Cooper Investors Family & Founder Fund

Quarterly Highlights

• The Fund returned -7.6% for the quarter.¹
• High contributors were Aker ASA (AKER) and Royalty Pharma (RPRX).
• Low contributors were Constellation Software (CSU) and Ryan Specialty (RYAN).
• Currency fluctuations detracted from performance this quarter as the AUD strengthened. Over the past 12 months, the AUD’s 10% appreciation against the USD has acted as a significant headwind to total returns.
• Since inception the fund has returned 6.7% p.a.¹

¹ Past performance is not a reliable indicator of future performance.

Portfolio Insights & Market Observations

The two Capital Pools of the Fund – Real Assets and Compounders – had very different performance through this quarter. While the tide of the Iran war lifted all Real Assets boats with tangible assets and low obsolescence, the service, software and data Compounders found themselves in a storm of AI controversy, opinions and misunderstandings. These conditions were an opportunity to draw on our relationships, our in-person meetings and our deep commitment to observation and comparison.

Through the complex mix of quantitative and qualitative information on both the stocks and the industries, we see unique opportunities for the incumbents to deepen their hold on the customer, expand product offerings and benefit from the AI innovation. At the end of the day, it comes back to customer proposition and our family and founders along with their trusted insider employees are uniquely close to their customers. Often starting their ventures to meet a unique, niche or underserved market, these founder and family led firms can be easily misunderstood. We believe it’s this type of misunderstanding that had some of our holdings heavily sold down due to broader AI concerns.

Two holdings that did not contribute this quarter were Constellation Software (CSU) and Ryan Specialty (RYAN). Despite reporting 22% growth in full year earnings, Constellation share price was down 30% in the quarter. Constellation shares are now trading on <14x PE, multiples not seen since 2013. RYAN shares also traded down 35% and is on 14x PE, its lowest since listing. What we find compelling about both is their deep knowledge of their clients, their ability to respond to the needs of clients in niche markets and the value that is anchored in social norms. For example, recording a burial plot’s position, ownership and change as sea levels rise, arranging a local permit to moor a boat or arrange speciality marine insurance. 

Constellation Software is one uniquely positioned company that serves a highly fragmented customer base of over 150 different verticals. It is also the Fund’s core software investment. Their solutions range from public transport operations to distilleries and window manufacturers. Each of their customers’ needs are highly specific, customised and mission critical. The cost of Constellation’s software solution is often minuscule in the customer’s budget, typically representing <1% of the operating expenditure. This significantly disincentivises migration, given the risk associated with swapping out essential software tools, keeping company churn rates below 5% p.a.

Constellation can continue, and in some cases step up its acquisitions of vertical market software companies at >20% returns. Unlike many in the software sector, Constellation generates real earnings and multiples, and uniquely they have no stock compensation - an earnings quality issue many others in the sector face. The founder, Mark Leonard along with his family holds a significant stake (7%) with a further ~10% held by executives, directors and employees. Founded in 1995 with the aim of assembling a portfolio of leading software providers this venture has become established in a different political, economic and social world. We take this into account in considering the influence a founder and family have in decision making from their ownership stake. Constellation also represents a good example of the employee-owned feature of the Fund. These long term, highly committed employees have real skin in the game alongside founders and their family.

With regard to RYAN’s strength of customer proposition, the long-standing service of speciality insurance broking involves several aspects of judgement and tacit knowledge in underwriting that we see being a long way off from being challenged by probabilistic modelling. In addition to the technological barriers, this sector is shaped by the preferences of carriers who actively work to prevent price being a single differentiator. Deep industry expertise, the importance of client service through relationship intermediaries, and the need for highly accurate information all point to a continuing role for industry experts. The CI investment philosophy recognises these social environments that interact with available technologies. While RYAN is currently not contributing to Fund performance, we see latent value in their ability to ride the wave without being tipped out of the boat. Founder Patrick Ryan has been successfully navigating insurance since first founding Aon in 1964.

During the quarter the Fund bought Thomson Reuters (TRI) and sold out of Morningstar (MORN). Founded in 1851 by Paul Julius Reuter, the news service that pioneered carrier pigeons and telegraphy is today the trusted Reuters media network. Still adhering to the trust in media reporting principles established in the midst of World War II, they are at the forefront of journalists using AI to enhance accurate reporting. Roy Thomson acquired his first newspaper, The Timmins Press in 1934. Today the Thomson family through their holding company Woodbridge holds a controlling majority and David Thomson serves as Chairman. Although both companies started in media, today Thomson Reuters generates the bulk of its profits from specialised content for professionals.

Australian CEO Steve Hasker exemplifies the operational excellence and talent required to partner with family stewards and drive further success. Joining in March 2020 we have been impressed in meetings by his career-long dedication and personal understanding of the fiduciary professions that Thomson AI products support. Hasker has lived experience of the technologies in accounting and management consulting along with deep networks to a wide range of professionals. We have conviction in the combination of family values, tools that fiduciary professionals trust and a long history of technology innovation that Thomson Reuters brings to the portfolio.

We see Thomson Reuters in a unique position to leverage AI. One example is their WestLaw and CoCounsel product suite for legal, compliance and regulatory professionals. Unlike many AI powered software solutions who are relying on new data sets, Thomson Reuters’ century old library of laws, legal opinions and precedents cannot be easily re-created. They continue to have members of the professions both curating and contributing in a way that continues the judgement and interpretation only a skilled professional can bring to a question or issue. This ‘by the profession, for the profession’ aspect of Thomson Reuters is deep in their journalistic family DNA and is compelling for us. In contrast, our conviction in the proprietary nature of Morningstar’s data sets and customer proposition in the new AI agentic world has waned.

The Fund also sold its long-held position Danaher (DHR). Danaher, the original family/founder Compounder, morphed from an industrial company 20 years ago, into a leading supplier into the biotech and life sciences industry. Danaher was a COVID winner which then subsequently led to a post COVID hangover. The key debate has been the management and board's acquisition discipline eroding – see below graph of Danaher’s steadily declining Return on Equity. A concern we have been monitoring closely over their recent acquisitions has been a willingness to accept lower returns at their scale.

_{Source: FactSet, CI Data}

During the quarter, Danaher announced the acquisition of Masimo (MASI), a leader in pulse oximetry monitoring. Masimo’s products dominate the hospital setting with the plastic clip that sits on the finger. We struggle with the return profile of Danaher paying 30x profits (or 3% earnings yield) for a company already generating 27% operating profit margins. Danaher has had a track record of successful acquisitions on these valuation multiples but historically there has been a significant margin opportunity alongside it, which we struggle to see today. Even our most beloved and long held positions are subjected to the rigor of our ongoing VOF and risk review frameworks.

Source: Facset, CI data as at 31 March 2026