Cohesion AM

“Cohesion’s capability is knowing how to make money for investors”

Spike Hughes, Founder & CEO, Cohesion

An introduction to Cohesion AM

Spike Hughes and Madhu Kela speak to Peder Wallenberg about investing in India by accessing Cohesion's superior offering.

The greatest investment opportunity of our lifetime?
Cohesion’s superior access to India
Delivering across differing market environments
Why invest now?
Cohesion’s offering - by invitation

The greatest investment opportunity of our lifetime?

When investors and business leaders such as Warren Buffet, Bill Gates, Ray Dalio and Jamie Dimon all agree on a great place to invest, it’s usually worth listening. When some of the most admired companies globally including Apple, Amazon, Microsoft, Tesla, Samsung and Nokia and Boeing all make strategic long-term decisions to invest billions of dollars in a country, they probably have good reason.

GDP Growth Graph
Sources: 1 WEO IMF, October 2022; 2PWC - The World in 2050, 2017

So why are so many great investors and businesses so excited about the prospects for India and reallocating massive amounts of capital there? Whereas Western economies are saddled with debt and struggling for growth, India keeps surprising on the upside and this momentum is being rewarded by terrific returns in stock markets. India is already the 4th largest stock market in the world and that’s before it’s forecast to generate more growth in the coming decade than in its entire history. It’s simply too big to ignore.

What’s more, India’s growth is sustainable and driven by powerful local and international trends. Crucially, this growth is predictable and will last for several more decades. It’s hard to think of any growth trend in the world that is based on a greater certainty of trajectory.

Unlike much of the world, India has a young, highly driven and skilled population that is growing fast. This is driving vast urbanisation and a growing middle class that aspire to all the goods and services that Indian companies can offer. For every $1 currently spent by Indian consumers, US consumers are spending $150-200 on household goods, health care and entertainment. As Indian consumers get ever more prosperous, you can imagine what that will do for demand in every sector. What this means for us as investors is that we can achieve multi-bagger returns just by investing into sensible, cash generative businesses.

For too long, many investors have had little or no exposure to India, despite it being more like its own continent in terms of its population, market capitalisation or GDP. We are now witnessing a change. Every day we are approached by institutional and family office investors seeking access to the amazing opportunities available in India. It is fair to say that some investors can find it a little daunting knowing where to start. In a country with such strong tailwinds, you are likely to make money in most sectors over any reasonable time. However, the very best returns require on-the-ground specialist knowledge and a network of contacts built across several decades.

So, is this a 20-year story or do we need to get in right now? These trends are likely to last for decades but the most explosive phase of this growth is likely to be over the next few years driven by an extra HALF A BILLION Indians starting internet shopping. Just to put that into context, that’s 10x the population of Spain that will begin internet shopping for the first time.

Indian equities have performed well in the past with returns comfortably outpacing major Western and emerging markets. These returns have been driven by Indian companies delivering compound earnings growth that cannot be matched by international peers. Long term investors in India have been handsomely rewarded but we believe that the best is yet to come.

Sources: 1WEO IMF, October 2022; 2PWC - The World in 2050, 2017; 3FE Analytics [20 years CAGR to 30.09.2024], October 2024. Past performance is not indicative of future results
USD 20 Years Performance (%)
Annualised Cumulative
MSCI India 12.06 874.78
S&P 500 10.71 665.29
MSCI All Country World Index (ACWI) 8.88 448.67
MSCI China 8.20 383.85
MSCI Emerging Markets 7.67 338.59
MSCI Europe 6.73 268.02
MSCI Japan 5.35 183.42

Cohesion’s superior access to India

If we had to sum up our edge in one word, it would have to be “access”. Yes, it’s possible to manage a portfolio of Indian equities from London or New York but without access, you really are at a massive disadvantage.

To illustrate this through an example – Imagine you want to really see the best of India as a tourist. Would you want to rely on someone who lives 3000 miles away and has only visited the place once or twice? Isn’t it quite likely they would just send you to see the same sights (like the Taj Mahal, for example) that all the guidebooks say? Would they be able to spot the truly special hidden gems of India? It’s the same for accessing the best of the Indian market.

Cohesion’s access comes from our exclusive partnership with Madhu Kela. Madhu is arguably the best-known Indian equity investor of all time and known by many as simply, “The King of the Multi-Bagger”. A recipient of the Best Equity Fund Manager from the Prime Minister of India, Madhu built the Reliance Asset Management Indian equity business from less than $20mUSD to $60bnUSD. This growth was driven by the consistently exceptional investment performance delivered under Madhu’s stewardship. Madhu is supported by one of the strongest teams of managers and analysts, all hand-picked by him, and most of whom have worked alongside him for many years. The team is based in Mumbai with further support from senior colleagues across Asia and the Middle East.

Growth Graph

Sources: 1 Invexa Capital, January 2020 – Madhu’s tenure at Reliance Group May 2001 to June 2017; 2 Invexa Capital, February 2023. Past performance is not indicative of future results.
CAGR* Total Return*
Flagship Strategy Under Stewardship of Madhu 28% 5072%
India BSE 100 15% 900%
MSCI World 4% 80%

We are completely immersed in the Indian economy and in Indian markets. For any company we are interested in, we almost certainly have deep, close, personal relationships with their suppliers, customers, investors, bankers, current and ex management teams. We will know academics in their sector. We probably know government ministers and bureaucrats who oversee their sector and have an understanding of the policy nuances and longer-term vision for these sectors. The information we have access to simply isn’t available in a sell side note. They say that it’s better to be able to speak to the right person for 5 minutes rather than the wrong person for an hour. Madhu and his team can speak to the right person for an hour.

We have a clear advantage over most Indian managers in this regard but especially over generalist emerging market managers who might only spend a few days in India before flying off to South East Asia, Africa or Latin America. They tend to have a very superficial knowledge of our market. They are often the investors who base their opinions on what a stock or sector was doing 2 or 3 years ago rather than what it will be doing over the next year. We can think of countless examples of sectors and companies that have quietly completely reinvented themselves, but they are still viewed by Western investors as being the same as when they were last in Mumbai 2 years ago. Even whole sectors can change with a new piece of legislation or a change in government policy, but these often go under the radar unless you are full time on the ground, living and breathing the country and the market.

The ultimate test of the skills, knowledge and experience of a fund manager is of course in their performance. Since launch in August 2020, Cohesion MK Best Ideas has comfortably outpaced broad Indian benchmarks, our peer group and other international equity markets as demonstrated in the table below.

Source: * iShares ETF, FE Analytics [Data 01.08.2020 – 30.09.2024], October 2024. Past performance is not indicative of future results.
USD
(Data to 30.09.2024)
Performance (%)
Since Inception
1st August 2020
Cohesion MK Best Ideas (USD) 237.38
Cohesion MK Best Ideas (GBP) 230.06
MSCI India* 93.58
S&P 500* 85.34
Nasdaq 100 * 85.88
Nifty 50* 79.61
MSCI All Country World Index (ACWI)* 65.14
MSCI Emerging Markets* 11.90
MSCI China* -20.68

Cohesion’s offering - by invitation

Cohesion MK Best Ideas is our flagship fund. Through it, investors can access our very best money-making ideas.

Designed with the needs of institutional and private family offices in mind, Cohesion MK Best Ideas is the only way for global investors to access the talents of Madhu Kela and his team.

Typically, Cohesion MK Best Ideas will hold 20-25 stocks. The portfolio will be diversified across a range of different industries and themes at all times. However, Cohesion MK Best Ideas is likely to look very different from broad stock market indices as we will only ever own stocks in which we believe there is substantial upside and limited downside over an appropriate timeframe. With thousands of listed stocks to choose from, every holding has to earn its place, and we are happy to have no exposure to benchmark heavyweight stocks or sectors if we do not believe they have a high probability of delivering the sort of returns we seek.

Cohesion MK Best Ideas invests in main market listed stocks in India as this provides us the liquidity of one of the world’s oldest, largest and best regulated markets. Although we are investing in listed stocks, we adopt a private equity approach to the exhaustive due diligence that we undertake. We believe that this gives us the best of both worlds, private equity sized returns but with public market liquidity and governance.

Cohesion MK Best Ideas has been designed with strictly limited capacity to allow our investment managers to focus on delivering exceptional returns rather than AUM growth. This is in line with Spike and Madhu’s shared vision to place making money for our investors at the heart of all that we do.

Cohesion MK Best Ideas*
No. of holdings Core: 10-20
Tactical: 5-10
Individual stock limit 20% at time of purchase
Sector limit 35% ex. financials
Investee company size Multi-cap portfolio with a maximum of 50% in companies with m-cap <USD 1bn
% Shareholding of investee company Up to 10% stake in a company
Portfolio liquidity Target: c.80-90% of portfolio that can be liquidated in 15 days and balance over 3 months
Initial targtet capacity USD 500m
*These terms are indicative only and full details are available in the Cohesion MK Best Ideas offering documentation.
Key Facts*
Domicile Feeders: Abu Dhabi Global Market (ADGM) Protected Cell Company (PCC) or Delaware Limited Liability Company (LLC)
Master: Cayman Islands Unit Trust
Liquidity Subscriptions: monthly. Redemptions: monthly
Valuation report Quarterly
Redemption notice Notice by 15th of previous month
Minimum investment USD 1mn / GBP 1mn
Share classes USD & GBP
Management Fee 1.50%
Performance fee 20% over 8% hurdle (with 2% catch up) and high-water mark
Investment manager Cohesion Asset Management Limited
Investment advisor Invexa Capital LLP
Auditors Crowe Mak and Baker Tilly
Feeders cash custodian Northern Trust
Master trust custodian Standard Chartered Bank
Master trust trustee FirstCaribbean International Bank and Trust Company (formerly CIBC Bank and Trust Company)
Administrator Apex Fund Services

Delivering across differing market environments

There have been distinct investment “seasons” since we launched.

We launched into the face of the tornado of Covid and the 2020 US presidential election. Despite taking a prudent approach we ended the year having got off to a great start and making a lot of money although we were only part invested.

After the rollout of the covid vaccine, markets performed well and we had a terrific 2021, making hay whilst the sun shone.

2022 turned out to be an awful year for most investors, a real year of thunder, lightning and black clouds. The darling global growth stocks were hammered and the safe haven of bonds proved to be one of the riskiest places to be. Against that environment we protected investors capital.

We’ve described 2023 as “sunshine and showers”. For most investors it was less painful than 2022 but there were still plenty of places to lose money. We had another terrific year, rising by 43% but crucially, we weren’t having to recover losses from 2022.

2024 appears to be another year of stuttering progress for the world economy but despite this, we have delivered strong performance so far.

Over these different seasons there have been some managers who have delivered fantastic results only when their market or their style has been in vogue. What has really set Cohesion MK Best Ideas apart is our ability to nimbly adjust our approach between capital preservation and maximum capital appreciation.

Source: * iShares ETF, FE Analytics [Data 01.08.2020 – 30.09.2024], October 2024. Past performance is not indicative of future results.
2020 2021 2022 2023 2024
USD Performance (%)

Cautiously deployed capital during Covid and US Presidential elections. Got off to a strong start, banking a return of 15%

Post Covid-19 vaccination, markets performed well. We delivered 42% significally outperforming most local and international markets and our peers

As inflation pressures mounted, equity and bond markets took fright. Many markets down 30-40%. Through a risk averse approach, we preserved investors capital

Markets remain choppy due to conflicting inflation data. Investment ideas sown in 2023 are bearing fruit, pushing performance to new highs

We have built a portfolio that is cheaper than the market and growing demonstrably faster than the market. We aim to preserve and grow capital in the most exciting economy in the world.

Cohesion MK Best Ideas

+15% Data from 01/08/2020

+42%

-2%

+43%

+46% Data to 30/09/2024

MSCI India*

24.10%

22.40%

-9.39%

17.50%

19.70%

S&P 500*

15.43%

28.29%

-18.35%

25.86%

21.80%

Why invest now?

As can be seen from the table below, Madhu and his team have recycled many of their winners into a portfolio that looks great value. Indeed, Madhu thinks that this portfolio is more exciting than it’s been for a long time. They are finding plenty of highly predictable winners with tailwinds behind them and trading on really attractive PEG ratios. The overall PEG ratio of the portfolio is currently less than 0.5 which compares incredibly well with either the broader Indian market or the S&P 500. So, when people ask whether India is expensive, our answer is “not if you know where to look”!

Source: Invexa Capital and Bloomberg, September 2024. Past performance is not indicative of future results.
PE Valuation Earnings Growth (%) PEG Ratio
10YR PE FY26E PE FY26E FY26E
Cohesion MK Best Ideas - 18.5 41.5 0.45
Nifty 50 23.4 20.9 14.3 1.46
MSCI India 24.8 23.8 16.7 1.43
MSCI India Small Cap 34.4 25.7 23.9 1.07
S&P 500 21.3 21.1 15.3 1.38