The investment process for Heard Capital LLC (the "Firm") is anchored in deep, fundamental analysis. The Firm invests in a concentrated and long-term manner with the belief that the Firm’s best ideas should not be diluted. The Funds typically hold 15-20 positions at a given time with an average holding period of five years or more.
Key elements of the Firm’s investment process include:
- Debate-Driven Idea Generation: The Firm’s idea generation process is driven by sector or company-specific debates occurring in the market. The Firm leverages its team’s 15+ years of experience investing across six sectors to analyze actionable debates and identify the company best positioned to address the questions posed in the debate. Debates can stem from a variety of sources, including secular trends or corporate events. The Firm does not run screens or take a relative value, generalist approach.
- Unit-Based Analysis: The Firm analyzes opportunities utilizing a unit-based approach, a process by which each component (or unit), of a business is analyzed and key metrics are identified. This approach allows the Firm the identify and quantify value creation opportunities within a company and how they may or may not persist over the long term. By breaking a company down to its units, the Firm is better able to anticipate and contemplate challenges posed by the market, therefore allowing the Firm to focus on the most important vectors within the debate.
- Elimination of Confirmation Bias (Premortem Analysis): The Firm actively engages in discussions with market participants with opposing views to its own, including research analysts, short sellers and sector specialists. Through these discussions, which occur during investment due diligence and continue throughout the investment horizon, the Firm seeks to eliminate confirmation bias and ensure it has considered all sides of a debate.
- Integrated Risk Management: Risk management is integrated into the Firm’s investment process and occurs at the position and portfolio levels. Risk management begins with security selection and continues throughout the investment horizon. Before capital deployment, the Firm analyzes quantitative and qualitative risks associated with a position and seeks to eliminate confirmation bias (as noted above). Throughout the investment horizon, the Firm leverages its risk frameworks to manage portfolio and position-level risks.
- Focus on Driving Outcomes: The Firm’s experience and track record allow it to engage in meaningful dialogue with research analysts, sector specialists and management teams when it deems necessary.
- Emphasis on Expression: The Firm analyzes various instruments during its portfolio construction process, selecting those which most effectively allow it to express its views with conviction. Throughout the investment horizon, the Firm will continue to dynamically manage exposures to ensure its views are expressed efficiently and its position sizing reflects conviction.
- Data Centric Analysis: The Firm takes a rigorous and systematic approach to analyzing and understanding its decisions across all aspects of the investment process, including security selection, exposure management, position sizing and position exit. Through the continuous analysis of historical situations, decisions and outcomes, the Firm is able to identify drivers of alpha and create frameworks for the future.