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In early March, our emerging markets team traveled to Jakarta, Indonesia. Given the political transition following the presidential election last year and ongoing macroeconomic headwinds, we sought to assess the market firsthand. For bottom-up investors, Indonesia has long been one of the most promising equity markets in Emerging Asia, and despite near-term challenges, we continue to see compelling long-term investment opportunities.

Jakarta can be a difficult city to navigate, but with the onset of Ramadan, the usual congestion was noticeably lighter, allowing us to efficiently move between meetings. As the world’s largest Muslim-majority country, Indonesia experiences notable shifts in consumer behavior and urban activity during the holy month. While moving around the city, we were particularly impressed by the quality of Jakarta’s road infrastructure, which, in many areas, exceeds what we have seen in the capitals of more developed countries. The improvements in connectivity and urban planning are a testament to Indonesia’s infrastructure investments over the past decade. Over the course of the week, we met with companies across the consumer, healthcare, real estate and industrial sectors, gaining valuable insights into the country’s evolving economic landscape.

A recurring theme in our discussions was the growing fragility of the Indonesian consumer, particularly in Java, the most economically and demographically significant of Indonesia’s 17,000 islands, accounting for 56% of the population and 57% of GDP. Over the past few years, real wage growth has lagged inflation, eroding purchasing power across all income segments. However, while businesses serving the urban middle class are experiencing a notable slowdown, some ex-Java regions have shown resilience, benefiting from recent minimum wage increases, social aid for low-income groups, commodity-linked employment and past infrastructure investments.

This consumer sentiment is most evident in downtrading, as households opt for cheaper alternatives across food, personal care and general merchandise. A notable trend has been the shift away from multinational companies, such as Unilever, in favour of more affordable local alternatives that offer comparable quality at lower price points. Companies in healthcare and discretionary retail are reporting lower volumes, even as premium segments remain more stable. Our meetings and channel checks confirmed that consumption weakness among middle-income consumers is entrenched, creating a challenging near-term outlook for businesses exposed to domestic demand.

The continued depreciation of the rupiah adds to the pressure. The currency is among the worst-performing in Asia year to date, despite active central bank interventions. Foreign investors have pulled USD1.8 billion from Indonesian equities this year, and on March 18, the Jakarta Composite Index triggered a trading halt after a 5% intraday drop, highlighting nervousness in the local market.

Although the new government has set ambitious economic targets, many investors remain cautious about execution risks. President Prabowo has announced a goal of achieving 8% GDP growth, a level Indonesia has not seen since 1995. With structural constraints and weak private sector investment, breaking out of the 5% growth range recorded in recent years remains a significant challenge.

One of the government’s most ambitious initiatives is the Danantara Sovereign Wealth Fund, designed to consolidate state-owned assets and fund strategic projects. Danantara has a goal of reaching USD900 billion in assets under management, which would make it one of the largest sovereign wealth funds globally. However, questions remain about its governance, transparency and the potential impact on state-owned enterprises (SOEs). With Danantara expected to rely on SOE dividend payouts, banking and energy sectors could see their capital allocation priorities altered.

At the same time, the government’s pivot away from infrastructure spending raises concerns about long-term economic sustainability. Over the last decade, Indonesia’s growth has been supported by significant public infrastructure projects, such as the Trans-Java Toll Road, which improved connectivity and regional economic development. The decision to reallocate resources toward populist policies, such as the free school meal program, has introduced fiscal uncertainties, particularly as recent revenue collection fell short of expectations.

Implementing free school meal programs has proven effective in combating malnutrition and improving educational outcomes in various countries. For instance, India’s Mid Day Meal Scheme, which serves nutritious lunches to over 97 million children daily, has led to increased school attendance and a 31% reduction in anemia prevalence among adolescent girls. However, executing such an initiative across Indonesia’s vast archipelago presents significant logistical challenges. Ensuring the consistent distribution of fresh meals to remote and diverse regions requires substantial infrastructure and coordination efforts.

Beyond economic policies, we noted concerns about the rising military presence in government institutions, a development that some investors worry could signal a shift toward a more centralized power structure. While Indonesia has undergone remarkable democratic progress since the fall of Suharto’s authoritarian rule in 1998, memories of military-dominated governance still linger. While this shift has raised alarms among some observers, it is important to distinguish today’s political landscape from the Suharto era, as institutional limits on military influence have since been established.

For foreign investors, rule of law, policy predictability and strong institutions remain critical factors in assessing investment opportunities. Any perception of reduced transparency or shifts away from a market-driven economy could weigh on investor sentiment. While the trend warrants monitoring, fears of a full-scale return to military-dominated governance appear overstated.

Despite macro headwinds, Indonesia continues to offer structural advantages that make it one of the most attractive long-term investment destinations in Emerging Asia. With a population of over 270 million and a median age of just 30, the country remains one of the largest and youngest consumer markets globally.

Amid the macroeconomic pressures, healthcare remains one of Indonesia’s most resilient sectors, driven by rising demand and structural under-penetration. The country’s healthcare expenditure stands at only ~3% of GDP, one of the lowest in ASEAN, with the doctor and hospital bed ratios per 1,000 inhabitants (0.7 and 1.2, respectively) remaining well below the global average. The positive demographic trend and government-backed healthcare program (BPJS Kesehatan) continue to support patient volumes, with private hospital networks benefiting from both scale efficiencies and growing intensities. As Indonesia works to improve access to quality healthcare and expand private insurance adoption, the sector presents compelling long-term growth potential, even in a more challenging economic environment.

Indonesia has demonstrated resilience through past economic cycles, maintaining a relatively strong external position with foreign exchange reserves of approximately USD155 billion and government debt at ~39% of GDP. In 2024, the country recorded a current account deficit of 0.6% of GDP and a fiscal deficit of 2.3% of GDP, both within a manageable range for an emerging market. From a valuation perspective, Indonesian equities are now trading at very compelling levels, with the Jakarta Composite Index (JCI) at ~11x forward P/E, roughly two standard deviations below its 10-year average.

Source: Bloomberg

If global monetary conditions ease, Indonesia could be well-positioned for a rerating.

In this environment, stock picking is key. We continue to focus on companies with strong pricing power, resilient demand drivers and long-term structural advantages – qualities exemplified by our holdings in Sido Muncul and Mitra Adiperkasa.

Industri Jamu Dan Farmasi Sido Muncul Tbk PT (SIDO IJ) is Indonesia’s leading producer of traditional herbal medicines and functional beverages. Its flagship brand, Tolak Angin, is synonymous with natural flu and cold relief, commanding a market share of 72% in the herbal cold symptoms product category and enjoying strong consumer loyalty and premium pricing power while remaining a staple of Indonesian households. The company’s vertically integrated supply chain improves cost efficiency, further strengthening its margin resilience in an inflationary environment. Unlike many consumer goods companies that face pressure from rupiah depreciation, Sido Muncul is largely insulated from currency volatility as its raw material sourcing and key input costs are primarily local. With a net cash position and ~7% dividend yield, Sido Muncul combines defensive qualities with long-term structural growth, supported by expansion into functional beverages and overseas markets.

Mitra Adiperkasa Tbk PT (MAPI IJ) is Indonesia’s largest specialty retailer, operating a diverse portfolio of global brands, including Zara, Sephora, Nike, Starbucks and Apple (via authorized retail partnerships). The company benefits from strong pricing power through exclusive brand partnerships and a premium positioning, which allows it to maintain healthy performance even in softer consumption periods. While mass-market retail faces headwinds, Mitra Adiperkasa is well-positioned in the more resilient mid-to-premium consumer segment. Its long-term structural advantages stem from strong brand relationships, a well-executed omnichannel strategy and a track record of navigating economic cycles, making it a long-term winner in Indonesia’s evolving retail landscape.

Indonesia is experiencing a challenging economic transition, but its long-term structural advantages remain intact. Our Indonesian holdings are positioned for strong business fundamentals despite macro volatility.

Earlier this month, we attended the Daiwa Investment Conference in Tokyo, which is the largest conference of its kind in Japan. Over 400 companies and 650 investors participated. We met a total of 20 companies, of which six are holdings in our portfolios. Across various industries, many companies emphasized improving ROE, shareholder return and corporate governance.

The overall sentiment remained cautiously optimistic despite tariff concerns. So far, only one new tariff has been applied to imports from Japan during this second Trump administration: 25% tariffs on steel and aluminum products from all countries and regions, including Japan.

Negotiations between the United States and Japan are hard to predict. Below are key factors to consider:

Japanese vehicles account for about 30% of Japan’s exports to the United States. If high tariffs were imposed on these, the impact would be significant.
Japan is the single-largest overseas investor in the United States, accounting for 15% of total foreign direct investment (FDI). Net FDI by Japan in the United States reached a record high of 73 trillion yen (USD77 billion) in 2024.
Japan targets to spend 2% of GDP on defence. Based on the record-high GDP last year at 609 trillion yen, that would mean over 12 trillion yen (USD81 billion) on defence. Japan is a major buyer of US military hardware, which includes items like missile defence systems, fighter jets and munitions.

Year to date, Japanese small caps have outperformed large caps thanks to less exposure to tariffs. This is an ideal environment for domestic-oriented companies that benefit from healthy inflation, higher consumption driven by wage hikes, and inbound tourism.

Inflation: The core consumer price index in Japan is expected to rise 2.9% year-over-year in February 2025, after +3.2% in January. The central bank policy rate in Japan is at only 0.5%; still lots of room to raise the rate to keep inflation under control.
Wage hike: According to Rengo, Japan’s largest union group, Japanese companies have agreed to raise wages by 5.46% in the fiscal year 2025, the second year in a row above 5%. This reflects record-high corporate profits and the need to retain staff amid a labour shortage.
Inbound tourism: A record high of 36.9 million foreigners visited Japan in 2024, up 47.1% from 2023, and up 15.6% from 2019. The largest number of visitors to Japan came from South Korea, followed by China, Taiwan and Hong Kong. Tourists’ consumption exceeded 8 trillion yen (USD53 billion) for the first time. Expo 2025 Osaka will take place between April 13 and October 13, 2025, and aims to attract over 28 million visitors, including 3.8 million from overseas.

As part of its growth strategy, Japan has set a target of 60 million foreign visitors and 15 trillion yen in consumption in 2030. Kotobuki Spirits Co. Ltd. (2222 JP), a company we initiated last year, is well positioned to benefit from such trend.

Founded in 1952, Kotobuki Spirits is a leader in premium gift sweets in Japan. The flagship brand is LeTAO which is known for its desserts, but especially its cheesecake. Other brands include Now on Cheese, Tokyo Milk Cheese Factory, The Maple Mania and more. Points of sale are in prime locations such as train stations, department stores, shopping malls and airports. Customers are local consumers, corporates and inbound tourists (20% of total sales). Gift giving is a common part of Japanese culture and oftentimes gifts are in the form of food or treats. The size of Japan’s domestic food and beverage gift market was estimated to exceed $32 billion in 2023.

Kotobuki Spirits’ main growth strategy is to expand distribution. About half of sales are from its directly owned stores, while the rest is from wholesale and online retail. Currently, it owns 130 stores and plans to open 5-10 every year. Thanks to its strong pricing power, the company raised prices by an average of 3% in fiscal year 2023 and by 10% in fiscal year 2024.

The management team is very stable and experienced. President Seigo Kawagoe is the son of the late founder. He has been with the company since 1994. The Kawagoe family owns 29% of outstanding shares. In the December 2024 quarter results, its sales grew over 14% and its operating profit was up 15%.

Last July we wrote to clients about the vicious and virtuous circles which define EM investment cycles and argued there are signs of potential shift from the former to the latter: Are emerging markets on the cusp of a “virtuous circle”?

In the piece we cautioned that fixation on dominant investment narratives can lead to investors missing opportunities in neglected asset classes:

The disparity between the US and EM over the past decade tempts investors into the behavioural trap of building conviction for future returns based on what has performed well in the recent past. It is easy to forget that the annualised returns from 2000 to end-2023 for EM were 7.6% versus 7.8% for the US, both outpacing 6.2% for MSCI World. The risk here is that a pro-cyclical mindset can lead to perverse thinking where conviction strengthens for a popular asset class as the likelihood of a good result decreases, and vice versa.

Along the same lines, we argued in December that investors needed to be mindful of success bias in US equities:

Making money as an investor is all about the delta between reality and expectations. Investors myopically fixated on market narratives about US exceptionalism as justification for extreme outperformance versus the rest of the world risk overstaying their welcome, along with missing opportunities in unloved markets.

Investors adding to US exposure at the expense of the rest are making a bet that such scorching outperformance can continue.

This was against a backdrop of a raging “Trump trade,” as investors bet on a hot US economy, tariffs feeding inflation, rising yields and dollar, and US stocks outperforming the rest.

These trades are now in retreat on fears of tariff blowback on the US economy, while stocks in China rip higher and the dollar plunges.

Vicious and virtuous circles

Is this the turning point we have been calling for? Let’s re-examine the vicious and virtuous circles for EM equities. The performance of US companies, especially its tech giants has indeed been exceptional, while weak fundamentals in EM have fed a self-reinforcing feedback loop which has been a major headwind for the asst class, illustrated below.

Source: NS Partners

Is China leading a shift?

Recent dollar weakness as well as a boost to the monetary backdrop in China provides further support to the view that a shift to the virtuous circle may be approaching.

Source: NS Partners

Chinese equities have run hard over a short stretch and may well be due a pullback. However, valuations remain attractive with the market ticking up from 10x CAPE to just over 11x. The rally so far has centred on tech giants Tencent and Alibaba as investors wake up to China’s capacity to innovate in AI and compete with the United States.

There is potential for this outperformance to broaden as the economy stabilises, corporate earnings bottom out, and with the potential for more stimulus from Beijing to come in response to President Trump’s trade sorties.

From famine to feast in Southeast Asia

It’s not just China that would enjoy a stalling dollar. There are a number of liquidity-sensitive markets likely to switch from famine to feast, where capital inflows are sterilised by central banks through money creation on commercial bank balance sheets.

The small, open trading economies of ASEAN in particular would be beneficiaries. The liquidity boost from a falling dollar would be a shot in the arm for a region already benefitting from strong foreign direct investment (FDI) flows, relatively stable politics, economic and governance reform initiatives, along with efforts to foster stronger regional economic ties. Investor positioning in the region is light as illustrated below.

ASEAN investor positioning – active investors are only overweight in Indonesia

Source: EPFR as of 31 January 2025

Malaysia in particular has been unloved by EM investors, a heavy underweight with its stock market being hit by over five consecutive years of outflows. This belies what we think is an opportunity for the country to capitalise on the combination of its position at the intersection of Chinese and US FDI flows, a positive domestic economic reform story, and huge potential of greater economic links with neighbouring Singapore through the Johor-Singapore Special Economic Zone (JSSEZ) which was announced in 2024.

Malaysia’s golden opportunity

We have written previously about how a decade of reform under Modi in India has fuelled a positive development cycle acting as a driver for sustainable economic growth. Malaysia’s reform story is on a much smaller scale given a population of 35 million against India’s 1.4 billion, but it is meaningful and emblematic of wider regional reform efforts. It is also more incremental as Prime Minister Anwar manages a relatively fragile coalition government, in contrast to Modi’s commanding hold over Indian politics.

Like India’s Aadhaar program, Malaysia has introduced biometric identification in MyDigital ID. The system streamlines access to government services such as welfare payments, and reduces fraud. Anwar has also successfully axed costly diesel subsidies, which will save around RM4 billion annually, reduce smuggling, and free up cash to be redirected to healthcare, education, and infrastructure. A far more economically impactful (but equally contentious) reform of wider fuel subsidies is also on the agenda.

We think the most exciting development is the government’s ambition to form closer economic ties to Singapore through the JSSEZ. Our Co-CIO Ian Beattie met with both Prime Minister Anwar and Finance Minister II Amir Hamzah over the past few months in London to hear about opportunities for foreign investors.

The JSSEZ aims to capitalize on the geographical proximity and complementary strengths of Johor and Singapore. Singapore is bursting at the seams with people and flush with capital, pushing property prices and rents sky high. These issues are putting constraints on businesses in the bustling Asian financial hub that are looking to expand. Johor’s key advantage is in its geographical proximity to Singapore along with providing access to much more competitively priced land, water and energy, globally connected ports, as well as educated workers able to speak Malay, English and Chinese.

Meeting the Malaysian government

NS Partners Co-CIO Ian Beattie standing in the second row just to the right of Malaysian Prime Minister Anwar Ibrahim, who visited London in February to promote Malaysia’s promise as an investment destination. Source: Invest Malaysia 2025.

“It’s a no-brainer” – Johor-Singapore Special Economic Zone

While the meetings in London were exciting, nothing beats seeing it first-hand. Ian and I travelled to Singapore and Malaysia in late February, kicking the trip off at one of the busiest land borders in the world (10,000 people crossing per hour and rising), between Singapore and the Malaysian city Johor Bahru, the heart of the JSSEZ.

After missing our early morning train (turns out you need to be at the customs counter more than 30 minutes before departing) we were relieved to find that we could swiftly pass through a massive, automated customs facility at the entry to the bus terminal, with departures heading over the border every few minutes. We then spent the day touring the city and surrounding areas which would make up the JSSEZ, which span several areas illustrated in the map below.

Source: PWC 2025

Each of these areas, known as flagship areas, will focus on different vital sectors such as manufacturing, business services, digital economy, education, health, tourism, energy, logistics and financial services.

Johor is already a global hub for data centres, attracting investments from US and Chinese tech giants like Nvidia, Microsoft and ByteDance. However, the combined support of the Malaysian and Singaporean governments pushing for more seamless movement of goods and people through the region through developing better transport links and cutting red tape between the economies, is seen as a game changer that will supercharge development.

It really is different this time

The JSSEZ is the latest iteration of previous (and disappointing) attempts to promote investment and development in Johor. However, as explained by the team at the Invest Malaysia Facilitation Centre (IMFC – which had been established only a week or so before we visited), this is the first coordinated push by Malaysia and Singapore, with the IMFC tasked with shepherding capital around the country.

Meeting the head of IMFC Adny Jaffedon bin Ahmad and Iskandar Regional Development Authority VP Rozy Abd Rashid.

Booming Johor

While the task of getting all of the various agencies and governmental authorities to work together will be a monumental task, our discussions with companies in the region paint a bright picture. In property, we met with the team at Knight Frank Johor who said that the region had been booming even before the announcement of the JSSEZ. Residential real estate prices have risen around 50% in five years as Singapore’s growth spills over the border, with workers buying property in Johor and commuting into the city-state each day. This looks set to continue with the completion of the Singapore–Johor Rapid Transit System set for completion in 2027 which will directly connect Johor with Changi airport.

We met with property developer EcoWorld which owns a large land bank of residential, commercial and industrial sites close to the border. The company is focused on the development of large townships connected to commercial spaces set to soak up demand from Singaporean businesses looking to expand in a cost-effective way, e.g. HQ based in Singapore, but with an expanding operations team in Johor.

EcoWorld taking us through the plan for developing their Botanic township.

Trying out EcoWorld’s virtual sales technology.

Development in residential and commercial property is unfolding at a rapid pace. However, almost all of the companies we met with were wary about whether the local infrastructure could scale up to accommodate the influx of people and activity.

At the centre of the China-US AI investment race

Malaysia is positioning itself as a key Asian hub for where the physical manifestation of the digital world is built out. Huge investment in AI and cloud infrastructure is transforming the region through the construction of data centres, power stations, transmission cables, power plants, water reservoirs and more. Tech giants looking to invest in Malaysia rely heavily on local players across real estate, construction and banking for their knowledge of the market and ability to navigate the regulatory environment to successfully execute on projects.

Everyone we spoke with in Johor was excited about the surge in interest for industrial land to develop data centres, for both cloud and AI. We toured sites where just a few years ago there was dense jungle. Thousands of acres have given way to massive concrete and steel structures built for the some of the largest tech companies in the world.

Touring an enormous data centre park.

There is so much demand that development is running into resource bottlenecks, and the government is wary that mushrooming data centres could deplete local resources at the expense of the local population. While power supply is cheap in Malaysia, the intensity of power consumption requires huge investment in renewable energy and transmission capabilities. The biggest constraint is water supply for cooling. Local authorities are furiously working to build new reservoirs to support the infrastructure. Some data centre players are looking to move so fast, they are building their own desalination plants, made possible by the close proximity of some sites to the sea.

Leading the region

We made the three-hour drive from Johor up to Kuala Lumpur to meet with a host of companies behind the development story not just in Johor, but also across Malaysia and Southeast Asia. To single out just one business, construction company Gamuda spoke with us about how their technical expertise and strong balance sheet allows them to tender for highly complex and long-term projects that deter competitors while driving double-digit margins. This includes AI and cloud projects for tech giants like Google and Microsoft, as well as for the Malaysian government in its push to improve the country’s infrastructure.

Gamuda has expanded regionally, with operations outside of Malaysia now accounting for over 85% of its business. It boasts stronger margins than peers in the major markets of Australia and Taiwan, with a tightly run project management team based in Malaysia helping to drive costs down. This, along with an innovative engineering culture, allows Gamuda to make competitive bids for highly complex projects that local peers struggle to match. In Australia, this has seen them win bids for multi-year, multi-billion-dollar mega projects in renewables and infrastructure like Sydney’s metro rail network.

Leading the construction of nine kilometres of metro rail tunnels in Sydney

Source: Gamuda 2025

In Taiwan, Gamuda has been building underground railway lines, transmission lines, sea walls and bridges. Taiwan’s monopoly position in leading-edge semiconductors has left the country flush with capital to fuel an infrastructure upcycle. Gamuda’s order book is growing as it often finds itself the only bidder to some attractive tenders. This is down to both the complexity of projects, but also the lack of competition. Everything is tendered in Mandarin, but Chinese construction businesses are “not welcome” in the market. Local players generally do not have the strength of balance sheet or experience that Gamuda boasts, allowing the company to set very attractive prices in contracts that our contact described as “obscenely fair.”

Ambition and (cautious) optimism

Aside from company research, we also spent a lot of time admiring Kuala Lumpur’s skyline, particularly Merdeka 118 (pictured below) which stands at 679 metres tall (its spire alone being 158 metres tall). It is the second tallest building in the world, surpassed only by the Burj Khalifa, and was officially opened in early 2024. The name “Merdeka” means “independence” in Malay, reflecting its proximity to the historic Stadium Merdeka, where Malaysia’s independence was declared. Not only does it stand as a symbol of the country’s progress, we think it also signals its ambition, potential and the opportunity on offer for many of the excellent businesses that we met.

Merdeka 118

Source: NS Partners 2025

At the heart of our organization is the commitment and desire to provide superior performance and service to our clients. Our primary objective is to meet our clients’ expectations while ensuring our people are highly motivated and enthusiastic. This requires that we keep the business narrowly defined on what we do best, and endeavour to remain at the cutting edge of research and development initiatives within financial markets.

Valuing Our Client Partnerships

Each year, we take the opportunity to provide our clients with an update on our business, outlining how we are directing our efforts within CC&L Investment Management (CC&L) to fulfill our commitment to delivering investment performance and superior client service.

Despite periods of market volatility in 2024, the year will likely be remembered for a favourable macroeconomic backdrop of accommodative monetary policy in a resilient economy. The era characterized by low inflation and low interest rates – which fueled robust investment returns for many years – is behind us. The persistent threat of inflation, combined with higher interest rates over the medium to long term, presents a more challenging environment for investors. As we enter 2025, we anticipate increased market volatility in a late-cycle environment. For a comprehensive review of our investment outlook, please see our 2025 Financial Markets Forecast.

Our business structure provides stability and keeps us focused on maintaining a long-term horizon. We have successfully navigated diverse investment environments since our company’s inception in 1982. Regardless of the operating environment, we are committed to creating the internal conditions necessary to fulfill our commitments to clients. Our ability to do so begins and ends with the quality of our people and the strength of our relationships. As our teams continue to grow, we remain committed to investing in our people through career development and leadership programs. Our focus is on enhancing skillsets, strengthening the depth of our teams and investment processes, and planning for succession. We are dedicated to preserving a strong alignment of incentives which has allowed us to fulfill our commitments to clients while ensuring our people remain motivated and enthusiastic.

This year, we would like to acknowledge our client partnerships. We have the privilege of working with over 200 clients worldwide. In the past five years, we have welcomed more than 100 new clients. These new partnerships include clients from Canada, the United States, Europe, Asia and the Middle East. Notably, among them are several of the largest pension funds in the world. Equally important, we deeply value the longstanding relationships we have built with our early clients, with more than a third of them entrusting us with their assets for over a decade. These enduring partnerships reflect our commitment to understanding evolving client needs and developing tailored investment solutions. Through collaboration with clients, and in many cases their investment consultants, most of these longstanding mandates have evolved to include new or enhanced investment solutions since their inception.

The expansion of our investment and risk management capabilities and client base have meaningfully transformed our business. We firmly believe that the investments we have made and innovations driving this transformation will deliver long-term benefits for all our clients.

In closing, I extend my sincere gratitude to our clients for your trust, confidence and continued partnership.

Sincerely,

Martin Gerber
President & Chief Investment Officer

Our People

In 2024, our firm continued to grow, welcoming 18 new hires and bringing our personnel count to 135. Our business also benefits from the broader CC&L Financial Group, which employs 441 professionals supporting business management, operations, marketing and distribution.

Our firm’s stability and specialization remain key drivers of our business. Succession planning and career development are central to our approach, ensuring continuity and long-term success.

We are pleased to share that several employees were promoted to Principal, effective January 1, 2025, in recognition of their important and growing contributions to our firm.

CC&L’s Board of Directors is also pleased to announce the promotion of new business owners, effective January 1, 2025, in recognition of their leadership and impact in their roles.

Fixed Income

Throughout 2024, TJ Sutter partnered with David George as Co-Head of Fixed Income, sharing the responsibility for investment decisions, business operations, team management and strategic direction of the team. TJ has now assumed full leadership, with David transitioning to an advisory role until his retirement on December 31, 2025. TJ joined CC&L’s Board of Directors in 2025, succeeding David.

Over the past three years, we have worked with Simon MacNair, Portfolio Manager, on a gradual succession plan to transition his portfolio construction responsibilities to several key individuals on the team. This process will be completed by year-end when Simon officially retires.

The portfolio construction functions have been undertaken by sub-teams, with leaders in each area who have progressively assumed greater responsibility and became business owners in 2025.

- Derek Poole joined the fixed income team in 2015 as a trader. He became a Principal in 2018 and has had increasing responsibilities over the past seven years, which now include oversight of implementation and management of the trading team.
- Tim Wilkinson joined the team as a trader in 2011 and became a Principal in 2015. Tim handles the investment process management of all fixed income portfolios. This includes the development and management of proprietary tools and models used in-house for trading, spread analysis and quantitative research.
- Alicia Wu joined the team in 2017 and became a Principal in 2020. She transitioned from investment process management into a portfolio construction role in 2021. She is responsible for overseeing risk management and portfolio construction processes.

In 2024, the team launched a “core plus” strategy that complements the unique and successful CC&L Universe Bond Alpha Plus and Long Bond Alpha Plus strategies. In the new CC&L Core Plus Fixed Income Strategy, the “plus” is delivered by specialist teams within the CC&L Financial Group affiliates. The strategy offers diversified returns from high-yield bonds, commercial mortgages and emerging market corporate debt. The team is also seeing inquiries into investment solutions where it has unique capabilities, including absolute returns and alpha overlays.

Fundamental Equity

Over the past several years, the fundamental equity team has been developing the next generation of investment leaders. The team welcomed a new trader and analyst covering the technology sector in 2024. In addition, Michael McPhillips, Portfolio Manager & Research Head, was identified as the future CIO of the team. The primary functions of the CIO role are setting equity strategy, leading the portfolio management team and overall team investment leadership. Michael will transition into the role over the coming years, working closely with co-heads Gary Baker and Andrew Zimcik. Michael is a business owner and has been a fundamental equity team member since 2013.

Joe Tibble, Trader, became a business owner in 2025. Joe joined CC&L in 2022. His experience on both the sell-side and buy-side enabled him to step into the role seamlessly and take on greater responsibility on the trading desk.

The team continues to deliver on clients’ investment objectives across the different fundamental equity strategies. The team’s investment philosophy and process are unchanged, and we believe will continue to benefit our clients in the future. The unique features of our investment approach include always maintaining coverage of all Canadian stocks, strict target price discipline, incorporating macroeconomic research into stock and sector selection, and rigorous risk management.

Quantitative Equity

The team grew to 79 members, with 13 new hires in 2024. Investment professionals were added to all sub-teams during the year. Investment in leadership resources across sub-teams will continue at a similar pace this year. The steady growth of the team reflects the need to continually expand and reinvest in our capabilities as the size and scope of the quantitative business has grown.

Graeme McCrodan became a business owner in 2025. Graeme joined the firm in 2012 as an analyst on the Investment Process Management (IPM) team, moving to the research team a few years later. Over the course of his tenure, Graeme has led increasingly complex research projects. He introduced some of our first alpha signals leveraging new techniques to process large, complex datasets. Graeme now leads our research data onboarding effort, which plays a critical role in the research team’s ability to continue to develop unique and valuable strategies.

To support continued growth in international markets, the firm’s pooled fund structures were expanded. This includes our Europe-based UCITS Fund platform for non-US-based investors, a Collective Investment Trust (CIT) platform in the US for ERISA-regulated pension plans, and a Cayman platform for US and other eligible global investors. The investment we have made will allow us to continue to diversify the regional exposure of our client base.

Client Solutions

Over the past year, Phil Cotterill, Head of Client Solutions, has been executing on his succession plan, working closely with Calum Mackenzie on all aspects of team leadership. This transition will continue through 2025, with Phil acting in an advisory capacity. Calum joined the firm in 2023, bringing significant experience from prior leadership roles. In 2025, he was appointed to CC&L’s Board of Directors. Phil joined the firm in 1993 as an analyst on the fundamental equity team, later serving 13 years as a portfolio manager before leading the client solutions team. After more than 30 years at CC&L, Phil will retire on December 31, 2025.

The team is proud to be the recipient of a Greenwich Quality Leaders award in Canadian Institutional Investment Management Service Quality for 2024.¹ The award recognizes firms that deliver superior levels of client service that help institutional investors achieve their investment goals and objectives.

Responsible Investing

Last year, we developed several new tools for use in our fundamental equity and fixed income investment processes. These tools include a sector materiality matrix and ESG controversy data monitoring. The focus in 2025 will be on continued integration of these tools into each team’s research process and the monitoring of outcomes to identify areas for further improvement. In 2024, we incorporated carbon metrics for our equity portfolios in our third-quarter reports and plan to extend this reporting to our fixed income portfolios later in 2025.

Business Update

Assets Under Management

CC&L’s AUM increased by CA$12 billion in 2024 to CA$76 billion as of December 31, 2024. We are pleased to report that our business continued to grow through new client mandates across all investment teams. In 2024, CC&L gained 30 new clients and 10 additional mandates from existing clients totaling CA$8 billion. Most new mandates were for quantitative equity strategies from global institutional investors.

Final Thoughts

We sincerely appreciate the trust and support of our clients and business partners. We look forward to continuing to help you achieve your investment objectives in the years ahead.

¹From February through September 2024, Coalition Greenwich conducted interviews with 115 of the largest tax-exempt funds in Canada. Senior fund professionals were asked to provide quantitative and qualitative evaluations of their investment managers, assessments of those managers soliciting their business, and detailed information on important market trends. CC&L did not provide Coalition Greenwich with any compensation for this survey.

Europe has decided to take its defence into its own hands as it experiences a fast-evolving geopolitical environment. In order for Europe to reduce its reliance on US military support, it would take a reversal of decades of underinvestment. After rapid growth in the last few years, NATO’s European members are about to reach the targeted 2% of GDP spent on defence. However, much more would be required for Europe to boost its defence capabilities.

Over the past weeks, many countries and organizations have stepped forward, announcing proposals to increase their defence spending.

The European Commission proposed to suspend the EU budget rules to allow member states to increase defence spending. If members collectively raise their defence budgets by an average of 1.5% of GDP, this would theoretically create an extra funding capacity of €650 billion over four years.

Norway is contemplating the idea of converting €300 billion of its sovereign wealth fund into European defence bonds to support the production and procurement of military equipment in Europe.

Germany is prepared to spend big on defence and infrastructure. Last week, Germany’s bloc representing the two main parties presented a sweeping fiscal reform package with an aim to reform the debt brake and create a new infrastructure fund worth €500 billion. The debt brake reform is meant to exempt any defence spending over 1% of GDP from the deficit limit rule. This would allow Germany to substantially increase its defence budget.

In order to do so, Germany would need to amend its constitution which requires a 75% voting majority in parliament. This means the Christian Democratic Union, Christian Social Union and Social Democratic Party will need support from the Greens, who have rejected the plans as of today. The Greens have been advocating for both higher military spending and greater support for Ukraine, as well as an expansion of debt-financed investments in the past. Based on their own political positions, we believe it would be a surprise if they did not eventually agree to the plans.

Obviously, the European defence OEMs (original equipment manufacturers) and their suppliers will be a direct beneficiary of that defence spending trend. Other indirect beneficiaries include IT services companies, machinery manufacturers and aerospace suppliers. RENK Group AG (R3NK DE), a company we initiated last year, is also well positioned to benefit from the rearmament in Europe.

Founded in 1873, RENK is the global leader in mission-critical drivetrain components for the defence and energy transition sectors, providing systems to set vehicles, vessels and machinery in motion. Its competitive advantages include its ability to manufacture robust and reliable transmission systems and it features better power density vs. its peers. In naval propulsion, its manufacturing precision of less than 2-3 microns helps develop ultra-low vibration and noise systems. Its manufacturing and service footprint include 14 plants and three maintenance and repair service sites.

The higher-margin aftermarket business, which represents about 37% of revenue, provides high visibility and strong cash generation. The company generates 56% of its sales in Europe, 29% in the Americas and 15% in APAC. For its 2024 fiscal year, the company’s reported revenue of €1.1 billion (+23% vs. last year) and an adjusted EBIT of €189 million (+26%). RENK posted a record order intake of €1.4 billion for 2024 (+14%).

We believe RENK is well-equipped to capture market share in the European defence industry.

The “Magnificent 7” – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla – have long dominated markets, driving index returns and capturing investor attention. Their leadership in AI, cloud computing and consumer tech has fueled impressive growth, but with stretched valuations and increasing regulatory pressures, the question remains: Are they still the best opportunities?

Meanwhile, European banks have quietly outperformed these tech giants, benefiting from rising interest rates, strong capital positions and attractive valuations. These financial institutions are delivering solid earnings growth, improving margins and returning capital to shareholders. This week, we highlight how investing in so-called “boring” businesses can still generate market-beating returns – even against the strongest stocks.

Banks in Europe? That’s boring, right?

European banks, often viewed as “boring” investments, have faced years of stringent regulations since the Global Financial Crisis (GFC), designed to bolster stability and reduce systemic risk. While these measures have limited growth compared to more dynamic sectors like tech, they have also fostered steady earnings, lower risk and more attractive valuations. Despite Europe’s slow GDP growth, driven by factors such as an aging population and geopolitical instability, European banks have outperformed expectations. Benefiting from rising interest rates, improving credit conditions and a stable regulatory environment, these institutions have offered investors a more resilient, low-volatility alternative to today’s high-growth stocks.

European banks dominate the Magnificent 7

As we look at the performance comparison between European banks and the Magnificent 7, the data speaks for itself. While the tech giants have had their moments of dominance, European banks have quietly outperformed. This chart highlights how these so-called “boring” financial institutions have consistently delivered stronger returns, offering an intriguing investment opportunity for those seeking stability and growth in today’s market.

Source: Bloomberg

Introducing BAWAG: A strong performer in our portfolio

Now, let’s explore how our portfolio has positioned itself in relation to standout European banks, with a focus on BAWAG Group (BG VI), a key holding. As one of Austria’s leading banks, BAWAG has shown remarkable resilience and growth, driven by its solid capital position, cost efficiency and attractive valuation. In this section, we’ll discuss how BAWAG’s performance compares to our broader portfolio and whether it has contributed to our outperformance in the current market environment.

A turbulent history: BAWAG’s path to recovery and growth

BAWAG has a storied history marked by periods of both innovation and turbulence. Founded in 1922 by a former Austrian chancellor, the bank’s initial mission was to offer favourable credit terms to lower- and middle-income individuals under the name “Austrian Worker’s Bank.” The bank was forced to close in 1934 due to political reasons, but reopened in 1947, reestablishing close ties with Austrian trade unions.

In 2005, BAWAG merged with PSK, the Austrian Postal Savings Bank, founded in 1883. However, the bank faced a major setback in 2006, requiring a state bailout after an accounting scandal tied to the bankruptcy of US broker Refco. Several BG executives, including the CEO, were found guilty of fraud following subsequent investigations. In 2007, BAWAG was sold to a consortium led by Cerberus Capital Management, but another round of state aid was needed in 2009 due to the GFC.

The years following saw extensive restructuring as Cerberus took full control. BAWAG underwent significant cost-cutting and streamlined operations, which ultimately paved the way for a recovery. The bank was recapitalized in 2013 and again in 2014, with GoldenTree Asset Management acquiring an equity stake through a debt-for-equity swap. By the end of 2017, BAWAG went public, marking the culmination of its recovery and transformation.

Today, BAWAG stands as a testament to resilience, having overcome significant challenges to become one of Europe’s more efficient banks. The heavy restructuring and focus on capital efficiency and cost-cutting have allowed BAWAG to achieve one of the highest returns on tangible equity (RoTE) in the sector. This transformation has set the foundation for the modern BAWAG, which today continues to thrive in a competitive European banking landscape.

What BAWAG does with its significant capital

BAWAG has made strategic moves to deploy its substantial capital, further solidifying its position in the European banking landscape. Recently, BAWAG announced two key M&A deals aimed at expanding its footprint and capabilities. These include the acquisition of Knab, a fully online bank in the Netherlands, and the purchase of Germany-based Barclays Consumer Bank Europe.

Knab, previously known as Aegon Bank N.V., has long focused on serving the self-employed and was the first fully online bank in the Netherlands. After being acquired in 2023 by ASR Nederlands N.V., a Dutch insurance company, Knab was sold to BAWAG in February 2024. This acquisition allows BAWAG to tap into a growing digital banking market and broaden its customer base in the Netherlands, especially among self-employed individuals, a demographic that aligns with BAWAG’s growth strategy.

In addition to this, the purchase of Barclays Consumer Bank Europe in Germany strengthens BAWAG’s presence in a key European market, expanding its retail banking offerings and customer base. These strategic investments show how BAWAG is using its capital to strengthen its position in both digital banking and consumer markets, positioning itself for future growth across the continent.

It’s all about management

BAWAG’s success is driven by its highly effective and aligned management team. Widely regarded as one of the best communicators in European banking, the team is deeply invested, owning 3.9% of shares outstanding – more than any investment of another management team or board in the sector. This substantial ownership ensures strong alignment with shareholder interests.

Crestpoint is pleased to announce the appointment of Scott Antoniak as our new Executive Vice President and Head of Investments. Bringing with him over 30 years of experience in all facets of the real estate industry, he has been involved in deal origination, underwriting and transaction execution, and oversaw significant portfolio growth and expansion in his previous roles.

Scott has held several senior roles over his career including Executive Director of Real Estate Investment Banking at CIBC Capital Markets, Managing Director at Slate Asset Management and CEO of Slate Office REIT. Reporting directly to Kevin Leon, President and CEO, and working alongside the rest of the Crestpoint senior leadership team, Scott will focus on leading our Investment team and growing our portfolio of real estate assets. His expertise and leadership will be invaluable as we enhance our direction, agility, and effective execution.

We are approaching March and the time of year that many people abandon New Year resolutions. A Forbes poll showed that around 30% of those surveyed had abandoned theirs after just two months. However, Global Alpha’s company fitness drive continues as a small, dedicated band keeps up regular visits to the gym! Exercising is all well and good for your health, but the importance of nutrition also needs some focus.

Nutrition plays an essential role in sports and fitness. It helps optimize training outcomes, shortens recovery periods, minimizes the risk of injuries and ensures performance consistency. Many are aware of the importance of nutrition: how it supports a healthy and active lifestyle as well as boosting mental health. Consumption of fortified foods and beverages continues to increase among people wanting to supplement their diets with nutrients that not only boost the immune system but also improve their energy levels and health.

The global sports nutrition market is estimated to be worth USD40 billion. The United States is by far the largest sports nutrition market, with USD22.3 billion in sales and expected to grow at 4.6% a year through to 2027. Sports protein powder is the largest segment at USD21.1 billion and remains one of the fastest growing segments at 5.9%. Meal replacements is the second largest category, followed by non-protein products (e.g. pre-workout and amino acid supplements). Protein bars and the ready-to-drink category are both expected to grow around 5% a year.

Glanbia plc (GLB ID) is a recent addition to the International Strategy that is exposed to these trends. The origins of Glanbia are in Irish dairy farming; producing milk, butter and cheese. After many co-operatives were combined to form a larger entity, the company changed its name to Glanbia, which means “pure food” in Irish. Glanbia has since forayed into the sports nutrition market through their production of whey protein.

Why would a dairy company be an ideal candidate for whey protein nutrition?

Whey protein production starts when whey is separated from milk during cheese production. Liquid whey is filtered to remove fats and lactose. Protein concentrates typically have 70% to 85% protein content, while isolates are 90% or above due to more extensive filtering. Whey protein isolate is created by using additional filtering to attain a higher purity level. The primary benefit of whey protein is its quick absorption rate. This means it is ideal for post-workout recovery as it contains all the essential amino acids needed for muscle repair and growth. Once the qualities of whey became more well-known, it was an obvious opportunity for Glanbia to participate.

The company comprises three divisions – Glanbia Performance Nutrition, Glanbia Nutritionals, and cheese joint venture operations. Glanbia’s expertise is in protein nutrition, and they own the Optimum Nutrition brand, the leading sports nutrition brand in the world, and there is a strong complementary thread of protein nutrition expertise across both segments.

Glanbia Performance Nutrition division

Glanbia Performance Nutrition is a portfolio of leading brands in performance and lifestyle nutrition. Optimum Nutrition is part of that portfolio and is the leading sports nutrition brand in the world by sales. It was acquired in 2008 and has a reputation for high quality, innovative products across protein and energy using the very best ingredients and manufacturing processes. Optimum Nutrition consumers are typically highly engaged in the category, working out 80% more than the average buyer in the category. They are typically more affluent and spend more on sports nutrition products, seeing it as an “essential” spend.

Growth opportunities for Optimum Nutrition still exist in the United States, despite it being the most mature market, as household penetration remains below 5%. Unlike peers that have sales skewed to the United States, Glanbia is more global. It has scaled in ten markets, is present in another thirteen countries, and is among the category-share leaders in each geography. Glanbia’s international expansion strategy is measured. The buildout leverages local market resources until scale justifies a larger expansion, at which point Glanbia typically acquires local distribution capabilities and invests in local teams.

Glanbia Nutritionals division

Glanbia Nutritionals is a leading provider of customized premix solutions and whey protein isolate. Consumer interest in supplementation is growing and this division’s ingredient solutions improve the nutritional profile of the product through protein for powders, bars or beverages, or micro-nutrients to be included in vitamin and mineral pre-mix blends, powders, gummies, capsules or tablets. In addition to the health and fitness industry, this division serves the mainstream food and beverage industry via avenues such as infant nutrition, clinical nutrition, fresh dairy and yogurts.

Alongside these two divisions, Glanbia is also the number one supplier of American-style cheddar cheese.

Ready to refocus

It’s not always been blue skies for Glanbia, though. In 2018, Glanbia acquired SlimFast to expand the portfolio’s weight management products and bring scale to the ready-to-drink format. Since then, the weight management segment as whole has been under pressure as consumers reduce their consumption or migrate to nutrition brands not overtly associated with dieting. SlimFast faced a significant headwind in the decline of keto-oriented products when compared to another mainstream lifestyle brand such as Atkins which has developed an image as a “low carb” alternative. Glanbia is attempting to refocus SlimFast on core high-protein meal replacement shakes, in ready-to-drink and ready-to-mix formats. If this proves to be unsuccessful, existing shakes capacity can be re-positioned to support growth of Optimum Nutrition in a capacity-constrained market.

To summarize, the greater focus on healthy living and the mass appeal of protein and fortified foods should mean continued structural growth of sports nutrition and, as market-share leader, Glanbia gives us the desired exposure to this industry.

In the latest episode of The Private Equity Podcast, Jeff Wigle, Managing Director and Group Head at Banyan Capital Partners, shares his insights and expertise on transitioning portfolio companies for growth. Jeff emphasizes the importance of long-term value creation, leveraging technology and managing cultural change to avoid common private equity pitfalls and make data-driven decisions.

Who doesn’t love the smell of freshly brewed coffee in the morning? Coffee is an essential part of the morning routine for many millions of people worldwide.

With over 437 million posts on TikTok related to coffee, it’s no surprise that coffee demand has been soaring over the last couple of years. According to the National Coffee Association, 67% of Americans consumed a cup of coffee every day; this is more than any other beverage of choice. Much of the growth is driven by younger generations who have embraced coffee as part of their daily routines. As these generations enter the workforce – specifically Gen Zers – they are estimated to hold USD360 billion of disposable income and coffee companies around the world have been harnessing their spending power. Some of the key elements that differentiate the winners and losers in the coffee market is product innovation, creativity and connecting with consumers.

Both Europe and North America are big consumers of coffee – in fact, Finland is the country that consumes the most coffee globally. The average Finn consumes about 12 kg of coffee per year, which is the equivalent of 4 cups of coffee a day. In the United States, the average American consumes about 4.2 kg of coffee per year. Global coffee production in 2023 reached a staggering 178 million 60 kg bags. These production volumes cumulate to USD473 billion.

De’Longhi

One of Global Alpha’s holdings, De’Longhi S.p.A. (DLG MI), is significantly benefiting from the latest growth in the coffee market. A well-known Italian manufacturer and distributor of small domestic appliances, De’Longhi primarily sells all kinds of coffee machines for personal use. In addition to capitalizing on the at-home coffee market generating over 50% of their revenue from this segment, De’Longhi recently acquired two additional companies that specialize in the professional markets: La Marzocco and Eversys. This will allow the company to also benefit from coffee consumption outside of the home too.

The company saw an acceleration in sales in 2024, with organic revenue growth up 14% versus the previous year. The mid-teen growth in sales was mostly driven by at-home coffee machines. Its professional segment will be an interesting growth driver for many years ahead.

To maintain a competitive edge, the company has a strong track record of fostering innovation and driving new product development. De’Longhi spends 2.4% on average* of sales on R&D annually. This commitment not only enhances De’Longhi’s market position, but it also enables it to respond effectively to evolving customer needs and industry trends. The most recent example would be the launch of its Rivelia automatic coffee machine which features a cold coffee extraction feature to cater to the growing popularity of cold coffee beverages. As the company navigates the continuously changing landscape of the industry, its dedication to product innovation will undoubtedly lead to sustained growth and solidify its position as a leader in the market.

*Geoffrey D’Halluin, “What’s brewing?’’, BNP Paribas, 19 September 2024.