The GQG Investment Dilemma

GQG Partners is a funds management business that has recorded strong earnings growth over the past year, with EPS rising from US$0.095 to US$0.14. Since 2023 it has grown its funds under management from US$106 billion to US$143 billion, while return on equity sits near 80 per cent. Although listed on the ASX, the company is headquartered in Florida, USA. This international footprint is only part of what makes it an interesting company from an academic perspective.

The business has a contrarian investment philosophy, buying into companies that are out of favour but which demonstrate strong and durable earnings, solid governance, and relatively limited exposure to cyclical downturns. This approach has led to major investments in tobacco producer Philip Morris (13.4 per cent), Brazilian energy group Petrobras (5.8 per cent) – recently granted approval for offshore drilling in the Amazon – and Canadian pipeline operator Enbridge (5.3 per cent), which is both a producer of renewable natural gas and the owner of the world’s longest export pipeline network for fossil fuels. Other significant positions include insurance giant Chubb and telecommunications provider AT&T.

In November 2024 another large GQG holding, the Indian conglomerate Adani, faced fraud and bribery charges in the United States. This led to a 20 per cent fall in GQG’s share price. The controversy has left the company looking relatively cheap on several valuation measures, with some analysts suggesting there is reasonable upside potential.

Yet investors must also weigh the ethical dimension. A funds manager with heavy exposure to tobacco, Amazon oil drilling, and a conglomerate accused of fraud and bribery will raise questions even for those with a strongly libertarian outlook. Ethical investment is not solely for the idealistic. If a business appears indifferent to the health of its customers, careless toward the environment, and dismissive of regulators, why should shareholders expect to be treated any differently? It is worth recalling that in 2022 GQG also suffered a 21 per cent loss linked to its Russian investments.

The company is tightly controlled by its founder, chairman and chief investment officer Rajiv Jain, who retains 70.2 per cent ownership. Investing in GQG therefore ties one’s fortunes closely to his leadership. Jain’s influence is both a strength and a risk: any misstep, or unforeseen event in his life, could have major consequences. Furthermore, as GQG was only established in 2016, it lacks the long track record of surviving multiple economic cycles.

The broader business model also faces structural challenges. Passive investment vehicles such as ETFs, the rise of technology-driven platforms, and ongoing fee compression are all applying pressure to active managers. GQG will need to adapt to these trends to sustain its success.

From a quantitative perspective the company is highly impressive: a large, profitable, international funds manager with a growing client base and financial metrics that would stand out even in smaller, riskier enterprises. Growth prospects remain strong, particularly given Jain’s close connections with India, which could be one of the major growth stories of the coming decades.

Qualitatively, however, the company’s indifference to the nature of its holdings – at times seemingly targeting businesses unpopular for ethical reasons – should give investors pause. Prospective shareholders may wish to ask whether a firm that shows so little concern for its customers, communities, or the environment would treat them any differently.