Fiduciary Management Inc. (FMI) maintains an investment philosophy centered on identifying and acquiring robust business entities trading below their inherent value. Their investment methodology mirrors that of a business proprietor, emphasizing a comprehensive examination of economic fundamentals and the intrinsic quality of companies. Recent strategic reallocations within their portfolio include the acquisition of Fluidra S.A., motivated by its substantial recurring revenue and favorable valuation metrics, and the divestment of Genpact Ltd., citing elevated uncertainties associated with its evolving AI-centric business model. These decisions underscore FMI's disciplined approach to portfolio management.
Detailed Insights into Fiduciary Management Inc.'s Portfolio Strategy
Fiduciary Management Inc., established in 1980 and headquartered in Milwaukee, Wisconsin, operates as an independent asset management firm. The firm's equity investment strategies are built upon a value-oriented discipline, characterized by a concentrated approach deeply embedded in fundamental research. As of March 31, 2024, FMI managed approximately $16.1 billion in assets under administration (AUA), with $15.8 billion in assets under management (AUM).
When FMI incorporates a new company into its portfolio, the initial position typically ranges between 2% and 4%. A recent significant addition was Fluidra S.A., a company that specializes in pool equipment and services. Fluidra's business model is characterized by stable revenue streams, with approximately half of its sales derived from repair and replacement activities, one-third from outfitting newly constructed pools, and the remainder from pool renovations. Despite broader economic challenges and tariff impacts on the pool industry, Fluidra's robust recurring revenue, appealing valuation, and overall resilience made it an attractive investment, securing an initial 1.7% position in the portfolio.
Conversely, FMI made the decision to divest from Genpact Ltd. Genpact, a firm dedicated to designing, transforming, and managing critical business operations through technology, had been a part of the portfolio. However, the ongoing transition of Genpact's business model towards an AI-driven framework introduced a wide spectrum of potential outcomes. This increased uncertainty, coupled with the availability of more compelling alternative investment opportunities, led to its sale from the portfolio.
The portfolio's current valuation reflects FMI's disciplined focus, trading at a forward price-to-earnings (P/E) ratio of 16.3x and an enterprise value-to-EBITDA (EV/EBITDA) of 10.9x. These metrics demonstrate a cautious and value-conscious stance relative to broader market benchmarks, aligning with their overarching investment philosophy of purchasing quality businesses at a discount.
The strategic decisions made by Fiduciary Management Inc. highlight a proactive and analytical approach to navigating market dynamics. Their commitment to deep fundamental research and a business owner's perspective allows for the identification of undervalued yet durable enterprises, while also ensuring timely adjustments when inherent uncertainties overshadow potential returns. This methodical investment process aims to optimize long-term value creation for their clients.