Page 35 - Investment Advisor July/August 2021

Small/Mid Cap Manager of the Year
Riverbridge Partners

Riverbridge SMID Cap Growth Managed Account

iverbridge’s Small Cap Growth “What’s unique at Riverbridge is our
R Managed Account strategy’s per- commitment to an investment philoso-
formance and characteristics over the phy,” he says. “A lot of people who invest
past year make it a deserving winner of in the market think of it as a market trad-
the 2020 Envestnet/Investment Advisor ing game. They don’t necessarily have a
Manager of the Year award for its cat- firm philosophy in which they stand on.
egory in the small- to mid-cap growth “We’re not affected by the short-term
managers out of a group of 200. crosswinds in the market. Our philoso-
The strategy outperformed its bench- phy is centered around this concept of
mark Russell 2500 Growth Index by 740 earnings power. And we believe that
basis points last year (47.87% vs. 40.47%). those companies that can grow earnings
The strategy’s 2020 results were driven power over long periods of time, that
mainly by stock selection, especially in value will be recognized.”
the industrial and health care sectors. Ross Johnson In addition, “we have a strong recogni-
Last year was one of “incredible busi- tion amongst our team that true innova-
ness disruption — business disruption Title: Portfolio manager tion and value creation takes time,” which
that I don’t know we’ve ever seen,” Years with present firm: 11 is “somewhat opposed to how the finan-
according to Ross Johnson, portfolio Years in financial services: 11 cial services industry operates,” he says.
manager at Riverbridge Partners. Riverbridge’s process also relies “on
“In hindsight, it’s not surprising that a team of portfolio managers who have
we would do quite well on a relative basis Investment/asset class focus: a lot of individual accountability for
compared to the benchmarks that we Small to Mid-Cap the decisions they make, and we avoid
compete with,” he says. “[That’s] because Asset management firm: the trappings of consensus decision-
in an environment where there’s a lot of Riverbridge Partners making,” he says. “That makes our selec-
business disruption, those businesses that tions of companies in which we want to
are less disrupted are going to do better on Firm’s headquarters: Minneapolis invest and ultimately the portfolios that
a relative basis than those that are experi- Year firm was founded: 1987 we build very effective over long periods
encing high levels of disruption,” he says. Number of employees or partners: of time. It also makes us, as a firm, more
Riverbridge owns “portfolios of busi- 36 employees, 26 of whom are resilient because we’re really not depen-
nesses that, compared to any benchmark, equity owners of the firm dent on any one star individual.”
tend to have more stability,” he pointed out. Due to its investment philosophy, the
In 2020, companies with strategic AUM/advisement as of Dec. 31, team did not tweak its portfolio based on
relationships with customers through 2020: $13.4 billion its short-term outlook, he says, explain-
the services they provide tended to per- ing: “Short-term dynamics are often chal-
form well because “these relationships have a high level lenging to predict. And they’re especially [hard] to predict on a
of stickiness,” he explains, adding that “customers can’t do repeatable basis. So we keep ourselves focused on that earnings
business without them.” For example, the portfolio included power growth, over five- and 10-year periods.”
Verisk, a firm that supplies data and information to the prop- In 2021, he said although there is “a strong backdrop for eco-
erty and casualty insurance market. nomic growth,” inflation has become a concern. Yet “over longer
“Their customers, the carriers that underwrite property and periods of time in the equity markets, more differentiated busi-
casualty policies, can’t do business without Verisk services,” he nesses tend to do better in an inflationary environment.”
says, adding: “In a world like 2020 that experienced high levels Therefore, should inflation persist, differentiated business-
of business disruption, those types of strategic relationships es will likely “have an easier time passing through increasing
were far more stable in nature.” Other characteristic targets costs, and they’ll do better relative to more commodity busi-
are companies that “tend to have clean balance sheets and low nesses where there aren’t a lot of differentiation between one
levels of leverage.” company and the next,” he predicted. —JB

JULY/AUGUST 2021 INVESTMENT ADVISOR 33