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- APPROACH
- Annual Letters: Detailed updates on fund performance and strategy
- Quarterly Reports: Clear and unbiased insights into investments.
- Integrity and Commitment: A high level of transparency and dedication from the Dwaith team.
- Weekly or Monthly Reports: We do not provide frequent updates or communications.
- Immediate Gains: Investments are designed for long-term growth, not quick returns or rapid trading. So, we will not churn in and out of positions
- Frequent Contact: You will not receive regular calls or emails.
Through intensive bottom-up fundamental research, the Fund will invest all of the assets in India
Concentrated positions in companies trading well below intrinsic value, run by honest & exceptional management
Build and hold positions for long time in companies invested until they reach their full value
India’s economy, valued at $3.8 trillion in 2024, is entering a significant growth phase, with projections to reach $10 trillion and beyond in the 2020s. This economic expansion presents numerous opportunities, and we aim to capitalize on them.
India is well-positioned for long-term investments due to its structural growth potential. With a median age of 28 and education levels surpassing 70%, the country mirrors the U.S. at the turn of the 20th century in terms of growth potential.
As India undergoes transformative changes over the next decade, we believe it offers abundant investment opportunities. As Charlie Munger wisely said, “The first rule of fishing is fish where the fish are.”
4,000+ companies with <$1B market cap with huge runway, lots of small hurdles to cross for one who knows the companies
Excellent companies with great managements available at single digit P/E’s (2-3 P/E’s)!
7.5%+ annual GDP growth is expected over many years ahead
Today, the market cap of Apple and Microsoft are comparable to the GDP of India
Earnings growth of quality companies in India will far exceed the growth rates in the US
20% compounders available in Indian stock markets run by excellent managers
We will invest funds mainly in India. We will not limit ourselves to preset sectors or stocks (small caps, large caps, or mid-caps). Our principal concern is to invest in companies with excellent management operating in areas with significant growth potential.
Investment Categories:
- Growth at Reasonable Prices:
- These investments will likely form the bulk of our portfolio. We aim to invest for 3-5 years in companies within sectors we understand well, where we can identify valuations with a reasonable margin of safety.
- Undervalued Companies:
- Occasionally, companies trade below their intrinsic value. This can be due to the nature or size of the business, such as mid-caps or small caps not closely followed by larger funds, or sectoral cyclicity. We are particularly interested in undervalued companies run by capable management.
- Turnarounds:
- We invest in companies that find themselves in difficult situations due to factors like debt, ineffective management, or unclear positioning. These companies are often in sectors with strong growth potential. We invest when opportunities for improvement arise.
These three strategies form the foundation of our investment approach. The managing partner’s thoughts on investments in India, the psychology of holding onto investments, and general market outlook are detailed in the annual letters available under the Performance Summary / Insights section. Preferably, if there is nothing to do, our strategy is to do nothing. Our intent is not to act for the sake of acting but to carefully select partners with a long-term outlook.
What Constitutes Growth:
Example: An example of a growth investment is Caplin Point Labs, a pharmaceutical company consistently growing at over 20% YoY. It has excellent cash flow characteristics and operates in underserved markets in India and South America with strong operating margins (30%+). This stock has been held by the managing partner for over 5 years, illustrating a successful application of the Growth at Reasonable Prices (GARP) strategy.
What is a Good Growth Company:
Characteristics: A good growth company is one that generates substantial cash flow and has large, current, or potential markets with minimal competition. We prefer companies with robust shareholder structures, where management (whether family or professional) holds a significant portion of shares for extended periods. The company should fall within our “circle of competence”—areas we thoroughly understand. We avoid companies outside this competence.
An Undervalued Company:
Example: Naspers is a prime example of an undervalued company in our portfolio. Based in South Africa, Naspers primarily invests outside its home country. Its major holding is Tencent, a leading Chinese tech firm valued at over $200 billion, of which Naspers owns approximately 30%. Additionally, Naspers runs a major media business in South Africa. Despite its intrinsic value being much higher, Naspers was valued at around $100 billion in 2023. It also has notable investments like 12% in Flipkart, 39% in Swiggy, and 43% in MakeMyTrip. Such investments, available at a discount to intrinsic value and run by reputable management, are expected to yield excellent long-term returns, even if short-term performance varies.
Turnaround:
Example: In 2017, the managing partner invested in Enphase Energy, recognizing the potential of its microinverters technology. Despite the company's significant debt and operational issues, new management's strategic improvements made the investment promising. Although the partner sold the stock after a 30-fold increase, missing out on an additional 10-fold growth, this experience highlighted the importance of patience and thorough evaluation. Lessons learned from this investment will help minimize similar mistakes in the future.
Dwaith Funds will never be an open-ended, large partnership with thousands of partners. Likely, Dwaith Funds will have a few dozen member partners and manage a few hundred million dollars with the partners invested for the long term. Word of mouth will likely be the biggest growth marketing strategy of Dwaith Funds.
We will focus excessively on setting the right processes (taxation, auditing, banking, custodian relations). We have excellent banking, auditing, and custodian partners. UBS in the USA, HDFC in India as Bankers and Custodians, Rashmin Sanghvi Associates as FEMA/FERA/SEBI and taxation experts, Tjong & Hsia as SEC, fund management & taxation advisors and lawyers.
Further growth will largely depend on the investment returns and the stewardship attitude shown by Dwaith Funds towards its limited partners.
The operational agreement and limited liability agreements are very clear. Upon dissolution, the partners will get the equivalent amount of shares of underlying holdings. They can be distributed as-is or sold by a designated liquidator to distribute equivalent money.
Absolutely. K-1s and detailed equity statements will be issued annually that disclose investors’ tax liability. Also, most investments will be made with long-term (LT) gains in mind. If a position warrants to be sold for short-term (ST) gains due to some compelling reason (growth, gets quickly over-valued, etc) – such actions will be promptly made. Audited statements will be provided.
There will be no entry or exit loads. However, administrative charges or legal charges will be collected as and when they arise (at actuals). There will be no penalty fees or punitive charges.
A notice of 60 days is recommended for withdrawal and annual withdrawals would be the best way to withdraw. Fresh investments can be made monthly or at the discretionary approval of the managing partner per the operational agreement.
Performance fees (25% of returns over 6% hurdle rate) are billed annually to Dwaith Partners and Dwaith PMS. They will only apply with standard high-water marks (i.e., funds will need to be always at all-time highs for any performance fees to become applicable). If for a given year (or multiple years until high water mark is achieved), the returns are sub 6%, no performance fees will be payable to the managing partner.
Today, Indian tax laws do not permit Indian citizens to invest in funds based outside of India that invest into India (roundtripping under Reserve Bank of India guidelines: Link). However, if these laws change, the managing partner will have a large (>50%) percentage of his wealth in Dwaith Partners in the US. Dwaith PMS holds a large of the managing partner’s money.
All of the managing partner’s investments are made in the same manner as Dwaith Partners and the interests of partners are 100% aligned as he will not be paid unless he meets the minimum 6% returns threshold. Asset gathering will not give him extra money as no percentage of AUM (Assets Under Management) is charged as fees. Typically Hedge Funds charge 1-2% of AUM as fees and typically drive their interest in asset accumulation.
Since 2018 (when he moved back from the US), Harsha has been financially independent. He is not dependent on Dwaith Funds. He will never draw a remuneration from Dwaith Funds.
He hates the idea of countries controlling skilled people working/living freely. He held permanent residency permits in Germany (Niederlassungserlaubnis) and the USA (Green Card) previously. He gave up the residency permits, not to hold-up slots for other skilled workers who might benefit from the same, and more importantly to simplify his taxes.
One of his main ideas for the next decade and beyond is the democratization of capital taking place across the world. This will lead to growth in parts of the world that were limited due to the lack of opportunities/capital. Physical boundaries are becoming less relevant in the world as technology is linking the world in interesting ways. Some of his thoughts are explained in the 2020 investment letter written during the Covid pandemic.
India will remain the principal destination for investments. Investments will be made based on two factors: 1) Comfort in Return ‘of’ Investment vs. Return ‘on’ Investment. If the country or company offers stability of the investment and has sufficient risk to reward offering and 2) Opportunity cost (versus existing investments) and the relative discounts at which the stocks are trading and the likely tax implications for switch-over
Likely, a portion of the portfolio over the years will find itself in countries outside of India (emerging and frontier markets). The managing partner’s general view on this as well as the concept of endurance and permanence are explained in his 2018 investment letter.
Money will be returned to the partners in such a scenario. This situation is likely to happen in the next decade or two and we will be prepared to right size or close the funds under such circumstances.
