A Hamburg asset
The phlegmatic Hamburgers are often compared with the British by dint of their conservative outlook and controlled disposition. Perhaps no wonder that a Hamburg institution like Berenberg Bank should already count a UK local government pension fund among its asset management clients - and that it should be hunting for more such clients outside the German speaking world.
Add to the picture that the UK’s honorary consul in Hamburg used to be a partner at Berenberg Bank (the British coat of arms appears by the entrance to the bank’s head office on the Binnenalster), and the connections across the North Sea seem tangible. The bank, still partly in the hands of personally liable partners, has just opened a London representation for investment banking. But how successful will Berenberg be in exporting its brand of alpha generating boutique asset management structure?
Berenberg Bank’s asset management operation has been reconfigured to a boutique structure under the leadership of managing director Tindaro Siragusano. This process was completed by the beginning of 2009.
The new structure foresees a division between portfolio management on the one hand and investment advisory, for mandate structuring, and relationship management on the other. The portfolio management division has a strong bias toward quant models and is focused on niche areas such as currency, credit, and equities, with a focus on total return and overlay models, as well as equity and fixed income selection strategies.
Performance-wise the firm has been more successful in some areas than others: “Our total return strategies have been convincing this year with very good performance,” says Siragusano. “Equity and currency strategies have done well. However, fixed income overlays have been less impressive, where we have performed less well in markets that have moved within a narrow range. I believe, like other quantitative duration managers, that this year has delivered disappointing results. Generally, however, we are convinced in our strategy with clear, stringent risk management, and strategies that are systematic, model based, attributable, transparent and liquid. These will be the success factors of 2010.”
Like other fixed income managers, Berenberg profited well from credit exposure in 2009. Siragusano points out that the firm also reacted quickly enough to get a mutual fund launched earlier in the year. “We have concentrated on higher quality corporates. We have done very little in high yield and Berenberg expressly does not invest in distressed debt or the asset backed securities (ABS) area.” As for 2010, Siragusano believes that spread tightening is over and that carry will generate return over coming months. Spreads could even widen slightly, the managing director believes.
“This year has continued to be successful and we have been able to continue the success of 2008,” judges Siragusano, pointing out that the firm took in some €200m in the autumn of 2009 through mutual funds. “Internationally we have taken part in considerable numbers of beauty contests via consultants,” he adds.
The quant models - both timing models and multi factor - implement three types of signal in areas such as credit, duration and equity, and have a track record dating to 2002. “The models are constantly checked but I am no friend of constantly altering models by optimising the past,” comments Siragusano. “This means that when we make changes we do so carefully so that the characteristic of the model is retained since clients want or have bought the characteristics of the model that have generated the track record, and are not looking for a new one.”
The Currency Alpha strategy invests in highly liquid major currency pairs, such as euro-dollar, pound or Swiss franc. The three models are applied to each pair on a long or short basis. “Performance year to date is some 5.7%, which seems very good,” Siragusano told IPE at the end of November. “It improved considerably thanks to the strong market movements.”
Siragusano sees a clear long term trend among German institutions towards a commoditisation of beta on the one side through passive management and ETFs and alpha generation through UCITS compliant vehicles. This is instead of traditional hedge fund structures.
“We see a divergence in the market. A trend to increased passivisation and standardisation and clear alpha mandates. This means highly liquid and highly transparent but not long-only in terms of strategy. Rather high target return. We have not won a pure long-only mandate for a long time because this is not what is in demand,” the managing director explains. He sees demand in currency and commodities through options strategies or pure spread stories, such as in credit. “In hedge funds we see clients rather dismantling existing structures, which have been characterised by illiquidity and opacity.”
The year before last (2008) saw the closure of its Edinburgh office and the concentration of portfolio management activities in Hamburg, the bank’s home since the sixteenth century. But three new strategies are planned for launch as part of a plan to focus on alpha and overlay strategies: “We plan to concentrate on the German speaking area and on a niche basis elsewhere in Europe through consultants,” says Siragusano. The Currency Alpha Sterling strategy will be one such area. However, he also points to other areas such as equities and fixed income, from money market to credit, with overlays and total return through option strategies. Time to make the North Sea connections even more tangible.