies that simply provide market-adjusted returns–they look for companies that generate excellent, and above all, 

, delivering above-average returns throughout the market cycle.

Value creators typically exhibit similar characteristics, such as deploying resources efficiently, and continually investing in whatever they require (R&D or equipment, depending on the industry) to grow and maintain their competitive advantage vis-à-vis their peers. This is what Warren Buffett refers to as the “moat”:

“The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles[1].”

We believe that Return on Invested Capital (“ROIC”) can be one of the most compelling financial metrics to identify value creators, as it measures a company’s ability to earn more than it invests in its business. ROIC is a powerful metric, particularly when used with the Weighted Average Cost of Capital (“WACC”).

ROIC serves as both a performance and a profitability measure, essentially to determine a company’s ability to use investor’s funds in order to generate real cash returns.

If an investor focuses on short-term returns, they may opt for the Return on Equity (ROE) ratio, given its emphasis on current earnings. Whilst ROE is a useful measure, it is far from comprehensive for the simple reason that it excludes 

Unlike ROE, ROIC can act as a good litmus test on a company’s financial health, given leverage is included in the invested capital component:

Return on Invested Capital (ROIC) = Net Operating Profit after Tax (NOPAT) / Invested Capital (IC)

Invested Capital = Net Working Capital + Net Fixed Assets + Net Intangible Liabilities

To that end, if ROE is significantly lower than ROIC, it can serve as an indication of highly levered company. Debt-laden companies are undesirable, especially in a rising rate environment, not just from a debt-servicing perspective, but for the ability of a company to invest, improve its efficiency and position itself for future growth.

the company is generating on invested capital, it doesn’t tell you the cost of running the company. To help ascertain the operating costs, investors will look at a company’s WACC that, like ROIC, also includes leverage.

A company’s earnings can, naturally, go through cyclical peaks and troughs, but a company whose ROIC consistently exceeds WACC over the market cycle is ultimately creating shareholder value, given that the growth exceeds the cost of running the company. Furthermore, if ROIC were to then increase over time, the company would continuously demonstrate its ability to capitalise on recent acquisitions and allocate resources efficiently, thereby compounding its profitability.

Another strategy, employed by Joel Greenblatt, is to make adjustments to the ROIC model by dividing EBIT by tangible capital – the latter preferred by Greenblatt as he deems it a better reflection of operating capital. Greenblatt uses tangible capital as debt levels and taxes can vary from company to company which can distort cash flows.

All measures have their limitations, albeit we see ROIC as less issue-prone than others. For example, if a company is competing in a series of individual markets, ROIC does not tell you exactly which segment is driving the returns. Share buybacks also reduce the invested capital component[2]. Depending on the type of industry, if there are any structural changes or significant disruptions, then ROIC may inadequately assess the impact on future earnings.

Moreover, ROIC is a trailing measure – so if a company were to undertake significant investments or acquisitions, then the impact of those investments may not be reflected in the company’s financial performance for quite some time.

In these circumstances, there may be short-term price dislocations which provides investors with the opportunity to invest in profitable companies at relatively attractive levels. Prices are also affected by short-term shifts in market sentiment and changes in the macro-economic outlook. These moments need to be capitalised on quickly, as value creators will typically trade at a premium, and “if a company’s share price already captures its prospects for sustainable value creation, investors should [only] expect to earn a market rate of return, adjusted for risk[3]”. Buying companies at a discount will help to maximise pre-tax gains.

“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return – even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.”

Another strategy, again as advocated by Greenblatt, is to identify companies trading at a bargain by looking for companies that have high ratios of EBIT relative to its enterprise value (“EV”), given that EV takes into account both the market price and debt used to generate the earnings.

Whatever variation, we believe that ROIC serves as an excellent guide, not only to determine the fundamental value of a company, but to acquire positions at a 

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[1] Warren E. Buffett, Linda Grant, “Striking Out at Wall Street”, U.S. News & World Report, June 12, 1994.

[2] Callan, B. (2006). Shareholder Value and Labour: Observations of an Industry Analyst. Perspectives in Work, 10(1), 9-10. 

[3] Mauboussin, M. & Callahan, D. (2014). Calculating Return on Invested Capital: How to Determine ROIC and Address Common Issues. 

Credit Suisse, Global Financial Strategies, 3-7.

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The material set out in this document has been provided for information purposes only and should not be construed as any type of solicitation, offer, or recommendation to acquire or dispose of any investment, engage in any transaction or make use of the services of Signia. Any reproduction or distribution, in whole or in part, or the disclosure of the content of this document without prior written consent is prohibited.

Value Creators

“The sillier the market’s behaviour, the greater the opportunity for the businesslike investor” (Warren Buffett, “The Intelligent Investor”, 2013)

Why adopting the “businesslike investor” mentality is key to long term investment success.

If the stock market disappeared tomorrow, would you feel confident enough to maintain holdings in today’s portfolio over the next five to ten years?

Every day, investors are bombarded with news and information that can cause them to second guess their decisions, or to chase trends and engage in activities that can be described as speculative. This is because, deep down, investors are hardcoded to capture gains and cut losses. This emotive drive can become particularly acute during periods of high uncertainty and volatility in stock markets. Succumbing to these impulses can lead to inefficiencies on multiple fronts.

Firstly, in questioning their underlying convictions, investors can make unnecessary tweaks to portfolios. This can lead to investors potentially pulling money out of the market too soon, thereby incurring unnecessary trading costs and potentially creating tax inefficiencies.

Secondly, engaging in speculative investments without appropriately assessing the risks either within the business or in the context of aggregate wealth can result in capital destruction. It is a downright gamble to simply hope that someone will pay a higher price in the future. One only has to look at the booms and busts of cryptocurrencies, ‘meme’ stocks or special purpose acquisition vehicles (SPACs) to see how damaging this can be for uninformed investors who are ill-equipped to deal with the ensuing volatility.

That aside, the unintended consequence of both actions is the interruption of the greatest facilitator of wealth creation: compounding.

“The first rule of compounding: never interrupt it unnecessarily” – Charlie Munger

Therefore, in an effort to preserve and grow wealth, individual investors can veer towards the very actions that can undermine capital creation.

One way to mitigate these impulses is to think like a 

 elements before turning to a company’s valuation.

 focuses on companies’ business performance, rather than on short-term factors that can affect stock market movements. Of course, it would be a fallacy to state that the current macro environment and outlook are not important criteria in assessing risks during the stock selection process, but what sets 

 aside from others is the focus on a company’s fundamentals rather than on noise.

Think of it this way; when it comes to placing money to generate capital returns or income, there should be very little distinction between deploying capital and buying a business. For example, writing a cheque to a local business that you only have partial ownership and no control over without (at least) seeing the balance sheet or meeting the staff would be totally illogical. Why, then, would you place money somewhere of equal (if not greater) risk without knowing the balance sheet, the management and the key competitive advantage of that particular company versus others? For many investors, the concept of business ownership is mentally divorced when owning a percentage of shares in a company but it is essential that this mindset be adopted when navigating global markets. The eventual outcome is that you will know exactly what you own.

Furthermore, by shifting attention to the underlying business, investors will naturally gravitate towards solid, well-capitalised, high-quality companies with solid cash flows that can survive current headwinds and market volatility while generating positive absolute returns over the market cycle. It just takes patience to assess the sustainability of companies’ competitive advantages in the long run.

Ultimately, the key to long term success lies in maintaining a disciplined approach over successive short-term periods. During bouts of market volatility, reducing equity market exposure as stock markets decline is, frankly, the opposite of what long-term investors should do. It is at these points that the 

 takes the opportunity to increase their stake in great companies at favourable valuations.

However, the topic of valuation, and the impact it has on long-term returns, has many nuances and really deserves a space of its own to address it properly.

At this junction, it is critical that you know what you own, given that increasing holdings in loss-making companies just increases your exposure and therefore your risk.

Would you be confident holding the companies in your portfolio today for the next five to ten years?”

 answering with either ‘no’, or, ‘not sure’ is not a palatable response for investors focusing on absolute performance and generating sustainable, long-term returns.

The Businesslike Investor

Manias, Panics, and Crashes.  A history of Financial crises.  

The Intelligent Investor.  The Definitive Book on Value Investing.

The Outsiders.  Eight Unconventional CEOs and Their Radically Rational Blueprint for Success.

The Innovator's Dilemma.  When new technologies cause great firms to fail.

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Marco Pabst, our recently appointed Chief Investment Officer, today announced the appointment of Matthew Barnes as Head of Credit and Co-head of Fixed Income.

With over 25 years’ experience in the industry, Matthew has invested across the credit spectrum in a wide variety of global bond issuers. Matthew is an active investor in both senior and subordinated bonds issued in a range of global currencies.

Commenting on Matthew’s appointment Group Chief Investment Officer of Arbion, Marco Pabst said:

“Matthew has an exceptional track record and our investment team will benefit greatly from the added experience that he brings. Arbion has assembled a hugely experienced and skilled investment team and we expect to continue on this growth trajectory.

Announcement of appointment of Matthew Barnes, Head of Credit and Co-head of Fixed Income

We're happy to announce the appointment of Dotan Lieberman as Partner and forthcoming shareholder. Dotan joins following our recent MBO headed by Carnegie Smyth and Greg Malone, and will work alongside the Management team to expand our international offering.

Carnegie Smyth, Chief Executive of Arbion said:

“Dotan’s appointment marks an important stage in our international expansion plans. With a strong track record and experience in leading international teams, Dotan is a significant addition to the Arbion Group and I am delighted to welcome him on board.”

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