Investing in the stock market is a risky business, but the real risk is not knowing what you’re invested in. How you identify, mitigate, and manage risk is one of the most important factors when it comes to investing. This is a complicated dance: from the bottom up, stock specific risk needs to be understood, together with broader macro and top-down influences. It’s as much about identifying the stocks that will outperform as it is identifying the poor quality or unsustainable businesses that could severely affect your returns.

At Pie Funds, we’ve been investing for over 15 years, and we have developed a robust investment process for managing risk, based on 5 key principles. This process is especially important in uncertain economic times, and it helps us to identify areas of risk in our portfolios, reduce those risks where necessary, and helps us build resilient portfolios that can outperform even in challenging times.

These 5 key principles guide our investment choices:

Principle one: We love to see skin in the game

We invest like it’s our own money, because it is. Our staff, directors, and shareholders have over $120m invested (as at 30 April 2023) in our funds, which ensures risk management is at the forefront of our capital allocation. We love founder-led companies who share the same values, because they often have extra passion for the company that can give it an edge in the market.

Principle two: Fundamentals

We look at a companies fundamentals, and we engage with companies on their approaches and practices. We manage our funds in accordance with a robust risk framework to act in the best interests of our investors.

Principle three: We invest in people

When driving returns, it matters who drives. Sure, lots of people can drive, but only a few can race. We invest in quality businesses with proven management teams, and if the people change, we review our investments and exit if we need to.
It’s that important.

Principle four: We like to see tailwinds

The best sailboat is nothing without wind. For long-term wealth creation you need what’s next, so we work to find emerging leaders and get in early for the journey up. We’re interested in where the world is going, and the wind in your sails will take you a lot further.

Principle five: Set something aside for a rainy day

Make hay while the sun doesn’t shine. Much like you, we have something tucked away for a rainy day. We are long-term thinkers and are ready to act when we see threat or opportunity. We hold cash and use market hedging when appropriate.

As active management specialists, we stick to these principles when markets are up and when they’re down, too. Our investment team is always thinking about how the funds can adapt to the current environment and how we can generate long-term outperformance. We’re not fearful of risks; we endeavour to understand, manage, and minimise them. Our core investment objective, which has not changed since the company launched, is to find high-quality growth companies with strong balance sheets and great management teams.