Shepherd's Hill Sees Value in Undervalued Assets Following 18-Month Cash Reserve

Shepherd's Hill Sees Opportunities Emerge in Select Pockets of the Market

Asset manager Shepherd's Hill is beginning to see opportunities emerge in select pockets of the market after holding more than 50 percent of its portfolio in cash for the past 18 months. According to managing partner Rishi Gupta, the firm's cautious approach was driven by elevated valuations that left too few bottom-up opportunities that met its internal filters on return, valuation, and business quality.

Shepherd's Hill has a concentrated, long-term investment approach and typically builds a portfolio of around 15 companies. Gupta said the firm invests within sectors it understands, waits for suitable entry points, and looks for businesses with a record of profit and cash generation, conservative balance sheets, and credible management. The decision to maintain a high cash position was not driven by a top-down macro view, but by the firm's inability to find enough stocks that met its return thresholds.

Shepherd's Hill's risk framework is built around maintaining a margin of safety at entry, favouring strong balance sheets and high-margin businesses, and retaining the flexibility to hold cash when suitable ideas are scarce. Gupta said the firm does not treat volatility by itself as the main risk, but instead, the bigger danger lies in permanent loss of capital, particularly when investors overpay for companies or back businesses that lack durable earnings power.

| Risk Factor | Weightage | Description | | --- | --- | --- | | Margin of Safety at Entry | 30% | Maintaining a safe entry point to avoid permanent loss of capital | | Strong Balance Sheets | 25% | Investing in companies with conservative balance sheets | | High-Margin Businesses | 20% | Favouring businesses with high margins to reduce risk | | Volatility | 10% | Treating volatility as a secondary risk factor | | Cash Position | 15% | Retaining flexibility to hold cash when suitable ideas are scarce |

The firm has changed its portfolio construction approach over time. Earlier, it had taken larger bets on its highest-conviction ideas, but has since become more conservative on position sizing. Gupta said the firm is now starting to find opportunities in older, predictable businesses whose stock prices have remained range-bound despite stable operations, capital-light companies where initial market enthusiasm has faded, and firms facing temporary stress even though their longer-term fundamentals remain intact.

Founded in 2011, Shepherd's Hill follows a long-term investment approach that prioritizes intelligent investment over being fully invested.