2016: BUILDING A PREMIER PLATFORM BASED ON COMMON VALUES
TO OUR CLIENTS

The year 2016 was one of unexpected outcomes. A referendum, or vote, was held on June 23 in the U.K. to decide whether or not it should remain in the European Union. To the great surprise of many, voters opted to exit the U.K., or “Brexit” (Britain Exit). Then in November, Donald J. Trump won the U.S. Presidential Election contrary to the polls and the predictions of most pundits. These two events are somewhat linked by a “populist” trend that appears to be taking root globally. Populism, in general, is the mobilization of a population that feels alienated and not supported by the existing political establishment. While these events resulted in large short-term market swings, Aristotle stayed focused on finding value in individual companies that we believed could deliver sustainable long-term growth to our clients.

In December of 2016, Aristotle launched Aristotle Atlantic Partners, LLC (Aristotle Atlantic), located in New York City.1 The senior investment team from Deutsche Asset Management, including Joseph Benevento, former Chief Investment Officer of the Americas, and Owen Fitzpatrick, former Managing Director and Head of U.S. Equities, along with five research analysts, joined Aristotle Atlantic. This team has a long and excellent track record of managing Large Cap Growth and Large Cap Core domestic equity strategies.

With another year of strong performance and new client growth, assets under management grew 20% to $13.1 billion as of December 31, 2016.* Absolute returns were strong and our individual strategies generally outperformed.


Expanding Our Independent Platform and Affiliates

The addition of Aristotle Atlantic, in combination with Aristotle Capital Boston, LLC (Aristotle Boston), increases our presence on the East Coast and expands our platform to include additional talented teams to better serve our clients’ needs. The Aristotle Atlantic office in New York should help facilitate both investment-related meetings and meetings with our East Coast and European clients.

The diagram below shows Aristotle Capital Management, LLC (Aristotle Capital) along with its three affiliates and lists the separate strategies covered by each entity. The globe at the bottom depicts Aristotle Capital’s shared services platform with all entities funneling into it.

THOUGHTFULLY EXPANDING OUR INDEPENDENT PLATFORM AND AFFILIATES

Aristotle now offers eight equity strategies including: Value Equity (domestic); International Equity; Global Equity; Global Opportunities; Small Cap Equity; Small/Mid Cap Equity; Large Cap Growth and Large Cap Core Equity. We offer fixed income strategies that have different exposures to the high yield, investment grade and bank loan markets. Our fixed income team is also capable of meeting ESG mandate requirements across all of their strategies. As part of our Advisory (retail) platform, Aristotle now offers five mutual funds and three Collective Investment Trusts to clients.

A major focus for Aristotle has been building and enhancing our shared-services platform, which includes departments such as Trading, Compliance, Operations and Distribution. This platform enables our investment teams to concentrate on their respective investment processes, thereby better focusing their investment skill and expertise towards helping to deliver optimal results to clients.


Across Affiliates: Our Portfolios Are Built Company by Company

Aristotle Capital utilizes a rigorous fundamental, bottom-up process that consists of identifying what we believe to be high-quality companies with attractive valuations and catalysts that the team believes will close the valuation gap over a three- to five-year time horizon. Below is an example of an investment made during the year in our Value Equity strategy:
  • The iconic Coca-Cola Company has been diversifying into noncarbonated beverages, is in the process of refranchising its North American and other global bottling operations to become less capital intensive and has been implementing initiatives to improve margins and profitability, particularly in the U.S. Utilizing Cash Flow Return on Economic Value (CFRoEV) and normalized EPS calculations, we have determined that Coke is selling at a material discount to its intrinsic value.
Aristotle Boston uses a fundamental, bottom‐up approach to identify what it believes to be quality businesses with improving fundamentals that are trading at meaningful discounts to intrinsic value. Below is an example of an investment made during the year:
  • Acadia Healthcare Company, Inc., a leading provider of inpatient and outpatient behavioral health and addiction services in the U.S. and the U.K., has benefited from strong secular demand for its services along with accretive M&A activity, which has allowed the company to diversify its business and grow market share.
Aristotle Credit Partners, LLC (Aristotle Credit) combines top-down and bottom-up analysis to identify what it believes to be fundamentally strong credits in the non-distressed segments of the corporate debt market. Below is an example of an investment made during the year:
  • Dell Inc. has a strong management team, inherently strong positive free cash flow generation and a focus on deleveraging (through synergy-driven cost savings and non-strategic asset sales), which enables the company to obtain investment grade ratings at the corporate level. Proceeds from the debt financing in which we participated were used to fund the company’s acquisition of EMC.
Aristotle Atlantic buys companies that can benefit from strong product cycles, and positive secular themes or cyclical trends. Below is an example of an investment made during the year:
  • The biopharmaceutical company Sage Therapeutics, Inc. focuses on disorders that currently do not have FDA approved drugs or adequate treatments available. We believe the company has a compelling pipeline of drugs specifically addressing central nervous system disorders.

ARISTOTLE IN THE COMMUNITY

We believe nothing sums up our common values more than our commitment to philanthropy across the Aristotle family. Throughout 2016, we participated in charitable group events that were consistent with our philosophy of giving back to our communities. A few of the organizations and events we supported this year include: St. Jude, South Boston Boys & Girls Club, Gobble Gobble Give, Sketchers Pier to Pier and Disabled American Veterans Charitable Service Trust.


WE MAINTAIN A LONG-TERM FOCUS IN EVERYTHING WE DO

With change comes challenge, and no doubt 2017 will have its share of surprises. The new U.S. Administrative branch of government seems to have an ambitious agenda that if enacted, in total or in part, could have a longer-term impact on domestic and global economies. Those familiar with Aristotle know that we do not attempt to predict macroeconomic outcomes, or react to short-term market swings, but instead we continue to search for great companies across the globe. We will navigate 2017 as we did 2016, with our commitment to being the best stewards of our clients’ capital, seeking to deliver attractive long-term risk-adjusted returns.

On behalf of the Aristotle family, thank you for your confidence and trust. We continue to work hard every day to uphold our commitment to you, and we are grateful for your partnership.

Sincerely,
Gary Lisenbee
Gary Lisenbee
Co-CEO and Co-Chief Investment Officer, Aristotle Capital Management, LLC



1An independent investment adviser registered under the Investment Advisers Act of 1940, as amended.

*As of December 31, 2016, the assets under management for each Aristotle affiliate was as follows: Aristotle Capital Management, LLC $11.08 billion; Aristotle Capital Boston, LLC $1.63 billion; Aristotle Credit Partners, LLC $0.38 billion; and Aristotle Atlantic Partners, LLC $0.01 million.

Aristotle Capital Management, LLC
11100 Santa Monica Blvd., Suite 1700, Los Angeles, CA 90025 | T: 310-478-4005 | F: 310-478-8496 | email: info@aristotlecap.com
840 Newport Center Drive, Suite 600, Newport Beach, CA 92660 | T: 949-681-2100 | F: 949-681-2199 | email: info@aristotlecap.com


Aristotle Capital Boston, LLC
125 Summer Street, Suite 1220, Boston, MA 02110 | T: 617-274-4300 | F: 310-478-8496 | email: info@aristotleboston.com

Aristotle Credit Partners, LLC
840 Newport Center Drive, Suite 600, Newport Beach, CA 92660 | T: 310-689-2700 | F: 310-478-8496 | email: info@aristotlecredit.com

Aristotle Atlantic Partners, LLC
405 Lexington Avenue, 26th Floor, New York, NY 10174 | T: 212-804-7731 | F: 310-478-8496 | email: info@aristotlecap.com



The opinions expressed herein are those of Aristotle and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Aristotle reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The companies identified above are examples of holdings and are subject to change without notice. The companies were selected to help illustrate the investment process described herein. A complete list of holdings is available upon request.

Past performance is not indicative of future results. There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report or that securities sold have not been repurchased. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions Aristotle makes in the future will be profitable or equal the performance of the securities discussed herein. There is no assurance that any securities, sectors or industries discussed herein will be included in or excluded from an account’s portfolio. Recommendations for the last 12 months are available upon request.

The term Aristotle refers to Aristotle Capital and its affiliates. Aristotle Capital Management, LLC, Aristotle Credit Partners, LLC, Aristotle Capital Boston, LLC and Aristotle Atlantic Partners, LLC are affiliated organizations. Each is an independent investment adviser separately registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about each adviser including the investment strategies, fees and objectives can be found in their ADV Part 2, which is available upon request.

ACML-17-213.


Download this letter as a PDF
Download this letter as a PDF