Marcellus Investment Managers was founded in 2018 with their main objective of impacting the Indian economy’s effective capital allocation. We plan to accomplish this by directing household savings into high-quality Indian enterprises with a long history of sound governance and capital allocation. Our portfolio management strategy not only strives to provide healthy returns to our investors but also to do so by assuming relatively moderate risks. Marcellus’ core investment management team has been together for 15 years, and their experiences and lessons learned throughout that time have shaped the company’s investment philosophy. SEBI has granted Marcellus permission to provide Portfolio Management Services (PMS, SEBI registration number INP000006183) and Investment Advisory (IA) services.
The Marcellus Consistent Compounders are our flagship investment product. Services for Portfolio Management (CCP). CCP’s investing approach aims to put money into a small number of substantially moated companies that can generate robust earnings compounding over long periods of time with little volatility. The PMS offers enticing performance-based fee choices that align our interests with the investors. It also boasts one of the most cost-effective cost structures in the PMS market, with no entrance, lock-in, or exit loads.
|Year of Inception
|Number of Stocks
|Mr Rakshit Ranjan
As discussed, please find below a brief write-up on Marcellus Portfolio. The portfolio will typically have 12-15stocks.
One of the strategies that we have recently launched is Marcellus’ Portfolio – this strategy has a minimum ticket size of Rs. 15 crores and has been specifically created for investors who want a customised portfolio. Marcellus’ portfolio is a multi-cap strategy and consists of Marcellus’ most high conviction bets which have been selected using the following steps:
- Forensic accounting: Identify companies with clean accounts using Marcellus’ proprietary forensic model. At Marcellus, the first step across all its strategies is to eliminate companies with poor quality accounting – this eliminates a large universe of listed stocks (please click here for our newsletter on the importance of accounting quality).
- Capital allocation: Identify companies with a track record of superior capital allocation using Marcellus’ proprietary capital allocation framework (please click here for our newsletter on the criticality of prudent capital allocation for consistent compounding).
- High barriers to entry: Out of companies which pass the above two steps, identify companies which have high barriers to entry.
The Marcellus Portfolio will consist of stocks which meet with the above three criteria irrespective of whether these are small cap companies or large cap companies.
Option 1:Fixed fee: 2.50%
Fixed fee: 1.50%
Hurdle Rate: 10%
Performance fee: 15% (without catchup)
Consistent Compounders PMS by Marcellus invests in an intense portfolio of heavily moated companies that can generate healthy earnings growth over long periods. Portfolio creation is a two-stage process technique.
- A filter-based method for generating a spend universe of 25-30 stocks.
- In-depth, bottom-up research of such enterprises in the universe to assess long-term competitive moats and build a portfolio of 10-15 stocks that improve healthy compounded acquirement over time.
While the filters are implemented annually, companies in the portfolio and coverage universe are continuously monitored for moat sustainability through comprehensive primary and secondary research. You can find their newsletters for a more detailed discussion of some frameworks used in their ongoing research process.
Let’s discuss it briefly. Marcellus PMS has three core investment pillars. They hold business enterprises for long periods with little or no churn, allowing them to capture the long-term compounding magic and deliver superior returns.
- Clean Accounts:Their investible universe is defined by our quantitative frameworks, which use a fusion of forensic accounting and capital allocation assessment.
- Capital Allocation:They seek companies with a strong track record of capital allocation. They admire businesses that create free cash flows and reinvest them in the business to fuel future growth.
- Competitive Advantage:Their experienced investment team builds a portfolio of companies with significant competitive moats using in-depth primary research.
Their investment criteria:
Before being included in their investment basket, each company in their portfolio is subjected to a stringent and uncompromising filter.
The PMS from Consistent Compounders has ZERO entry/exit load and no lock-in. Our clients have the option of selecting from one of the following fee structures:
- A fixed fees model (2% p.a. fixed fees + zero performance fees)
- A hybrid model (1% p.a. fixed fees + performance fees of 15% profit share above a hurdle of 12%, no catch-up).
Performance fees are subject to a high water mark; the minimum investment is INR 50 lacs.
Area of engagement
- Corporate governance
Analysts utilize forensic accounting to keep a watch on cash diversion by our investee firms’ “promoters.”
- Succession planning
Many of India’s prominent ‘promoters’ are now 70 or older, thirty years after the 1991 reforms that freed up the Indian economy. As a result, they are passing the baton to the next generation.
- Capital allocation
- Our investment approach, which entails investing in dominating franchises with a ROCE of over 40%, naturally leads us to businesses that produce a lot of free cash flow.
- The compounding of the franchise suffers if this Free Cash Flow is not intelligently reinvested.
- Regulatory constructs
India’s regulatory framework, particularly in terms of corporation law and securities market legislation, is still developing. This exposes the unsuspecting to danger.
- They leave if They notice diversion on a significant scale.
- If They notice the beginnings of what appears to be a small-scale diversion, They engage with the ‘Promoter’ and explain why her wealth production might be jeopardized.
- They keep a careful check on whether the ‘promoter’ is on top of his game through our talks with suppliers, customers, and rivals of the firm.
- If his successors do not exist or have not been properly trained, They examine the situation and its implications with him.
- They interact with the ‘promoter’ to understand her capital allocation thinking if They notice a firm hoarding cash or going into an unrelated industry.
- They convey our point of view if They are not satisfied that what she is doing is appropriate (arguing in favor of a different capital allocation strategy)
- If our engagement has made no effect after six months, They will consider terminating.
- They have worked to promote openness in the Indian fund management business by serving on several regulatory panels, writing in the press, and speaking out on regulatory change on social and broadcast media.
- Marcellus Consistent Compounders identifies companies with strong pricing power that can help to maintain a large gap between the return on capital employed and the cost of equity.
- The objective of the Marcellus Consistent Compounders portfolio is to hold such firms for around 8-10 years, where healthy returns are produced amongst volatility, such as that of government bonds.
- The most critical move in constructing an investment portfolio is to find and stay away from companies that are not accounting-friendly, believes Marcellus Consistent Compounders.
- 12 accounting ratios that examine cash theft, accurate reporting of assets and liabilities on the balance sheet, and income statement manipulation.
- Consolidated historical financials span six years.
- Companies that score highest on each of the 12 measures separately (some examples are outlined in the table on the right). These rankings were then added together based on several criteria to provide a final ranking of the accounting quality of stocks.
- The renowned forensic accounting book “Financial Shenanigans” by Howard M. Schilit inspired the selection of these ratios.
|Cash / Equivalent
Top 5 Stock Holdings
|Name of The Stock
|Bajaj Finance Ltd.
|Dr. Lal Pathlabs Ltd.
|Titan Company Ltd.
|HDFC Bank Ltd.
|Page Industries Ltd.
Top 5 Allocated Sectors
|Pharma & Health-Care
About Fund Managers
Rakshit Ranjan ( Director, Institutional Equity Research )
Rakshit spent 6 years (2005-2011) covering UK equities with Lloyds Bank (
Director, Institutional Equity Research) and Execution Noble (Sector Lead analyst). During these six years, he was ranked among the top-3 UK Insurance analysts (Thomson Reuters Extel survey) in the mid-cap space. Since 2011, Rakshit led Ambit Capital’s consumer research franchise which got voted as No.1 for Discretionary Consumer and within top-3 for Consumer Staples in 2015 and 2016. He launched Ambit’s Coffee Can PMS in Mar’17 and managed it till Dec’18. Under his management, Ambit’s Coffee Can PMS was one of India’s top-performing equity products during 2018.
Meet the team
Saurabh Mukherjea, FRSA Founder and Chief Investment Officer
Saurabh Mukherjea is the Founder and Chief Investment Officer of Marcellus Investment Managers. Saurabh was educated at the London School of Economics where he earned a BSc in Economics (with First Class Honours)
and an MSc in Economics (with distinction in Macro & Microeconomics). In London, Saurabh was the co-founder of Clear Capital and in 2007 he was rated by the Extel Survey as one of the top small cap analysts in the UK. In India, Saurabh was rated as the leading equity strategist in 2015, 2016 and 2017 by the Asiamoney polls. Prior to setting up Marcellus, Saurabh was the CEO of Ambit Capital.
Saurabh is a CFA charter holder and a SEBI registered investment advisor. In 2017, upon SEBI’s invitation, he joined SEBI’s Mutual Fund Advisory Committee. In 2019, Saurabh was part of the Expert Committee constituted by SEBI to update and upgrade the PMS regulations. Saurabh has written four bestselling books – Gurus of Chaos (2014), The Unusual Billionaires (2016), “Coffee Can Investing: The Low Risk Route to Stupendous Wealth” (2018) and ‘The Victory Project: Six Steps to Peak Potential’ – and he is a Fellow of the Royal Society of Arts.
Pramod Gubbi, CFA
In the final two years of his 8 year stint in Ambit Capital, Pramod was Managing Director & Head of Institutional Equities (from 2016 to 2018).
Prior to that Pramod, served as the head of Ambit’s Singapore office from 2013-2016. Before joining Ambit, Pramod worked across sales and research functions at Clear Capital, a British equity research firm. Pramod is Head of Sales in Marcellus and manages the sales & marketing efforts of the firm. He also sits on Investment Committee that discusses and approves investment strategies of the firm.
Besides being a technology analyst, Pramod has served in technology firms such as HCL Technologies and Philips Semiconductors’ Indian arm in Business Development and Engineering respectively.
Qualifications : Pramod is CFA charter holder with a B.Tech from Regional Engineering College, Surathkal and a Post-graduate Diploma in Management from the Indian Institute of Management – Ahmedabad.
Find small-cap companies (market capitalization less than US$500 million) that have a solid track record of corporate governance and capital allocation, as well as competitive advantages based on brands, processes, and strategic assets.
- Usual avoid candidates from the “Zone of Terrorism”
- Greater than the median performance on each factor (revenue growth, asset turnover, etc..) plus the top 20 per cent of performance overall (the “cream of the crop”) + avoiding businesses that struggle to pay their debt and capital costs
- Laden businesses examination of management interviews, annual reports, and other public reports in great detail
- Combining independent perspectives on governance and capital allocation with channel input to support the “management version”
Use Forensic Accounting To Avoid Most Common PitfallsThe income statement (revenue/earnings manipulation), the balance sheet (accurate portrayal of assets/liabilities), cash pilferage, and audit quality checks are all covered by 12 accounting ratios. Financial data from the previous six years have been combined. To begin, rank stocks based on each of the 12 ratios separately (some examples are outlined in the table on the right). These rankings were then averaged across characteristics to get a final ranking of stock accounting quality, with D1 being the highest and D10 being the worst.Identify Companies With Superior Capital Allocation
If one creates a list of stocks using twin-filter criteria* of double-digit YoY revenue growth and return on capital exceeding the cost of capital each year for ten years in a row, and then builds a portfolio of these stocks each year and holds each of these annual iterations of portfolios for the next ten years (without churn), the bar chart on the right shows the performance of such portfolios.
There Are Two Conclusions From This Exercise:
- This filter-based portfolio generates annual returns of 20-30 percent (in INR) and outperforms the Sensex by 8-12 percent.
- For holding durations longer than three years, the volatility of such portfolios’ returns is comparable to that of a Government of India Bond.
The returns above (for both the filter-based portfolio and the Sensex) are calculated on a Total Shareholder Return basis, which means that all dividends are included.
Invest In Franchises With High Pricing Power And High Reinvestment Rates Using Marcellus’ Longevity Framework
Free Cash Flow growth rate
- Revenue growth, return on capital employed, and capital reinvestment rate
- Calculate the increase of industry demand, as well as its drivers and resiliency.
- Calculate revenue growth in relation to anticipated market share increases.
- Are profit margins and asset turns projected to improve significantly?
Strength of today’s pricing power
Can a rival provide a product that is a third cheaper and have no effect on our investee firm’s profitability or market share?
Analysis based on efforts made in the last 3 years
Three aspects of lethargy tests:
1)Deepening of existing moats on a piecemeal basis
2) Experimentation/investment in new revenue growth drivers that are moated
3) Attempts to completely destabilize the industry’s future
Succession planning score
Softer aspects to help build an ‘institution’. Four aspects of the succession test:
1) Execution that is decentralized
2) The quality and duration of the firm’s CXOs
3) Evidence of CXO succession implementation in the past.
4) The Board of Directors Independence
Factors driving SELL decision at Marcellus
- Complete withdrawal from a stock owing to a worsening in Marcellus research analysts’ perceptions of the company’s strength and competitive advantage sustainability (longevity).
- Optimizing portfolio concentration by exiting when new stock is added to the portfolio – owing to a rise in conviction levels about the strength and sustainability of the new company’s competitive advantages (which was hitherto not in the portfolio)
- Partially selling stock as part of a portfolio rebalancing to bring it in line with the relative belief in the stock’s fundamentals versus other equities in the portfolio.
What is the investment philosophy of Marcellus Consistent Compounders?
Consistent Compounders Marcellus’s investment philosophy is based on a deep study of the companies. They believe that the insight story of the companies will showcase the historical consistency of the companies. Marcellus buys 10-15 stocks in their model portfolio of PMS and continues to give healthy returns each time despite various disturbances going on in the world
What is meant by Marcellus’s filter-based approach?
The filter-based approach follows three key conditions:
- It filters the long history of companies and chooses them accordingly.
- Holding a portfolio of stocks for a long time.
- Filter-based approach helps to cut out the noise of entry and exit decisions.
Is there any contract between Marcellus and its Clients?
Yes, the portfolio manager enters into a written agreement with the client. The contract clearly defines the interrelationship with the client and sets out their mutual rights, liabilities and obligations relating to the management of funds or portfolio of securities, containing the details as specified in Schedule IV to the SEBI (Portfolio Managers) Regulations, 1993.
What are the setup fees, entry load, exit load and lock-in applicable to my PMS account at Marcellus?
There are no setup fees. A client enters and exits at any time he/she wants. There are also no lock-ins applicable. A client at any time can withdraw any asset from Marcellus PMS by giving 05 days prior notice.
What fees can a Consistent Compounders Marcellus portfolio manager charge from its clients for the services rendered by him?
A variable fee of 20% on all returns in excess of 8% (no-catch-up) subject to a high watermark annually and a Fixed fee of 2.0% of the Net Asset Value to be given quarterly
What will be the tax structure applicable under Marcellus’ PMS?
Marcellus PMS only invests in equities. An investor should consult a tax advisor for any further tax-related queries. Marcellus provides an audit statement at the end of the financial year. This would also aid in tax-related liabilities.
What is the meaning of Marcellus' ‘no catch-up'?
Here, no catch-up means that profit share will be applicable only on incremental return over and above the hurdle rate.
What is the minimum investment size to open a PMS account with Marcellus?
INR 50 lakhs is the minimum investment size for opening a PMS account with Marcellus.
What type of companies are part of the Marcellus portfolio?
According to Marcellus philosophy, it only consists of consistent compounder portfolios that are large and liquid stocks of cash generated companies.
Can we reinvest the client’s Marcellus dividends in his portfolio?
Yes, as they are directly credited to the client PMS account and hence get reinvested into the PMS account.
Disclaimer: Investing Involves Risk. This document is for information purposes only and should not be viewed as a legal offering document or solicitation. Offers to invest in this fund are made only by the Discretionary Portfolio Management Services Agreement. Past performance does not guarantee future results and there is no assurance that the managed accounts will necessarily achieve their objectives. We do not guarantee any returns in the hand of investors not we take any sort of accountability for the performance of the scheme. The above-mentioned data is collected from the respected Fund house please verify the same at SEBI website.