Over 30 years, billionaire Rajiv Jain’s investment approach has morphed from bottom-up to a top-down, quality-focused approach, like Warren Buffett. Above all, he says surviving is more important than making the most money.
By John Hyatt, Forbes Staff
Born and raised in Northern India, Rajiv Jain, co-founder and Chairman of GQG Partners, studied accounting at Panjab University and finance at the University of Ajmer before pursuing his M.B.A. at the University of Miami. He began his career as an international equity analyst at Swiss Bank Corporation before joining Swiss asset manager Vontobel in November 1994 as a co-portfolio manager of emerging markets and international equities. He became Vontobel's chief investment officer in 2002 and then co-CEO in 2014. During his time at the firm, he helped grow Vontobel’s assets under management from some $400 million to nearly $50 billion.
In 2016, Jain left to start GQG Partners, which offers a range of investment vehicles and funds for institutional clients and partners with financial advisors. Jain serves as executive chairman and chief investment officer of GQG, which manages more than $108 billion in client assets as of July 31. Over 90% of those funds are invested in non-U.S. markets, including about $30 billion that is invested in emerging markets. The firm is publicly traded on the Australian Securities Exchange, and it employs about 170 people with offices in Florida, New York, Seattle, Sydney and London. Thanks to his investment savvy, Rajiv Jain currently has a net worth estimated to be $3.3 billion.
GQG and Jain have become known for focusing on companies' earnings rather than following the hottest trends in the market—as seen in his funds’ large positions in energy, mining, tobacco, consumer goods, healthcare and banking. In March, Jain made his most contrarian and high-profile bet yet: a $1.9 billion investment in Indian conglomerate the Adani Group, just six weeks after Hindenburg Research, a short seller, accused the Indian conglomerate of fraud and stock market manipulation. Jain’s initial bet has returned about 50% to date as the Adani firms rebounded from the allegations, and GQG has since added to its position in the Adani Group. – John Hyatt
Forbes: How did you get your start in investing?
Rajiv Jain: I started in high school when I was 16 or 17 years old. My dad had kept me busy during the summers, asking me to check all the stocks that had not yet issued dividends. So I had to physically go to the broker to deliver stock certificates to collect them. That’s when I started trading, and I continued trading during college. I was full-time trading and part-time studying.
Forbes: How would you describe your investment strategy today and has it evolved over your career?
Jain: I became a portfolio manager at 26 years old. So if I look at the last 30 years, during my first 15 years I was much more bottom-up, and then it evolved into a combination of bottom-up and top-down. It has evolved significantly over the course of my career. I think that’s one reason why I've survived as an investor. But I’ve always been focused on buying quality businesses at lower prices, while being okay with owning cyclicals.
Forbes: Are there particular macro factors that contributed to that evolution?
Jain: I managed an emerging market portfolio as a sole PM in the 1990s, and that informed a lot of what I've done over the years, because in emerging markets then there was one crisis after another. A lot of times the banking system was wiped out, the currency had collapsed 90%, there was nationalization of industries and riots in the streets: That's a true crisis. Those experiences have actually been very helpful in navigating developed markets over the long run because it helps you realize how important macro factors are. For example, the rate of change of inflation, GDP growth, regulatory issues, geopolitical issues, commodity markets and those sorts of things. They all matter.
GQG’s Global Values
Below are the top 10 holdings in GS GQG Partners $30 billion International Opportunities Fund, which is managed by Jain’s firm and administered by Goldman Sachs
Forbes: Which investment do you consider to be your greatest triumph?
Jain: I would not say there’s one single investment that’s my biggest triumph. I could tell you my biggest failures. Those are very easily identifiable.
Forbes: What were some of those failures?
Jain: The biggest one would have to be shorting Amazon (AMZN) in the late 1990s. So much for my ability to predict long-term winners! I’m glad I covered it within a few months, after losing 25% or 30% a week. I thought Amazon would disappear. It was probably the most obvious big one. I eventually got into Amazon in 2011 and it did fine afterwards. But it was 10 or 11 years too late. In more recent times, Tesla (TSLA). I didn’t think it would survive. And there are other obvious big winners that I didn’t pick early, including Apple (AAPL). There’s a whole laundry list.
Forbes: Yet you’ve consistently outperformed indices, so you must have had your fair share of winners. What’s one investment you’re proud of?
Jain: There have been a few that have done very well. HDFC Bank Ltd (HDB), we first bought in 2001. It was a small-cap then. It’s a $160 billion bank now. It’s been a 20-year-run that few banks have matched. I first identified HDFC [headquartered in Mumbai] because it reported very good numbers, so I met the management team and was surprised by how they thought about positioning themselves in a niche market that was relatively small, but big enough to exploit. [In 2000, HDFC became the first Indian bank to offer SMS-based mobile banking, and in 2001, the first private Indian bank authorized to collect income tax.] In the years that followed, they kept adapting to new areas. Their managers were very thoughtful about which industries and business lines to operate in, and which areas to walk away from, including their willingness to lose market share to go after better opportunities. A willingness to lose business is quite unique for a financial institution.
Forbes: A more recent winner for GQG has been the Adani Group. You invested while its shares were in freefall, about a month after Hindenburg’s report, and now you’re sitting on a gain. Why did you back Adani while others were running away?
Jain: We looked at this company before, four or five years ago, and decided not to do anything, but after the report came out, we looked again even more closely and were positively surprised. We have a number of investigative journalists who work for us and reexamined it closely. We talked to a lot of their former employees, their bankers and partners, and the story they told was actually very, very positive. The quality of execution, the quality of the management team, the trust that their partners had in the Adani Group. It was 180 degrees different from what had been written. That’s usually not the case.
Forbes: What kind of micro factors within companies do you examine closely before deciding to allocate capital?
Jain: The biggest is barriers to entry. And relatedly, how will the business look five years down the road? That’s the biggest question we try to answer. We don't really care about consistent earnings per se; a lot of businesses might be cyclical. The question is: Is there a special sauce that will help you do well over the long run? Last year for example, we had significant energy exposure. A few years ago, people had basically given up on energy while we had more than 40% of our global portfolio within energy. [Examples include TotalEnergies SE (TTE), Petróleo Brasileiro SA (PBR) and Schlumberger Ltd. (SLB)] You have to take some of these larger positions in areas where you find that the underlying fundamentals are improving, but also the business has some unique factor that makes them a low-cost producer, something that allows them not only to survive but do well. So we're really happy to own cyclicals, and we are much more open minded in the areas we pick.
But the company has to have good assets. Without good assets, upcycles won't help them. We also care a lot about the capital investment cycle. If a lot of capital is going into an industry, at a certain point the returns will be lower for longer because there’s a lot of capital being brought in. And vice versa. Two years ago, we began to feel that tech in general was over earning and there was way too much capital going in. Obviously, that helped us a lot last year when we were down mid-single-digits there, way less than the average of 25% to 30%.
Forbes: How do you view investing in non-U.S. markets versus investing in U.S. markets? Are there different frameworks or criteria you apply?
Jain: There are a lot of similarities but there are meaningful differences. For example, in the U.S. we typically don't react that much to political cycles. But in some of the other markets, political changes can have enormous implications on policy. You have to incorporate that much more aggressively. Also, you take currency for granted here. Once you leave the U.S.–even in Europe–currency matters. It affects your return profile.
I also think that generally, U.S. companies have a bigger runway here. Take Home Depot (HD) as an example: You start the company in Atlanta and grow it out to Seattle. These sorts of companies can have a 25-year runway. That makes earnings a lot more sustainable on a 10-year basis and justifies higher multiples. If you put the same lens onto say, the Netherlands, well, once you leave the Netherlands, your business has new things to implement in neighboring countries, such as climate changes and regulatory changes. Sometimes U.S. investors are a little bit complacent in terms of when they go abroad. The runway is not as long, and the runway is what determines what valuation you should pay.
Forbes: What's keeping you up at night when you think about the global investment landscape?
Jain: I don’t think anything macro keeps me up at night because you just can’t predict these things, but I will say, the Russia-Ukraine war is an important one to monitor. Take what’s happening in Niger, which is one of the largest exporters of uranium to France and Europe. But the world’s largest exporter is Russia. All of a sudden, combined, that’s 60% or so of global uranium. That’s a problem. And beyond that example, there will be more long-term problems amid more embargoes and sanctions. Plus, Russia is a major exporter of global commodities, and that can have major inflation implications.
I’m not saying I’m too bearish on Europe, but if you take a 5-10-year outlook, the impact of sanctions is not being fully incorporated. Europe will suffer more from sanctions than will Russia, which can sell all the oil and gas to other countries in the world. Where will Germany get its oil and gas? As prices go up, a lot of industries will not be viable. So who is suffering? That’s the thing: Cheap power is needed for anything.
Forbes: Where are you seeing investment opportunities now in the world?
Jain: We’re still very bullish on the U.S., particularly the infrastructure side, but especially in emerging markets, where we’re very positive on India and Indonesia. We’re also very bullish on the Middle East, which is very interesting and attractive. They’re opening up and doing the things that generally lead to prosperous times. We’re also bullish on Latin America, especially Mexico, which doesn’t get enough credit. There’s a big reshoring boom, away from China to Mexico. Labor markets are pretty tight in Mexico. There’s quite a lot of demand to bring production closer to the U.S.
If you look at Europe, they’ve had no GDP growth for 16 or 17 years, while other markets have grown at significant rates. These economies have become large. The market cap of Indian stock markets has become $4 trillion. That’s twice as big as Germany’s. Brazil is a $2 trillion economy, larger than Italy. These emerging economies are growing at high single digits, including Indonesia, Thailand, Vietnam and Cambodia. How many folks are truly focusing on these large opportunities? It’s not just China anymore; It’s very different from 15 years ago.
“We don’t really care about consistent earnings per se; a lot of businessesmight be cyclical. The question is: Is there a special sauce that will help you do well over the long run?”
Forbes: You seem like a cautious investor, which makes your decision to branch off and start GQG all the more surprising. How did that come about?
Jain: Tim Carver [now GQG’s CEO] had reached out to me six or seven years earlier and was trying to say, you have to start your own. I said, it’s fine, I don’t want to run a business per se. But by 2016, I wanted to start fresh, because I’ve learned a lot from my mistakes. To improve the game, you basically need to take a clean sheet of paper, make a bunch of changes and start fresh. I love investing, and you need to kind of adapt. You need to do a bunch of different things to continue improving. I didn’t bring anyone from my prior team. I built a new team completely from the ground up.
Forbes: If you could give your 15-year-old self some advice about investing what would it be?
Jain: Take a little more risk. Of course, too much risk can blow you up. But if I look at my biggest acts of omissions–whether it’s Tesla or Amazon–they seemed very, very risky at the time. So, maybe, take a little more risk. Because being too risk averse is not the best thing.
Forbes: What are some investing axioms you keep in mind from day to day as you allocate capital?
Jain: You're not here to make the most money; you're here to survive. If the capital is gone, you’re done. You have to make sure you have enough firepower to come back the next day. That’s always in the back of my mind. Let’s make sure we survive.
And always keep in mind the client’s perspective. Never forget that someone’s retirement is at stake. Single-digit returns over the long run compound. And clients like that. You always want to be a four on the risk curve—or, maybe, sometimes a six.
Forbes: Are there any book(s) that you recommend every investor read?
Jain: “Superforecasting: The Art and Science of Prediction,” [by Philip E. Tetlock, Dan Gardner] was a very interesting study. They found that folks who are generally good at forecasting have common traits, and how everybody has to forecast everything: small things, large things and everything in-between. That’s the nature of the investing game, too.
Forbes: Thank you.
Excerpted from the August 2023 issue of Forbes Billionaire Investor.
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