Our asset management team based in Milwaukee, WI actively manages two Small Cap separate account equity strategies for institutional and individual investors. We apply a value-oriented approach to investing using our disciplined research process, the Three Pillar Approach®, while applying an ESG overlay.
Investment Process: The Three Pillar Approach
We create a watchlist of companies that we believe have enduring franchises. The list is created through management meetings, intensive reading of company filings, media sources and screening. Our screens focus on companies that earn their cost of capital and have grown sales over the last 10 years. Companies that are attractively valued are further vetted using the Riverwater Three Pillar Approach.®
Pillar 1: Superior Business
We look for unique and sustainable businesses with defensible moats allowing them to consistently earn and exceed their cost of capital.
Pillar 2: Exceptional Management Teams
We focus on teams that exhibit a history of making wise capital allocation decisions and are aligned with shareholders.
Pillar 3: Attractive Valuation
Companies should be able to consistently generate or grow free cash flow throughout an economic cycle with flexible balance sheets. We prefer to pay either at or below market multiples on earnings.
Responsible Investment Process
We believe responsible investment or ESG investing is in the best interest of our clients, our firm, our communities and our society. Therefore, our analysis process considers environmental, social and governance (ESG) policies, practices, and outcomes, alongside traditional investment criteria, when evaluating potential investment candidates. (A summary of our process is below; click here for full details of our approach).
We employ a Three Pillar Approach to evaluate ESG efforts of companies being considered for inclusion in client portfolios: Due Diligence, Engagement and Collaboration.
Pillar 1: Due Diligence
Our due diligence process seeks to understand a company’s attention to environmental, social and governance (ESG) factors. We believe that a focus on ESG factors can shed light on potential risks and/or opportunities for a company, which may impact people, planet and profit. We focus on those factors that are most salient to a company based on its industry. While we seek best-in-class efforts, we also invest in companies willing to engage with us regarding improvement.
We maintain a proprietary database of the ESG efforts of the companies in which we hold positions, those under consideration, and peer companies. Companies receive points for their efforts regarding ESG factors, for having a sustainability report, for inclusion in ESG Indices, and for the nature of their business being socially responsible.
Pillar 2: Engagement
Riverwater engages with company executives and boards to gain an understanding of their current attention to ESG factors and to encourage greater efforts. The overall goal of engagement, as with our other ESG efforts, is to generate positive impact to the environment and society, as well as superior financial outcomes. We are guided by our Engagement Policy and our Stewardship Policy to increase impact with laggards and to raise the bar with leaders.
Riverwater Partners documents and follows up on our engagement efforts. If a company is unresponsive or unwilling to improve its ESG efforts, we will consider selling our position.
Riverwater Partners votes proxies for portfolio companies according to our Proxy Voting Policy, which favors management and shareholder resolutions that align with our ESG views.
Pillar 3: Collaboration
Collaboration with local, national and international responsible investment thought leaders informs our practice and strengthens our engagement. We are proud to partner with the following organizations:
