OUR STRATEGY
Providing a Focus on Fundamental Analysis and Active Portfolio Management
We focus on delivering sustainable yield to our clients through our disciplined, research-driven investment process. We believe security selection and active management in corporate credit is key to capturing alpha.
Our Investment Philosophy
Our objective is to generate superior risk-adjusted returns or Alpha. To us, Alpha is not jargon or a buzzword. Alpha is defined as providing a yield per turn of leverage significantly higher than the indices that represent our asset class. We tend to find this alpha in off-the-run or “orphaned” credits that are sized below $600 million. In our opinion, many of these companies possess ratings that are not reflective of their true fundamentals as we believe rating agency algorithms over-weight the importance of the size of a company as measure by sales or market capitalization.
At Gateway, we mathematically measure alpha as yield per unit of leverage. We believe rating agency algorithms over-weigh the size and longevity of corporations which creates opportunities for active credit investors. This philosophy helps us generate the highest possible returns for clients like you.
Our Security Selection Process
We are cashflow-based lenders looking for companies exhibiting low leverage, excess liquidity, and credit metrics we believe will allow for a refinancing of the security we invest in. We are industry agnostic and our focus is on the future credit health of the business regardless of size or history. We are most interested in the future free cash flow generating ability of these companies.
Our belief is that a business that can generate a true economic profit after all expenditures (free cash flow) creates a margin of safety for our investment. While EBITDA (Earnings Before Interest, Tax, Depreciation, and Amoritization) is a useful comparative valuation tool, it is not cash flow. We define free cash flow as cash from operating activities less capital expenditures measured over a cycle.
While this process by itself is reasonably common among value investors, our competitive advantage lies in sourcing, analyzing, and acquiring mispriced securities. Our objective is not to avoid risk but to manage and price it effectively.