ABOUT THIS SERIES
For the better part of the last few decades, the investment landscape was shaped by two powerful and mutually reinforcing forces: interest rates that fell almost without interruption, and a wave of technological innovation that rewarded businesses built on code, networks, and intangible scale. Capital flowed accordingly. Valuations followed. And a generation of investors learned, not unreasonably, that the future belonged to the asset-light, the digital, and the disruptive. The environment is changing. This series of four perspectives explores that shift — making a connected argument that the investors most likely to be rewarded over the next decade are those willing to broaden their definition of where durable earnings are found.
- Part I - Quality Runs Deeper: First Principles, Broader Horizons
- Part II - Consumer Staples: What the Market Has Stopped Seeing
- Part III - Healthcare at the Crossroads: AI as a Scalpel
- Part IV - AI Through a Quality Lens: Finding Durability in the Disruption
For the better part of the last few decades, the investment industry converged on a seductively coherent definition of quality: high profitability and revenue growth, low capital intensity, high return on capital invested, healthy balance sheets, and strong cash flow generation. The logic was elegant. Low capital intensity meant high free cash flow conversion. Recurring revenues meant predictability. Network effects, high switching costs, proprietary technology, economies of scale - and the barriers to entry they created - meant moats. And falling interest rates, decade after decade, meant that distant earnings were worth more and more in present-value terms.
We benefited from this environment. Our portfolios include a number of these compounders - software businesses, platforms, information services - and they rewarded us well. We do not intend to be coy about that.
And yet, something has shifted. The tectonic plates of the investment landscape are moving - driven by the return of geopolitics, by the advent of artificial intelligence, which is simultaneously the most exciting and the most disruptive force in a generation. Intellectual honesty demands we ask a harder question: are we, as quality-focused investors, at risk of mistaking what worked in a specific macro regime for what is enduringly true? And does remaining true to the first principles of quality - seeking durable earnings, strong competitive positions, attractive valuations - not in fact demand that we cast our net wider - looking beyond the boundaries that a long and rewarding cycle helped entrench?
Read Sébastien Gandon's full article "Quality Runs Deeper - First Principles, Broader Horizons".