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Commentary

Deploying Capital

Deploying Capital

Return on invested capital is central to our investment philosophy and strategy. The role of an active fund manager is to allocate capital under its control to the companies who will most productively utilise that capital. Productive use is generating returns on invested capital above the cost of capital with the latter being the average return that can be achieved from other available investments. Note the future tense here – past returns are a strong indicator of the potential to generate high returns in the future but it is the return on marginal capital invested that dictates the success of the investment along with the amount of capital that can be invested. The latter sets the future growth rate.

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