“They are blocked by the process, by the risk manager. They can’t do anything so they can’t perform.” Controversial? Certainly. But not unusual, coming as it does from the CEO of boutique multi-manager Athymis Gestion.
Run and owned by its founders, they love the freedom that they have to plot their own course without being held back by concerns that naturally obsess larger companies. “To find outperformance you need to work with medium or small asset management companies,” he says. “That’s where you find good portfolio management companies with good alpha and real choice and real bets. That’s where it is interesting to work.”
But what about issues of business risk? I put it to him that a small company is generally more likely to suffer if an important employee leaves; they don’t have the same rigorous internal systems in place – looking out for exceptional behaviour and unusual circumstances; and they don’t have the assets to refund losses in the instance of a serious failure. “We are a small company ourselves,” he replies. “We know that it can be all fine. If we worried about this kind of problem, we would get the same treatment!
Ucits has created a revolution. In 2008 it was difficult to build an interesting fund-of-funds portfolio with just Ucits funds – but now you can invest anywhere in anything!
CEO, Athymis Gestion
“In any case, in France you are so regulated, so under control, your administrator, your custodian, they all look at what you do.” Delaunay goes so far as to say that because of the level of oversight, it would not be possible to defraud investors. “You can’t fool them: it’s impossible,” he says. “You can’t cheat. It will never happen in France.”
Of course there are other issues aside from fraud that can crop up. “Yes, a company can have financial problems because of costs, assets, and so on. But it’s up to us to watch this.”
Boutiques are not the whole picture, however. There is another way to get a fund manager who is free to add alpha and it’s on the other end of the spectrum. And that is when a fund manager gets to be so big and famous that he can largely ignore the business interests of his mother company and follow his investment nose without constraint. Rather surprisingly then, Delaunay buys into the cult of the star manager.
Quitting the game
Whether it’s a star manager in a big asset management house or a one-man band in a boutique shop, as far as portfolio management is concerned, you have to trust the person you do business with. Individuals can be fooled, they can become ill, be distracted by their personal lives, etc. Other people would say ‘yes, that’s why you need a big team’, but not Delaunay.
“I don’t invest in teams,” he says. “I invest in individuals. I invest in a portfolio manager, not an asset management company. So when a manager leaves a company, we will sell. We don’t wait for the transition. We don’t take this kind of risk.”
In the same way that Delaunay is happy to scour the planet for the right kind of manager, he is also happy to buy funds invested anywhere – in any domicile. However, the recent opening up of Ucits has made his job much easier. “Ucits has created a revolution in my job,” he says. “In 2008 it was difficult to build an interesting fund-of-funds portfolio with just Ucits funds – but now you can invest anywhere in anything! [See chart.]
“We are in a period of exponential growth and that is thrilling. There are some well-known hedge funds now available with daily liquidity in Luxembourg.” Delaunay is a fan of alternative strategies and he still invests in hedge funds, unlike many of his contemporaries. However, he thinks the universe of profitable strategies has shrunk radically.
“I think you have to make a very deep selection,” he says. “There used to be a good five or six different hedge strategies that were all different and well defined. But of that five or six, I’m not sure that two or three deserve to continue existing. We think that some strategies are dead and will stay dead forever.”
He thinks there is no future for convertible arbitrage and risk arbitrage. When it comes to the most popular strategy, long/short, he is clear: market-neutral is interesting, nothing else is. If you are net long that means you lose money on the downside. But in his strategy, he uses alternatives to protect against falling equity markets.
Tristan Delaunay is CEO of Paris-based Athymis Gestion. Created in 2008, the company manages four funds with assets of €90m, which are sold to the French IFA market, although the company has recently started moving into the private banking space as well. Athymis Gestion is owned entirely by its founders.
He also still invests in credit arbitrage, commodities and some volatility funds – although as he puts it “vol strategies are just a hedge – when markets fall they rise”
Speaking of hedging out a risk – one of the biggest risks is in having a big chunk of govvies in your portfolio. And that is most of the investors in the world. “OK, I was wrong about government bonds in 2010 and 2011. But I was more correct in 2012 and I will be more correct again in 2013,” he says. “It’s nonsense. You can’t be a serious investor and say, ‘I’ve got some government bonds.’ You can’t say, ‘well, the bund is OK’. It’s not OK. If it moved 20 bps, you would be off for the whole year.”
Instead he thinks all investors have to find yields elsewhere – and that means going outside the traditional comfort zone of long-only equities, developed bonds and cash. Delaunay still uses bonds – but it’s high yield and EM government and corporate debt. But also that is where alternative strategies, hedge strategies, absolute return products come into play – as a way to deal with the long-term death of the government bond.
The game has changed and Delaunay and his team at Athymis have made their play – they are willing to break with the conventional wisdom. And the implicit question that this raises is: how controversial are you prepared to be?