Our goal in writing this book has been to describe the qualities that we think are essential in the creation and perpetuation of successful asset management firms. We have also tried to describe Epoch Investment Partners, and to map out our place in an industry undergoing rapid change in its strategies, its channels of distribution, and its use of technology.

In the end, all of the ideas we have discussed in this book are encapsulated, in one way or another, in Epoch’s aspiration statement:

To provide superior risk-adjusted results using a transparent approach based on our free cash flow philosophy;

To serve investors who seek and value Epoch’s investment approach;

To continue as a thought leader and innovator in global investment management.

First is Epoch’s recognition of its charge: deliver positive risk-adjusted results through a transparent methodology—judging and selecting companies for investment based on their ability to generate free cash flow and to allocate that cash flow properly, rather than on their earnings as calculated under accounting principles (those that are generally accepted, or the more flattering non-GAAP variations many companies have devised). Cash flow is the true measure of a company’s economic profit. This is not only our intellectual and theoretical viewpoint: the durability of cash flow as a positive factor in stock returns has stood up to rigorous academic analysis. Our analysts and portfolio managers have developed an expertise in seeking out free cash flow—a significant advantage that distinguishes our investment process, and provides us with a “cash flow arbitrage” opportunity in generating returns.

Our second aspiration addresses our relationship with our clients. It is critical that our clients understand our philosophy and approach. In other words, we strive to ensure that our clients understand the financial architecture and the rationale behind our methodology: we identify companies which appear to offer long-term value propositions for the owners, and have management teams who understand how successful capital allocation drives value creation.

The classic distinction between investment and speculation states that true investors look at their holdings as evolving businesses, and intend to benefit from an increase in value through profits earned and dividends paid over time, while speculators are more focused on near-term changes in share prices. We seek to build relationships with clients who think of themselves as owners of attractive businesses through their investment portfolios, not as participants in some sort of statistical game.

Our third aspiration expresses our goal to be constantly evolving with the markets and the state of the investment art. The final four chapters of this book have shown how information technology runs through every aspect of investing. We noted in Chapters 11 and 12 that the markets and investing techniques will change every year, and if the recent past is a reliable indicator, they will be light-years ahead of today’s speed, complexity and intelligence in 5 or 10 years’ time. Accordingly we are investing considerable resources in expanding technology’s role in the firm, to inform the judgment of our analysts and portfolio managers, and to support our investment process.

Put simply, one must think ahead. That challenge is motivation for the ongoing development of new investment strategies, publication of white papers and investment perspectives the firm develops, and for authoring this book.

We are proud of the firm Epoch has grown to become in just a dozen years. But as we’ve stated in these pages, our goal is to evolve on all fronts. In fact, we have found an unusual inspiration for our culture—the National Transportation Safety Board, which is the U.S. government’s investigative authority for aviation, marine, rail and highway accidents. The NTSB operates with small, experienced teams, and each of its reports is approved by a senior board of five, creating a culture of accountability, collaboration, empowerment and pride. Among safety agencies the NTSB enjoys a worldwide reputation as “the best in the business,” and for most employees, a position at the NTSB is a capstone to a successful career.¹,²

We aspire for Epoch’s culture to be regarded one day as one of the best in the investment business—by our clients, their consultants, and our colleagues in the industry. For our investment teams, we emphasize and reward individual effort and accountability, and we strive for Epoch to be a destination for investment talent. And for our clients, we are dedicated to innovation and the pursuit of outstanding performance over the long term.

Thank you for sharing your time to consider our thoughts.

William W. Priest
Steven D. Bleiberg
Michael A. Welhoelter