S&P Global and Valley Forge Capital Management

Life often pushes people in unexpected directions, and Dev Kantesaria of Valley Forge Capital Management (VFCM) is no exception. According to a recent Barron’s interview (link below), his path to portfolio management included a biology degree from MIT, Harvard Medical School, and a management consulting gig at McKinsey and Company. Not exactly the straightest path between points, but it worked. The “small fund for family and friends” that he started in 2007 has grown from $300,000 to $3.8 billion in assets, while averaging a return of almost 15% per year.

It doesn’t hurt to have a winner out of the gate. Of special interest is how his focus on large cap stocks with significant pricing power led him to S&P Global. When he first bought the stock in 2008-09, the credit-rating firm was fighting dozens of lawsuits and a public perception that it was to blame for the financial crisis. But Kantesaria saw a strong underlying business model and the potential for organic growth in volume, revenue, and profits. And as for pricing power, Kantesaria today believes that, along with Moody’s, S&P enjoys the position of a “natural duopoly” in the credit rating market, which allows it to raise prices as fast or faster than inflation. Kantesaria calls such businesses “compounding machines” that an investor can potentially hold for decades.

What I particularly enjoyed about the interview is Dev’s definition of a high-quality business:

We are focused on companies that are monopolies or oligopolies in their respective industries and have very few reinvestment needs. When companies have high capital expenditures or high levels of research and development expenses, the return on investment is difficult to predict. Our companies still have a tremendous amount of operating leverage, so profit margins can continue to grow over time with additional revenue and volume growth.

We also like to invest in industries with secular growth trends. When you combine pricing power with long-term organic volume growth, it is a very powerful combination.

investment strategy
Source: Jacob Sonenshine | "How This Hedge Fund Beats the S&P 500 With 20 or So Quality Stocks" | Barron's | 05/02/2024 | Visit