The portfolio will consist of approximately 20-30 positions primarily in companies that are generally characterized as micro cap in nature. Our conviction is that the sub-$400 million market capitalization segment of the U.S. equity market is dominated by information gaps or inefficiencies that we intend to exploit using a fundamental, bottom-up approach. Candidates will possess a proven and incentivized management team, meaningful improvement in operational metrics, and a substantial disconnect between the stock price and intrinsic valuation, as measured by our analysis. The average holding period of stocks within our portfolio is anticipated to be 18-36 months.
Ownership will primarily be through common equity, but we will also participate in other financial instruments including convertible preferreds, PIPEs and/or warrants.
The Partnership may, from time to time, assume an activist strategy, either by influence due to significant ownership of the common equity or by virtue of proxy, which may result in a change, replacement or addition of a member(s) of the board of directors, a change in control, or a forced shareholder enhancement strategy.
The objective is to generate outsized returns by building a portfolio of companies possessing above average growth and profitability prospects, with meaningful exposure to the smallest and more inefficient or less-followed segment of the U.S. equity market. We define risk as loss of capital. Strict attention will be paid to volatility within the portfolio in order to limit downside capture and reduce correlation to underlying market trends.
We believe limited opportunities for trading commissions and banking revenue have led to continued neglect of U.S. micro cap companies. Correspondingly, approximately 45% of companies with market caps of less than $400 million have no published earnings estimates, creating a lack of information that has also served as a deterrent to potential investors. The Managing Partner has dedicated a 20+ year career to exploiting the inefficient opportunities that exist here and brings unique capabilities in terms of researching, trading, and investing in this segment of the market.