Negative rates and massive monetary stimulus are leading to an acceleration of the disruptive forces of technology. Businesses engaged in new technologies and ideas, which would have developed slowly just a few years ago, can now accelerate their growth with virtually no regard to the profitability of their business. Finally, climate change and ESG are impacting investors’ flows of funds and valuation of businesses. The disruption to traditional business models, from retail to automotive, poses great challenges to investors as seemingly stable businesses can be suddenly disrupted. Finally, all economies are now on life support following the virus shutdown with natural demand destruction being supplemented by government stimulus and support measures. It is a very complex set of circumstances to face.

In an environment of asset inflation, investing should be easy. In the short and medium term, like in 2019/20, everything goes up. But L1’s investment horizon is 5-10 years, and in this time frame being selective becomes essential. Two types of businesses will offer good returns in this environment: businesses that enjoy a considerable amount of protection from competition, usually by virtue of dominating a market, and businesses that can be improved through active ownership so that the earnings increase more than offset headwinds from changes in the external environment. Neither is easy as competition for assets is intense. But I do believe that there are many strengths associated with L1’s heritage and approach.

First of all, L1’s Russian heritage is a unique strength. L1’s shareholders are used to, and comfortable with, very major changes and dislocations in their external environment. It is part of life for Russian investors. It is not so for Western investors who have seen only good times and very predictable investment environments.

Secondly, L1 has an outstanding platform capable of acquiring and managing businesses in very different industries. L1 capital is long term and patient and can take on operational projects that are longer than most private equity is able to do. So even if companies are expensively priced, L1 has time to grow them. L1’s current retail portfolio is a good example of taking on challenging businesses with the prospect of significant payoffs as when the strategy is successfully executed.

None of the above will be easy. Investing and achieving operation turnarounds are different skills, and L1 must constantly judge that it has internally the right mix of talents in the team. L1 must also constantly strive for improvement in the speed and efficacy of its involvement in portfolio companies. And finally, recognising that the future is unpredictable, L1 must create a portfolio that is broad, robust, and exposed to different types of challenges and opportunities so that it may prosper under very different outcomes. We have gone into the current COVID-19 induced crisis with a strong portfolio of “essential” businesses – food and health, energy, animal care, telecommunications. There are many headwinds facing each of these businesses, but in all cases the demand backdrop is at least favourable.