The investment process at Canso begins with a thorough fundamental review of the issuer of a security by the analyst. A team meeting is then held to consider the issue or issuer in question. We encourage active participation by all investment staff and structure the meeting to allow a full and open discussion. Given the wide range of experience and analytical skill of our professional staff, we make it a priority to encourage debate and a complete assessment of all important issues.
As part of our fundamental review the future cash flow stream from a security is identified and the risks associated with those cash flows are determined. An internal credit rating is then assigned to the issuer and a valuation is established. The portfolio managers make the ultimate buy or sell decision by comparing the Canso valuation to the actual market price of the security.
In order to decide on the appropriate position size, we determine the potential downside of the security from its current market value using our proprietary Maximum Loss analysis. This analysis captures the potential return that will be available to the bondholders and creditors in an insolvency and workout situation. Our experience with distressed debt is invaluable in this regard, as it allows us to fully understand the intrinsic value of a security in a negative scenario.
Weekly meetings are held to assess new information, although decisions are frequently made on an opportunistic basis between meetings. Issuers held in our portfolios are reviewed on at least a quarterly basis. If corporate development arises, the analyst responsible will present their analysis and recommendation to the other team members who provide peer review and input. After the development has been thoroughly reviewed, the portfolio manager makes the investment decision.