Do You Have a Quiet H.E.R.O. In Your Portfolio Protecting & Fighting For You? [Nordic’s Emerging Global Cloud Software Leader in Communication Platform as a Service (CPaaS)]
Case Story: Nordic's Emerging Global Cloud Software Leader in Communication Platform as a Service (CPaaS)
[Week (14-18 Sep): +12.1%]
Another Innovation Stack story in our portfolio companies is "Sweden's Twilio", an emerging global cloud software leader in Communication Platform as a Service (CPaaS), which is up 1.1% since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.6%/-7.6% over the same period. The rising dividend-yielding company has also compounded 778% in capital gains in the recent 5 years vs MSCI ACWI World index +47.6%. This highly-profitable and cashflow-generative Nordic SaaS innovator offers a platform for digital messaging services that can be integrated into their customers’ internal or external communications flow and has a solid background in secure communication under extreme conditions. The company serves over 5,000 customers and commands a special position in alarm and safety, healthcare and e-health, as well as e-commerce and logistics.
CEO Mr. J commented: "We are the new provider of messaging solutions to the Swedish Social Insurance Agency in delivering messaging services with the highest requirements regarding data storage, security and personal data processing. The solution consists of SMS alerts via API and web portal, e-identification and subscription services. The framework agreement also opens the way for orders from other authorities. In this procurement, the Swedish Social Insurance Agency has placed the most rigorous and far-reaching requirements for safety and data processing we have seen so far. For example, it has chosen not to approve operators who may be covered by the so-called CLOUD Act. This is the first time we have seen this requirement, which is a clear indicator of how government agencies and government agencies will formulate their demands in the future.”
[The Swedish Social Insurance Agency is one of the largest authorities in the country with about 14,000 employees. The Swedish Social Insurance Agency administers the insurance and contributions included in social security in Sweden. Social security is the economic security system of society. In total, the Authority administers nearly fifty different types of social security benefits.]
The H.E.R.O. Investment Framework
The H.E.R.O. framework, methodology and strategy are powering equity portfolio asset for our institutional client.
This is the only equities strategy in the market that focuses on both dividend yield and innovation-driven capital gains to enhance total shareholders’ returns. This is also the only dividend-yielding equities strategy in the market that is entirely not dependent on and with zero exposure to: (1) cyclicals (concentrated in economically-sensitive and rate-sensitive sectors such as financials, property & construction, energy & materials) that may not be resilient in economic downturns, and (2) cheap-gets-cheaper yield- and value traps. It also applies the proprietary forward-looking fact-based accounting fraud detection system that was pioneered and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS), to mitigate downside risks which escape detection by typical western-based forensic tools.
I. Strategic Focus on Quiet Innovators & The H.E.R.O. Investment Framework
Our investment strategies distinguish from all other tech- and innovation-themed funds with its singular focus on quiet innovators, which present structurally mispriced opportunities and avoid overcrowded misopportunities that stem from the human tendencies to equate flashy popularity with excellence, and have an active ratio of over 95% (vs the MSCI World Index). The portfolio companies are exceptional innovators and focused market leaders in their respective fields with unique, scalable, recurring-revenue and high-profitability business models delivering innovative products and services indispensable to our well-being in daily life and run by high-integrity, honorable and far-sighted entrepreneurs with a higher Purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – Honorable. Exponential. Resilient. Organization.
H.E.R.O. is operationalized into a systematic 4-step investment process and investment framework powered by sustainability & ESG principles to identify the winners, to distinguish between the true innovators and the swarming imitators, between the devoted missionaries forging a greater Purpose and the mercenaries. Not only do the H.E.R.O. innovators generate high profitability at the inflection point of their exponential growth trajectory, more importantly, they are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out.
We use the framework and positive criteria of the United Nations Sustainable Development Goals (SDGs) to integrate environmental, social, and governance (ESG) considerations into the research and investment process in selecting companies that generate sales in products and services that contribute to the achievement of the UN SDGs. The central focus of our impact investing is on innovators who contribute to the UN SDG Goal 9: Industry, Innovation, and Infrastructure — “Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation”.
H.E.R.O. is unique in eliminating the downside risks from accounting tunneling fraud and misgovernance through unusual related-party transactions, consolidation accounting craftiness (opportunistic shifting of expenses and debt into unconsolidated entities), and hidden balance sheet liabilities at the wider pyramidal business group level etc., which escape detection by western-based forensic tools through a proprietary forward-looking fact-based accounting fraud detection system developed by KB, and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS). For instance, prevalent across Asian companies, previously Big-4 audited “cash” in the balance sheet are often misclassified “cash equivalents” disguised from improper short-term related party loans employed by the insiders to expropriate or tunnel out cash from the company after initially propping up financial numbers artificially to create false positive signals to lure in funds.
II. Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose
“Innovators” are companies that generate sales in technologically enabled new products and services that potentially transforms the way the world works. We seek to identify companies capitalizing on innovation in offering faster, cheaper, more productive, more cost effective, more compelling products and services, or that are enabling the further development of an innovation theme in the markets in which they operate.
III. Quiet Innovators Thrive in Stormy Times
Prepare and position a winning portfolio for a post-pandemic world with innovators who thrive in stormy times and transform crises and trauma into opportunities for the future. The coronavirus crisis has helped accelerate innovation and enhanced the leadership of innovators. Market positions are not redistributed during sunny and calm times, but during times of crisis. The pandemic crisis has changed the behavior of both consumers and businesses. Companies offering faster, cheaper, more productive, more cost effective, more compelling and innovative products and services are gaining significant share.
Market leadership and resilient winners in stormy market environment and in the post-pandemic future will be much less about the overcrowded popular trades in mega-cap tech and loss-making tech/biotech, as defined by FAANGT-STAMP (U.S.: Facebook, Apple, Amazon, Netflix, Google, Tesla; Asia/China: SEA, Tencent, Alibaba, Meituan-Dianping, Pinduoduo), who also do not pay any dividends (with the exception of Apple and Tencent), and will be led more by highly-profitable quiet innovators, including dividend-yielding cloud Software-as-a-Service (SaaS) companies.
Notably, of the 90+ cloud software companies listed in the U.S., nearly all (>95%) do not pay any dividends, with many still looped in a negative free cashflow position, while the 20 global SaaS portfolio companies in the Fund are unique in being exceptional market leaders in their respective field with ample internal cashflow generative capacity to reinvest for higher-margin growth and still consistently produce rising dividend yield to reward shareholders.