Firebird avoids value-destructive state-owned enterprises, some of which are because of their size the largest components of the indices. We achieve less volatile returns than the market in part through diversification, not only by country but also by sector, keeping a balance between resource producers, export-oriented manufacturers, and domestic demand growth plays such as banks and retailers. We also seek to protect our and our investors’ capital by raising cash during periods of heightened risk or very excessive valuations.
We believe that the value available in our region and numerous market inefficiencies make it possible to generate attractive returns without the use of leverage, derivatives, or short selling. Accordingly, our key form of risk control is liquidity management. We seek to ensure that the liquidity profile of each fund’s portfolio matches its terms and investor composition. Principals’ capital makes up a large portion of all the funds, giving each a stable base that allows us to dig into the mid- and small caps in search of value. In addition, we usually hold a long tail of illiquid stocks that could generate extraordinary returns if they work out, and which we size appropriately.