Ravenna Capital Management (RCM) aims to generate superior returns using an investment model focused on a global economy confronted with increasing constraints on energy and natural resources. These constraints result from the effects of centuries of increasing global demands on finite resources. RCM offers investment opportunities intended to identify these constraints and take advantage of the opportunities that will result.
For most of the twentieth century, the cost of energy for industrial society had been falling as a result of new discovery, improved technologies and government subsidies. This trend is on the verge of a permanent shift in the other direction due to the serious consequences of Peak Oil and its impact on the global liquid fuel supply. Over the coming decades, as society and industry accommodate to increasing energy costs, many fundamental business and investment assumptions will change.
Long-term trends, which include declining fossil fuel supplies and other finite natural resources, population growth and urbanization, will soon reshape the globalized economies of the world. None of these trends or their implications are broadly understood, measured or priced in the current investment markets. All of these factors will dramatically affect investment returns over the coming decades. The financial implication for investors who anchor on past investment criteria and business models will be underperformance with a resulting decrease in return on investment.
Traditional methods of investing will have to be reevaluated for relevance in the extremely challenging environment we are entering. The world is getting bigger for the first time since the depths of the Middle Ages spawned 1500 years of a shrinking world driven by innovations in global transportation and the development of fossil fuel energy. Are your investments up for the challenge?
The historical correlation between growth and energy is becoming strained. The investment strategy at RCM shifts asset allocation from a narrow focus on individual sectors (e.g. cleantech or carbon reduction) to a more holistic approach integrating multiple sectors that are interrelated by their energy needs, resources or role in the changing energy environment (e.g. water, agriculture, commodities and energy).
At Ravenna Capital Management (RCM), our investment strategy and policy is centered on an understanding of the financial and investment implications of rising costs for energy and other natural resources to a wide variety of businesses. For example, if a proposed investment cannot pass our fundamental screening based on our model of an energy- and resource-constrained world, we will not pursue it. An investment dependent on permanently cheap energy will not survive the decades ahead and would not be included in our portfolio.
We look at the world of investing through the lens of resource scarcity (both natural and monetary resources). We believe a more macro filter is needed to reach an adequate conclusion about the invest ability of all assets classes from currencies to individual companies. If a country cannot pass the relevant screens, many of that country’s businesses can be seen as poor investments regardless of their fundamental quality. One thing is for certain, resource and more specifically energy scarcity will create thousands of “value traps” as historic patterns will operate as a blindfold rather than a map.
Over the next five to ten years, we believe that profound changes are coming to the business and investment landscape, as well as the lives each one of us leads. It is important that your financial assets are aligned properly to take advantage of the opportunities and to avoid the pitfalls that we believe are coming. Many traditional growth sectors of the economy will suffer as the decades- long subsidy of cheap fossil fuel-based energy is withdrawn. The result will be less spending on discretionary consumption as necessities (energy, food, basic transportation) rise in prominence.
During the decades ahead, investment results may be determined as much by what is avoided as by what is owned. It is important that in the search for the next Microsoft or Google one does not find the next Enron or AIG experiencing a permanent loss of capital. The reality of short-term impairment of capital is inevitable in global investment markets. Therefore RCM strives to identify the risks of permanent capital loss as its first priority. Only once that is identified is the potential for high return considered.
As with any investing environment, you need a plan. More importantly, you need a plan that you understand and makes you feel comfortable. Ravenna Capital Management offers a unique opportunity for investors (not speculators) who understand that investments for the future require more than the same old investment models and assumptions that dominate the markets today.
For further information on Ravenna Capital Management feel free to contact us.
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