The Lombard Odier Infology fund invests in IT companies, including operators worldwide via an integr...
The Lombard Odier Infology fund invests in IT companies, including operators worldwide via an integrated fund management team of five who work with a scientific advisory panel of IT professionals.
The advisory panel, or Scientific Advisory Board, works alongside the managers to identify first trends in the industry, and then to evaluate the risks and potential of products and services.
Finally, it assesses the valuations and potential of individual companies.
The fund uses an 'S-curve' methodology to assess the life cycle of successful IT-related products.
The premise of this is that during the first 15% of the product's life-cycle, the 'chaos' phase, it is used mostly by specialist-type customers.
Rapidly widening uptake, often at exponential rates, moves it into the next 35% of the life-cycle, the 'tornado' phase.
During the next 50% of its active life it moves into the mass-market. After that, decline becomes inevitable.
Pierre Delaly, fund manager, said: "Using the advice of our Scientific Advisory Board we often aim to invest at the 'chaos' stage, clearly the point at which there is the most potential for growth.
"At that stage, the most important thing, given a strong potential product, is visionary management. An example would be Steve Jobs at Apple, whose first product was a laser computer, which was unsuccessful. He then developed the Macintosh.
"However, the vital thing as the product moves into the 'tornado' phase is to have a more business-oriented management. At this point, the management needs to listen to customer feedback, something that Jobs failed to do.
"By the 'mass-market' phase, the management should be extremely financially oriented."
During the 'chaos' phase, a company should concentrate on building its market share, Delaly said.
"Profitability should not really be a major concern until the 'tornado' phase. A classic example is Netscape. While still in the 'chaos' phase, the company was selling its browser.
"When Microsoft entered the market, giving away its own browser for nothing, Netscape decided to protect its profitability rather than fighting for market share."
Having identified a nascent trend, the managers will play it via the selection of a basket of two to three companies during the chaos phase.
Moving into the 'tornado' phase the selection will narrow to the leader and the number two stock. By the 'mass market' phase the leader only will be held.
The Scientific Advisory Board is one of the key areas in which the managers add value, Delaly said.
"The SAB is composed of people whose experience and contacts within the technology field enable us to pick up on ideas at early stages within their development.
"Working hand-in-hand with the members of the SAB enables us to evaluate the potential leaders. It also helps us to access the companies' management.
"The president of the SAB, Dr Juan Rada, for example, was formerly the president of IMD, one of Europe's finest business schools. He is now employed by Oracle.
"Federico Faggin, another SAB member, was the designer of the original Z80 processor and is now chairman of the San Jose-based Synaptics, which makes the finger-operated pad for notebook computers made by a number of manufacturers including Dell."
At present, investment themes in the portfolio include the internet, broadband communications and new services.
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