BRACE is our five-pronged investment methodology, an acronym standing for each of the five required elements by our investment process. No position enters a portfolio without a review through the lens of BRACE.

BRACE gives us the belt and suspenders of securities we are long or short on a price basis affording a margin of safety given a “B” Bottom-Up valuation, and an event – the “R” Revaluation Catalyst,  that will revalue that security in a step-function change to fair price. The behavioral aspects of the “A” Actor’s Assessment component is critical to us, but are not often in the wheelhouse of investment managers skilled quantitatively, but uncomfortable and/or ill-equipped to make an assessment of how financially interested parties are likely to behave, and how those behaviors might help probability-weight the likelihood of the Revaluation Catalyst. Valuing the whole of a company’s Capital Structure (Analysis) “C” affords us a variety of securities to express the view and often equity only managers miss the insights afforded those, like us, who analyze company balance sheets completely. Finally, we do not operate in a vacuum, Externalities (“E”) such as geo-political concerns, market technicals, foreign exchange, commodity prices, etc provide headwinds and tailwinds that can support a position or suggest better timing for entry or exit. The robustness of BRACE helps, we, the practitioners, consider the varied elements that can influence price and hence, portfolio profitability, as such elements, or prongs, are codified as part of our proprietary process.

Bottom-Up Analysis - Company & Industry Analysis

  • What is cheap/rich in capital structure?
  • Where does company fit? What industry advantages, challenges?
  • Is it cheap or rich to peers?
  • Value entire capital structure

Revaluation Catalyst

  • Given valuation, what expedites revaluation?
  • Hard events, plausible, foreseeable with some probability

Actors (Interested Parties) Assessment

  • What’s in the financial self-interest of the varied constituents?
  • Management, equity, bondholders, etc.
  • How would these behaviors influence outcomes?

Capital Structure Analysis & Valuation

  • Intra-capital arbitrage, inter-creditor issues?
  • Dig deep into Credit Agreements, Indentures, etc.
  • Where’s most attractive risk-adjusted return in capital structure?
  • Are there pari-passu overlooked, mispriced securities?

External Influences - Process, Technical, Legal

  • Will macro, geopolitical, fund flows/events anticipated, or exogenous to investment thesis impact trading levels?
  • Who’s buying, selling and why?
  • What are meaningful event dates that can impact trading levels?

BRACE Investment Methodology