Last February, at the start of the COVID pandemic-induced market downturn, while major institutional investors began an exodus from Small Cap and emerging markets equities, LDA Capital’s Managing Partners and founders, Anthony Romano and Warren Baker, emerged as trailblazers by stepping up their financial support for small to middle market companies globally. In 2020, they closed 10 equity investments across six countries. Although traditional institutional investors began to ignore sound fundamentals and strong management track record in an emotional reaction to COVID, Anthony and Warren knew from their emerging markets experience that markets overreact to perceived risks associated with complex conditions, and that this creates price dislocation and investment opportunities. Additionally, LDA Capital had a clear message to send to their portfolio and middle market companies seeking capital; we will not abandon you in pursuit of short-term gains.
The market downturn notably intensified between February and May of 2020, as Small Cap indices like the Russell 2000 fell by 40.8%, while the S&P 600 fell by 41.1%. In comparison, the large-cap index S&P 500 showed only a 10.1% decline from an all-time high in February. Large Cap companies offered more immediate portfolio liquidity and diversification, stronger fundamentals, and a higher likelihood of government bailouts. Additionally, the lack of knowledge on COVID treatments created uncertainty around the timing of a market recovery. This in turn scared off institutional investors from seeing a temporary dip in the Small Cap sector as a buying opportunity. Ultimately, these conditions resulted in a large funding gap for small to middle market companies globally and jeopardized many growing businesses that depended on the financial support of larger institutional investors. These investors who were now hesitant to invest in small and middle market companies had reaped tremendous returns from these same companies over the previous 5 years.
Valuing relationships over short term gains
LDA Capital’s Partners, Mr. Romano and Mr. Baker, have an extensive track record investing in and supporting growing businesses across the globe. Before the pandemic, these partners sought out underserved markets where companies were facing complex conditions. Their strategy has always ensured a viable investment approach that delivers returns to their capital base but is also aligned with the interests of their portfolio companies.
“Make no mistake that LDA Capital is an alternative investment group that has a responsibility to our investors,” says Romano. “That said, our responsibility is to deliver consistent annualized returns to our investors year after year. It is only good business that we prioritize long term relationships over short term gains and therefore our reaction to the market funding gap was a no brainer. Coming out of COVID, we have preserved and solidified our relationships, allowed good businesses to keep growing, and are fortunate to have financially benefited from the market corrections occurring over the last few months.”
LDA Capital is a great example of the success stories that have come out of the pandemic. Investors who have been able stick to their principles and support growing businesses globally, all while balancing the obligations and needs of their capital base.
To learn more about LCA Capital, visit their website.