Q:  What is the history of the company and the fund? A : Beck, Mack & Oliver LLC was founded in February 1931 by T. Edmund Beck and Lewis Mack. Peter A Vlachos founded Austin Investment Management, Inc. in 1989 and started the Austin Global Equity Fund on December 1, 1993. In April 2009, Beck, Mack & Oliver LLC acquired Austin Investment Management, Inc., which included the Global Equity Fund. On June 24, 2009, the Fund name was changed to the Beck, Mack & Oliver Global Equity Fund. In total, we manage approximately $3.6 billion in assets on behalf of individuals, trusts, tax-exempt institutions and corporations. BM&O offers two mutual fund strategies - an All Cap Core U.S. Portfolio and a Global All Cap Core Strategy. Today, the firm includes approximately 30 professionals. Q:  What are the tenets of your investment philosophy? A : We believe that equity markets are inefficient, and this creates an opportunity for a long-term investor to take advantage of pricing inefficiencies. We think that share prices often fluctuate above and below what the true business worth or intrinsic value of a company is. Through in-depth fundamental research, we try to uncover the very best opportunities while prudently managing the associated investment risk. We only invest our clients’ money if our research suggests that the security is significantly undervalued and offers a high probability for success. Our belief is that keeping expense ratios low will help provide higher net returns to our investors. Q:  How does your investment philosophy translate into the fund’s investment strategy? A : We invest in the securities of companies that we believe have sound, long-term fundamentals and the ability to create shareholder value over time. Our approach to investment tends to be “bottom-up” and “thematic”. As part of our investment process, we employ numerous valuation methods to reach a conclusion on a given security. Some of our quantitative screens for valuation include price-to-book value, free cash flow yield, earnings yield, price-to-normalized earnings, and estimated replacement value of a company’s assets. Furthermore, we believe that different metrics are relative to different businesses and that combining these different metrics in the given security reduces the chances that we miscalculated our margin of safety. The key is that we combine different valuation metrics relative to different businesses, as we look for securities to hit on multiple favorable valuation metrics. In practice, we adhere to the philosophy that growth and value are not mutually exclusive. We believe growth is a component of the value proposition in any given security. Even though our philosophy can sometimes be misconstrued as growth, because of the companies experiencing dynamic growth and dynamic change, we actually run the portfolio in a manner more consistent with a value investment philosophy while not ignoring what would be perceived as growth companies. We also look for something extremely compelling in a security, whether it is a piece of intellectual property that the company has or a positive structural change in an industry or a business that causes the company to have a differentiated competitive position. To our way of thinking, such a competitive position creates an asymmetrically favorable return profile, which is how we try to populate our portfolio. Our approach has an opportunistic component as well. The fund participates in both long and shorter duration investment opportunities. By long-term duration, we mean three to five years and beyond, whereas for shorter duration investments our time horizon is between six months and a year. Additionally, these investments are characterized by event-driven special situations or the presence of a catalyst to unlock value that we can see on the near-term horizon. Q:  What is your research process? A : Potential ideas could come from a number of different sources. They can be valuation-driven or thematically-driven. For instance, an industry could be out of favor but may not be structurally impaired, or there might be other industry factors such as low historical valuation or a business opportunity, or catalyst identification. As part of the investment process, we conduct extensive third-party research. We try to understand what is happening in different businesses and industries through our meetings and assessments with a company’s top management. Among the qualitative factors that we take into account are also a company’s management effectiveness and its quality of earnings. Good examples of themes that drive capital allocation would be investing in water resources or treating diseases related to the obesity epidemic. Once we identify a theme. we try to find a business opportunity around them. We make a management assessment by understanding, if not meeting with them in person, their paper trail and their attitude towards minority shareholders. That basically gets us to a manageable list of companies. So, if those companies have reasonable valuation, an interesting secular tailwind, or a management that is favorable to shareholders and allocating capital in a smart way, we will consider them as potential portfolio candidates. Q:  Would you give some examples to illustrate your process? A : One example of a holding in our portfolio is Fresenius Medical Care AG & Co. KGaA in Germany, which is an investment with a longer duration horizon. They are a kidney dialysis company operating in both the field of dialysis products and dialysis services. We liked Fresenius for its footprint in emerging markets. In general, we believe that charts and data suggest that healthcare in emerging markets has a really long runway. For instance, India’s total healthcare expenditure as a percentage of GDP is extremely low with Singapore, Malaysia and the Philippines all being in the 2% range, whereas in Switzerland and the U.S. the percentage is in the double-digit 12% to 14% range. So, healthcare spending in general should rise rapidly. Moreover, the West is exporting the rise of caloric content to the developing world and this has led to the rising obesity problem globally, which is growing in emerging areas such as India and China. Half of dialysis treatment is related to diabetes, so this worldwide epidemic brought us to the conclusion that the dialysis companies are a growth business. As a leader in that business, Fresenius was naturally attractive to us with its treating of about 200,000 patients in 2009. Fresenius forecast for 2020 estimates an increase to greater than 3.5 million dialysis patients. During the meltdown in Europe, Fresenius’ stock got hit 20% because it is domiciled in Germany. But we looked at the reality of the company, as approximately 70% or 80% of its operating income comes from North America and is dollar denominated with an American domiciled asset base, where there is growth. Next, we thought that the euro and all the macro-economic worries created a pretty significant opportunity in Fresenius’ growing business worldwide at basic valuation or, to state simply, created an opportunity in Fresenius’ shares. The other element that we think was compelling for Fresenius was that the business in general would be less capital intensive going forward than recent past. This implies the company is now in a position to meaningfully expand its return on capital. Moreover, the recently introduced bundled pricing would result in margin expansion over the long term. Here we had a growth opportunity with some favorable regulatory changes that could benefit all dialysis companies. What we probably have over time is an expanded return on invested capital at what was a very reasonable valuation during the height of the macro economic worries in Europe. We think this plays out over the three to five years, if not beyond, as opposed to more of an event driven situation. Finally, our analysis of this company led us to believe that there is an extended runway for wealth compounding and growth with minimal downside. An example of a catalyst event-type situation in the portfolio is Foster’s Group Limited, an Australia-based company engaged in the production and marketing of alcoholic beverages. The reason why Foster’s was compelling to us is because it is a very profitable Australian beer business that also embarked on a mission to expand their operations in the wine business some years ago. Even though the wine business is plagued with over-capacity at present, Foster’s still has, in our opinion, an extremely profitable beer business. In fact, from an operating margin perspective the company’s beer business was at the top, relative to other global beer brands and brewers from around the world. Yet, as a security Foster’s was being dragged down by its wine business, which affected the overall profitability of the group. At that stage we had a discounted valuation on the earnings yield, the potential for free cash flow growth, and the sum of the parts of the beer and wine business in terms of what it would be worth to outside buyers. However, the element that was most compelling to us was the fact that management stated that they had made a mistake in building the wine business and that they were going to either fix it or sell it. For us, that was the catalyst. Of course, that is not to say that the wine business is worth nothing. The wine business is troubled, but could be worth something to a knowledgeable and well financed outside buyer that can consolidate that business in Australia. At the same time, we feel that the beer business is extremely compelling at this moment in history, and Foster’s, as a profitable beer business, could make a very attractive acquisition candidate. In this case, we have a business that for the next foreseeable future should generate adequate and above average returns in our opinion. This is a good example of a shorter duration investment. Q:  How do you construct your portfolio? A : We construct a portfolio of securities that provide diversification to mitigate risk and generate meaningful gains over time. The portfolio allocation at present is 85% in long duration situations and 15% in event/catalyst driven situations. The portfolio is unconstrained, having anywhere from 65 to 90 stocks. The top 10 holdings have approximately 30% to 40% of portfolio value. The recent three year turnover has been near 50%, although it has historically been 10-15% lower than that over the longer run. The benchmark for this portfolio is the MSCI World Index. Q:  How do you define and mitigate risk? A : Managing risk is fundamental to our investment approach and that plays a key role in preserving capital in adverse markets. While it is harder to control volatility, we try to mitigate permanent impairment of capital. From a risk management perspective, if we do not feel comfortable with accounting or the basic rule of law, we do not invest in that domicile or country. In addition, we mitigate risk by looking at business and security risks. We just try to generate a margin of safety by mitigating risk as much as we can just before taking in a security by looking for good solid accounting and balance sheets for the most part.