What is Breakout Capital? The Emerging Investment Firm

1. What is Breakout Capital?

Breakout Capital is a forward-thinking investment firm designed to capture the opportunities of the next decade, every decade. Founded with the goal of identifying high-growth markets that are poised to outperform, Breakout Capital challenges the traditional investment paradigms of the past. The firm is built on the belief that the hot investment themes of one decade rarely survive into the next, particularly since global markets became interconnected around 1980. This philosophy drives Breakout Capital's innovative approach to investing in emerging markets and other high-potential sectors.

2. The Founding Team

Breakout Capital was founded by Ruchir Sharma, an experienced investor and former leader of Morgan Stanley Investment Management’s global emerging markets equity team. With over 25 years of experience traveling and investing in emerging markets, Ruchir has developed a deep understanding of global market cycles and the factors that drive growth in these regions. His extensive research into global markets led him to develop a system of "ten rules" to identify markets that are likely to outperform over the next three to five years.

Ruchir's investment philosophy and expertise are the foundation of Breakout Capital, but the firm also benefits from the experience of its Managing Partner, Swanand Kelkar. Swanand was a successful portfolio manager on Ruchir’s team at Morgan Stanley, where he developed a methodology for identifying stocks with the potential to become "consistent compounders." This stock selection process now forms the backbone of Breakout Capital’s investment approach, helping the firm to identify and invest in companies with strong long-term growth prospects.

3. Advisory Board

Breakout Capital’s investment approach is also guided by a world-class advisory board of seasoned professionals. These experts bring years of experience from top global companies and investment firms, offering invaluable insights into market trends and investment opportunities. The advisory board includes:

Erik Serrano Berntsen, former Bain & Co. executive and current CEO of Stable Asset Management
Manju Juneja, former Barclays Capital and NWI Management LP executive
Vikram Pandit, former CEO of Citigroup and current Chairman and CEO of The Orogen Group
Vindi Banga, former Unilever executive and current Partner at Clayton, Dubilier & Rice

The expertise of these professionals strengthens Breakout Capital’s decision-making process, helping the firm stay at the forefront of global market trends and opportunities.

4. Approach to Investing

The investment landscape of the 2010s was dominated by certain trends, including a focus on mega-cap tech stocks in the United States and China. However, the dominance of these sectors and markets is unlikely to continue into the 2020s. Breakout Capital was created as an alternative for investors who are now looking to diversify beyond big tech and the superpowers. The firm aims to provide access to emerging markets and investment opportunities that are underappreciated or overlooked by traditional investors.

By focusing on identifying markets and sectors that are primed for substantial growth over the next three to five years, Breakout Capital differentiates itself from other investment firms. With an emphasis on diversification and global reach, Breakout Capital seeks to invest in companies and markets with the potential to "break out" and deliver consistent, long-term growth.

5. Investment Style

The investment style at Breakout Capital is deeply rooted in long-term growth and diversification. The firm focuses on markets that show signs of cyclical growth, using Ruchir’s ten rules to pinpoint areas of opportunity. These markets are expected to outperform their competitors over the next few years, providing investors with the potential for high returns.

Breakout Capital’s stock-picking approach is guided by Swanand’s methodology of identifying companies that can become "consistent compounders." This investment style focuses on companies with the potential to generate steady, sustainable returns over time, rather than chasing short-term gains. By investing in emerging markets and industries poised for growth, Breakout Capital offers an alternative to traditional investment strategies focused on established mega-caps and tech stocks.

6. Strategic Partnerships and Global Reach

Through this partnership, Breakout Capital benefits from Rockefeller Capital's human resources support, capital-raising services, and the permission to use its prestigious name. These resources provide Breakout Capital with the tools and credibility to expand its global presence and attract investors looking for unique opportunities in emerging markets.

Breakout Capital's competitive edge lies in two unique systems, one for country selection, one for stock selection.

The ten rules for country selection are designed as a heatmap that helps navigate rapidly changing emerging markets. Ten rules are considered sufficient to display all the most powerful predictors of change in real time, without getting lost in detail. Built on economic, financial, and political patterns with predictive value, the rules aim to identify the countries most likely to grow faster than their peers in coming years.

Research indicates that the strongest macro predictor of emerging market equity returns is relatively high and particularly accelerating economic growth. The focus of the system is on identifying relative economic performance and changes in the cycle: distinguishing countries poised for a take-off from those heading for a slowdown or crisis. A complete summary of the rules can be found here.

The stock selection system screens the listed equity universe for quality and growth. To screen for quality, the analysis looks for superior return on equity (ROE). The evaluation focuses on understanding the source of superior ROE and whether it can sustainably exceed cost of equity, which indicates a lasting competitive advantage. Business cyclicality is accounted for by analyzing this metric across a complete business cycle, not just for a year or two.

Similarly, nominal GDP growth rate is used as a hurdle in screening for high-growth sectors and companies. The emphasis is on understanding the source of high growth and whether it is sustainable. Companies with low volatility in earnings growth are favored. While such companies may trade at premium valuations, price underperformance caused by temporary or macro factors is sought to determine entry points.

7. Conclusion

Breakout Capital stands out as an entrepreneurial investment firm with deeply established roots in global finance. With its experienced founders, strategic partnerships, and world-class advisory board, the firm is uniquely positioned to identify and capture the opportunities of the next decade. Whether you are an investor looking to diversify your portfolio or seeking high-growth opportunities in emerging markets, Breakout Capital offers a fresh perspective and a proven strategy to unlock long-term value.

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