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Business Update: Sands Capital Year-End Letter 2021

CEO and Chief Investment Officer Frank Sands shares his thoughts on 2021 and the firm’s 30 years of innovation investing.

Contributors

Chief Investment Officer
Chief Executive Officer

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Dear clients, consultants, and friends,

First, let me thank you for your partnership.

As the world continues to grapple with challenges brought on by the pandemic, we are grateful for our relationships with our clients, many of which extend over decades.

Without question, 2021 has been another challenging year. Financial markets have been volatile; the global economy has been recovering in fits and starts; and people around the world have sought a return to normalcy. In March, we at Sands Capital suffered an enormous loss with the passing of our founder, my father, Frank Sands Sr. My father was an early innovator in concentrated growth investing, a man of tremendous integrity, and a wonderful person.

Despite these challenges, the year was filled with hope and innovation. Scientists seized on advancements in genomics to roll out a COVID-19 vaccine in record time. Many governments, nongovernmental organizations, and corporations escalated their commitment to fight climate change and to improve their stewardship of workforces, communities, and resources. Throughout the pandemic, many of our businesses developed new products and services that improved how we work, live, fight disease, and educate our children. These companies are not only helping us navigate a world altered by the pandemic, but they are also positioning us to move successfully into the future.

At Sands Capital, we are also preparing for the future while taking a moment to remember our past. On February 7, we will celebrate our 30th anniversary. As we approach this significant milestone, I would like to reflect on the solid foundation we have built and the spirit of innovation that has guided us along the way.

When we opened our doors for business in 1992, Frank Sands Sr. envisioned a better way to manage money for clients. He believed in the power of concentrated portfolios of leading growth businesses. He had conviction that investing in growing businesses with competitive moats, leadership in promising areas, and clear missions could add value and create wealth for clients. Frank Sr. was intent on running his business with purpose, which we capture in our mission: To add value and enhance the wealth of our clients, with prudence over time.

Our mission, our enabling six investment criteria, and the values Frank Sr. inspired are deeply ingrained in our culture that rewards integrity, graciousness, courage, and creativity. It’s a culture that puts our clients first. It’s a culture that encourages a focus on what matters most and that looks past market noise. It’s a culture that encourages us to act with conviction and a long-term perspective when investing in businesses that are creating the future.

When we launched Global Growth in 2008, much of the world, particularly the United States, still viewed the investible universe as either U.S. or international. Global portfolios were less common, and many investors believed in specializing by geography. But we believed that an unconstrained global strategy could add value for our clients and could help us, as a firm, sharpen our skill at identifying global trends and best-in-class business models.

As we expected and hoped, Global Growth has helped us fulfill our mission for clients. The work we do there has also helped strengthen the execution of our earlier strategy, Select Growth, and the newer ones we have since created.

Investing is dynamic, and in order to continue to deliver on our mission, we must thoughtfully evolve and innovate while steadfastly holding onto our values, philosophy, and culture. Before launching any new strategies, we consider whether the strategy can add value for current clients and whether we have the knowledge and resources to run the strategy well. Ultimately, we want to take creative and thoughtful approaches to develop value-adding solutions that are core to our competencies for our clients.

Our one-team approach and the power of our platform have enabled us to go deeper into specific innovative sectors and geographies, embrace the power of ultra-concentration, refine our views around volatility and portfolio construction, and invest in companies early in their lifecycles. Today, as we confront yet another period of market selling, we can see clearly how important our foundation is. While some stock indexes may be falling, our companies’ fundamentals are stronger than ever. For us, the downturn has created an opportunity to invest in durable businesses that have weathered previous storms and that can create value in today’s latest tempest.

As we near our 30th anniversary, the pace at which we operate across the firm has only accelerated. Today we are looking at more investment opportunities than ever before, across public and private markets. We are also servicing a growing number of highly sophisticated clients with  different requirements across geographies and regulatory regimes.

Importantly, we have become more intentional and overt in our approach to stewardship. We are trying to optimize the outcomes of our businesses where we can by constructively influencing their ESG practices in a way that creates net benefits for society and increases value for shareholders over time. As long-term owners, we are able to engage with our companies in a collaborative way that can foster their trust in our guidance.

We have refreshed our website and also opened up new avenues to share our best thinking through podcasts, videos, and articles. We hope these  efforts are consistent with the ways you would like to hear from us.

Much of this shift has been supercharged during the pandemic, as boundaries between home and work blended and then disappeared. Throughout, the power of teamwork has been essential. It is a function of our values, our focus on what matters, our long-term orientation, and our foundation of innovation. These attributes bring us together.

They keep us together. They allow us to confront challenges and turn them into opportunities.

In a year that could have crippled us, we have continued to grow. We hired 39 staff members, while maintaining a turnover ratio that is lower than the industry average. We hired and placed permanent staff in San Francisco, Singapore, and London in an effort to be closer to our clients and the companies and trends we invest in.

We achieved significant milestones across our investment strategies. We added new clients across each of our public equity strategies. Looking ahead we will bring to market our Emerging Markets Discovery strategy, which builds on the learnings from Emerging Markets Growth and takes us further and earlier in the innovation curve within developing economies. In private markets, we successfully closed our Global Innovation Fund II with $826 million in committed capital. We closed Life Sciences Pulse II with $561 million, which was well above its target. Last month we held a close of $121 million for Global Ventures III and will have a final close early this year. 1

Most importantly, we continued to focus on our mission for our clients. As of December 31, 2021, all of our public equity strategies with at least a five-year track record have positive absolute and relative investment results over applicable five-year and 10-year periods.2 Since the end of September, we have experienced tremendous volatility in the markets. Despite the near-term pain, we believe our portfolios are well positioned. Historically, these moments of great disconnect between company fundamentals and stock prices have been sources of opportunity for us.

Innovation remains a powerful force, especially in the fields of life sciences, information technology, financial services, and media. One of the few certainties in investing is that value creation tends to happen when innovation yields both societal and commercial benefits. We remain focused on seeking to identify the companies that are the true beneficiaries of such change. Great businesses are built over years, not quarters.

In conclusion, I like to remember that we have 30 collective years of conquering obstacles, finding opportunities in tumultuous situations, doing deep work, and standing behind our investments with conviction. These strong foundational pillars, combined with our team of creative professionals, should guide us toward the opportunity ahead and help us discover and own the next generation of wealth-creating businesses for our clients.

Thank you all for your support. In the year ahead, we look forward to hearing more of your insights and thoughts and sharing ours with you.

Here’s to 30 more years of investment, innovation, and insight!

Sincerely,

Frank M. Sands, CFA
Chief Investment Officer & Chief Executive Officer

1 The Global Innovation, Life Sciences Pulse, and Global Ventures strategies are managed by Sands Capital Ventures, LLC, an affiliate of Sands Capital Management, LLC and are only available to qualified investors. Sands Capital Ventures is a separate SEC-registered investment adviser that provides private growth and venture capital strategies to its clients. The two registered investment advisers are combined to be one firm for GIPS purposes and are doing business as Sands Capital.

2 Past performance is not indicative of future results. The investment results shown are net of advisory fees and reflect the reinvestment of dividends and any other earnings. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money. All returns shown are as of 12/31/2021.

Disclosures:

Please visit https://www.sandscapital.com/public-equity/ for returns for all public equity strategies. This material is not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed by Sands Capital Management and the information contained herein are current as of the date indicated and are subject to change. This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. There is no guarantee that Sands Capital will meet its stated goals. Past performance is not indicative of future results. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money. You should not assume that any investment is or will be profitable. GIPS® Reports and additional disclosures for the related composites may be found in the Sands Capital GIPS Report.e

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