From the expense of building vital infrastructure, through choosing the right institutional partners, to reconciling the freedom to run high-conviction strategies with the challenge of selling them to suitable investors. Martin Steward speaks to a range of European asset managers about the boutique experience

Klaus Kämmerer

• Established: 2008
• HQ: Bad Homburg
• Assets under management: €65m

• European contrarian value equities

Fidecum’s portfolio manager co-founders now qualify as serial entrepreneurs. Hans-Peter Schupp was involved in setting up MainFirst Bank (and was its head of asset management); while Andreas Czeschinski was a co-founder of Equinet Bank. Both shared some history at Schröder Münchmeyer Hengst Investment, but also the experience of seeing their babies grow into institutional adults.

The third co-founder, head of sales and marketing Klaus Kämmerer, is also no stranger to building businesses within large institutions, with his 20-year history at Comerzbank, ABN Amro, RTS and Deutsche Bank. “All three of us are thrilled by the entrepreneurial aspect of this new business,” he says.

The firm’s website proclaims that successful investment requires independence from “internal and external constraints”. As Kämmerer argues, when decision-making within a large institution is driven by committee, the result is less often the wisdom of crowds and more often dominance by the most senior people or, perhaps worse, by those who have enjoyed the most recent success. In an environment of competition for risk budgets and bonuses, interests aren’t even aligned internally, let alone with those of clients.

“All of that represents risk, and being independent means one less risk that we have to deal with,” says Kämmerer.

And Fidecum walks that walk. Today it offers only one strategy - European Contrarian Value - which demands high conviction from both asset manager and client.

As Kämmerer suggests, such a strategy can only really be successful in an independent setting - but one might also assume it to be very resource-intensive. Running a mechanical value screen is simple enough, but deep-value contrarianism involves taking risk on some of the most unloved names from those screens: an entirely mechanical approach is likely to fill a portfolio with value traps - companies that are genuinely poor companies or undergoing some kind of negative event.

Kämmerer argues that this can actually be done more efficiently at a small boutique, which will not pour resources into “maintenance research”. Concentrated resources force you to build concentrated portfolios - and concentrated portfolios represent a better allocation of risk.

But what happens when things go wrong? As we all know, the higher the conviction, the tougher the decision to cut losses - especially in the absence of a big list of replacement stocks on that “maintenance” list.

“To begin with, our stockpicking process resembles private equity investing in public-listed companies - we only buy shares if we feel we would be comfortable buying the entire enterprise,” Kämmerer explains. “That keeps the big picture in mind - what can be achieved mid-cycle, rather than the next quarterly figures. We also have a very strict sell discipline. If the share price reaches what we consider to be the mid-cycle fair price, or if we have to recalculate that because of a corporate action, we will sell, regardless of whether we see any momentum in the stock or not. There are always new candidates coming onscreen that we can bring into the portfolio, even at the expense of existing holdings. That process is very transparent and can be proved in the track record.”

Since inception to the end of 2011, the strategy is down 5.3%, against its EuroSTOXX benchmark’s loss of 13.5%. If you’d bought in at the start of 2009, you’d be up 45% versus the index’s 26%. But the strategy has delivered a meaty 11% tracking error and volatility almost five percentage points higher than the benchmark’s 22.5%.

Again, Kämmerer makes a good case for doing this as a boutique. “Our distribution concept is based on addressing investors directly,” he says. “All of our clients have a good opportunity to speak to the portfolio managers when they feel they need to - which is not always the case with larger institutions - and which we think is important for a strategy like ours.”

To some extent that self-selects the type of client Fidecum works with. Kämmerer concedes that he cannot properly address the international retail market single-handed, so he focuses on institutions and intermediaries (today, pension funds account for about 20% of assets and other institutions about 40%). German retail clients have become much more risk-averse, he says, favouring passive products like ETFs. But the regulatory drive to tighter risk management among the German-speaking region’s institutional investors sometimes also makes contrarian value a tough sell, Kämmerer adds. Today, German, Austrian and Swiss clients account for 85% and there is no non-European money.

“We would like to see more non-German speaking clients, especially France, Benelux and the UK, where we would expect to see some appetite for a product like ours,” he says.

As well as expanding the marketing footprint, Fidecum also has ambitions to expand its product range - which should, itself, help the first objective. And the founders want to preserve the spirit of entrepreneurship and independence by doing so according to the multi-boutique model.

“We have set a standard for the quality of the products we want to offer, and we would look for strategies that have little or no correlation with the existing offering - both to enlarge the choice for investors and to diversify the risk exposures for Fidecum,” says Kämmerer. “The financial crisis delayed some of our plans - as it has, no doubt, for others - but we are actively looking for potential candidates. It’s difficult to put a timeline on this: the product has to be right, but as a boutique you also have to be sure that you find people that can all work together closely.”



Gudme Raaschou Asset Management
Niels Antonsen

• Established: 1985
• HQ: Copenhagen
• Assets under management: DKK11bn (€1.5bn)

• Danish equities
• Nordic equities
• European equities
• North American equities
• Global equities
• Global non-cyclical equities
• Emerging market equities (with AGF Asset Management)
• Danish government and mortgage bonds
• European corporate bonds
• European high-yield bonds (with WestLB Mellon Asset Management)
• US corporate bonds
• US high-yield bonds (with Post Advisory Group)
• Emerging market corporate bonds (with Western Asset Management)
• Equity/bond asset allocation

Gudme Raaschou is a venerable name in Copenhagen. He set up his money-markets operation in 1925, which later evolved into Denmark’s very first research-driven equity brokerage and eventually a traditional investment bank, complete with asset management, corporate finance and debt capital markets businesses.

But it did not launch its first mutual fund until 1997 - a healthcare strategy built on the industry expertise that was brought in in 1985 with a new corporate finance partner who had been involved in floating Novo Nordisk in New York, and the fact that many early asset management clients were healthcare entrepreneurs. (This has since been folded in with the firm’s noncyclical equities).

Later, amid the dotcom wreckage, a second fund was launched to invest in tech.
The sector-driven approach was retained as Gudme Raaschou Asset Management (GRAM) went on to develop broader equity strategies. This lends an institutional feel - there is a common research platform behind all of the portfolios - for example, balanced against independence for portfolio managers.

“Each portfolio consists of around 50 positions,” says head of asset management Niels Antonsen. “So it is important that the individual portfolio manager can make the investment decisions he believes in. But at the same time they stay in close dialogue with the rest of the investment team as well as the asset allocation team and this gives them a broad understanding of the markets. The mere size of our office secures that daily dialogue.”

And there are more advantages to small size. Everyone feels how they “make a difference”, says Antonsen, which fosters “a culture of excellence” that is harder to sustain within in large institution. “Performance is created by people, not organisations,” he says. Moreover, clients experience that directly: “They are each important to us, and they tell us they can feel that from the daily contact they have - as opposed to being one among a thousand.”

But, as most boutiques concede, those are fine ideals once the clients are onboard - getting their attention in the first place is, Antonsen confirms, the biggest challenge: “The largest institutional clients choose to cooperate with the biggest asset managers.”

One way to maximise your chances is to diversify the product range, and GRAM has done that by broadening its in-house equities offering, but also by securing Danish-market exclusivity for GRAM-branded strategies managed by international partners: Post Advisory Group and Western Asset Management from the US for US high yield and emerging market debt, respectively; WestLB Mellon in Germany for European high-yield; and AGF Investments in Canada for emerging market equity.

Antonsen sees GRAM’s selection process as part of a kind of due diligence service for its clients: “Most professional investors - even pension funds - have limited capacity for monitoring external managers,” he says. “We have ongoing dialogue with our partners about their performance. This is part of our ambition that our clients consider us as partners.”

Another way to stand up in the institutional world is to locate oneself in an institutional context. When, in 1998, the Gudme Raaschou bank was acquired by Germany’s HSH Nordbank, the plan was to for GRAM to be the first constituent of a multi-boutique - but the financial crisis de-railed that idea and left GRAM with the choice of finding a new buyer or striking out as a truly independent boutique.

The solution came in the form of Denmark’s Laan & Spar Bank, which acquired GRAM in 2009. The relationship delivers a host of advantages. Laan & Spar has an entire division devoted to mutual fund administration, and it has also enabled GRAM to centralise other operations like custody banking. But perhaps most importantly, 70% of Laan & Spar’s shareholders are the larger Danish institutional investors that GRAM would like to get onto its books alongside the smaller pension funds, family offices and unions that make up 83% of its assets today.

“The key benefit from the new relationship is easier access to these potential institutional clients,” says Antonsen. “To them it is a stamp of approval that we have been acquired by Laan & Spar Bank.”

Antonsen would also like to see assets coming in from outside Denmark, and Laan & Spar also has its growth targets for the business, of course. After a period of uncertainty and upheaval, the firm seems secure with its new owner, and now has (impressive) track records with the same portfolio management teams on all of its products stretching back to 2008 - a crucial criterion for making onto institutional investors’ screens. “We have capacity,” says Antonsen. The ambition now is to match the institutional set-up with an institutional AUM.


Holberg Fondene
Egil Hermann Sjursen

• Established: 2000
• HQ: Bergen
• Assets under management: NOK20bn (€2.6bn)

• Norwegian equities
• Nordic equities
• Global equities
• Emerging Europe & African equities
• Money markets
• Short-maturity Norwegian credit

Many boutiques make claims for their flat hierarchies, but Holberg Fondene is more convincing than most. Over its first six years, three of its six founding partners sat in the top chair: Hogne Tyssøy, senior investment manager, was managing director from 2000 to 2002; head of distribution Arne Troye was CEO in 2002-3; and Inge Lise Moldestad, CFO, was CEO between 2003 and 2006.

And none of them particularly wanted the job - they all prefer to focus on their specific areas of expertise. In 2006, the CEO title would probably have gone to a fourth, equally reluctant partner, were it not for the fact that a colleague from their days at Norwegian insurer Vesta had become available.

“Why did I want to go to a small boutique like Holberg?” asks Egil Herman Sjursen, who joined as CEO after leaving his role as CEO at Nordea Investment Management Norway. “Being head of a Norwegian operation and deputy CEO of a Nordic and global operation, I was constantly shuttling between Copenhagen, Stockholm and Oslo for internal admin meetings - and eventually you ask yourself if that’s how you want to spend your entire life. It wasn’t my style. I love to meet clients and be at the heart of the operation.”

Sjursen has start-up experience: in the mid-1990s he set-up the asset management arm of insurer Vesta, at that time a part of Skandia. It was at Skandia that he met Holberg’s founders. Sjursen resigned in 2000, just weeks before the Holberg four departed. At that time he was persuaded to take the CFO role at Vesta, which Skandia had sold to Tryg in Denmark - and which was, in turn, almost immediately acquired by Nordea. Confused? You have every right to be.

“The main driving force for the establishment of Holberg was the desire for independence,” says Sjursen. “We all went through the experience of turning up for work every Monday morning asking ourselves: ‘OK, who owns us this week? Who is trying to buy us next week?’”

The five stayed in touch - indeed, Sjursen entrusted Vesta cash to Holberg’s money market funds - and when he became free, it was natural for Holberg to acquire his 20 years of varied C-level experience.

But securing a dedicated CEO did not mean going for broke in asset-gathering. Sjursen says that it is “approaching the time when we need to think about expanding internationally”, and the firm recently established a Stockholm office. But Holberg’s assets remain 80% Norwegian and virtually 100% Nordic - and the partners recognise that their strength as a boutique is in their deep local networks.

“We are making money and achieving sound growth - and growth alone is not the goal for us,” says Sjursen. “We don’t start funds for the sake of starting funds.”

Indeed, the products Holberg launched with in 2000 - Norwegian and Nordic equities, and a money market fund - might have seemed an odd mix. But that reflected the fact that Hogne Tyssøy had 20 years’ experience in the Nordic markets and fellow founding partner Gunnar Torgersen had a decade of experience in liquidity and bonds. Early money, after all, was attracted by the names as much as the asset classes - and, given the fact that the first three years coincided with the dotcom crash, the unusual money market offering was a lifesaver in providing a low-margin but solid foundation for early-stage revenues. Two liquidity strategies now manage more than NOK7bn (€940m). “That continues to make a great contribution to reducing the volatility of our bottom-line,” says Sjursen.

More than that, they are the germ of a brand new strategy, Holberg Credit, which invests solely in Norwegian corporate bonds to a maturity of three years, delivers margins three-times wider than the liquidity funds, and occupies a niche in which only a couple of fellow Nordics compete. “It has already raised NOK250m, and we think it will be a NOK1bn fund by the end of this year,” says Sjursen.

Identifying niches in which Holberg, as a small boutique, can stand out, is something of a philosophy at the firm. While it was always the plan eventually to offer a standard global equities strategy - which it did after making hires in 2006 - the fund that grew out of that strategy, called Rurik, is much more characteristic.

Managed by Leif Anders Frönningen, who joined as a researcher on the global fund in 2006 before graduating to become its lead manager, Rurik is named after the Varangian chieftain whose dynasty ruled Russia until the 17th Century. As that name suggests, this is a Nordic strategy plying for opportunity in Russia, and beyond - investing in the belt that stretches through Eastern Europe and Turkey into North Africa and the wider African continent.

“Leif spent a couple of years developing this emerging markets-focused baby of the global fund,” says Sjursen. “We took the view that the new world would continue to outperform developed countries but we wanted to find a niche where we could be complementary to offerings like SKAGEN Kontiki, which has major positions in Asia and Latin America. We say to our pension fund clients that they should certainly continue investing in funds like that - but that if they have NOK100m there, why not take NOK10m and re-direct it to the regions that are the source of tomorrow’s growth?”

It’s an argument that boutiques are used to making: after all, it’s not a million miles from the rationale for allocating a small proportion of assets to smaller, younger investment managers - who may well be the source of tomorrow’s performance.











Javelin Capital
Victor Pina

• Established: 2010
• HQ: London
• Assets under management: £238m (€182m)

• Emerging market equity market neutral

In a way, the story of Javelin Capital begins 100 years before its birth, when Majedie Rubber Estates was established. Majedie obtained investment trust status 75 years later, and 17 years after that, in 2002, the trust expanded its ambitions into capitalising an independent investment management company - Majedie Asset Management - which has gone on to gather £6bn under management.

Eight years later, Majedie Investments interviewed more than 20 groups in the hope of repeating that success, eventually selecting Victor Pina and the team that would become Javelin Capital.

Pina, Javelin’s managing director and CIO, remembers his words to the Majedie board: “‘I’m really interested - but this is going to be very expensive’. Majedie were very committed, far more than other potential seeders that I met with, and very long-term oriented and ready to provide the necessary resources.”

The trust was in for £20m in seeding for the fund and £4.5m in operating capital, taking a 70% stake in the business.

Why was it so expensive? Well, to give an idea, one of Javelin’s sub-strategies, focused on pairs trading, involves running statistical analysis of 500,000 pairs of stocks every single day. In its first month, it made 4,000 trades. “To build the system to do all of that, Majedie had to hand over a serious cheque,” says Pina.

Make that two serious cheques. In spring of 2011, the trust made an additional capital injection of £3.5m (€4.2m).

The systems built with this capital aim to identify and exploit the characteristics of emerging markets, and they are inspired by Pina’s experience as a floor trader in Mexico and emerging markets portfolio manager with Citigroup and Goldman Sachs. He started with Citigroup in 1994, year of the ‘Tequila crisis’. Within eight years he had also been through crises in Asia, Russia and again in Latin America - events that moved markets across ranges that made a mockery of the long-term fundamentals-based DCF models he was building at the time.

“When we had a bad year it was not because we got everything a little bit wrong, but because we got one or two things very, very wrong,” he says. “It’s the same for everyone. One response is to hold on to the belief in mean reversion and keep on buying as the market goes down. The other is to recognise that certain markets can trend for years, not just weeks or months.”

Or, like Javelin, you can do both. The strategy currently allocates to three sub-strategies:
‘Tactical’; ‘Relative value trading’; and ‘Relative value fundamental’. ‘Fundamental’ is a research-based stockpicking strategy. ‘Tactical’ is a directional single-stock trend-following strategy. ‘Relative value trading’ is a combination of mean-reversion based on statistical arbitrage in developed markets and what Pina calls ‘mean-expansion’ pairs-trading strategies in emerging markets, and this is what eats up all of that computing power. But for good reason: as Pina says, most pairs traders rely on mean reversion, whatever their markets - but some markets are simply more momentum-driven. The statistical heavy-lifting identifies which pairs to trade with which of the two opposing strategies.

In addition to the investment process itself, driving the trading and execution efficiency necessary for a truly market-neutral return stream from emerging markets was also expensive. At Goldman Sachs, Pina had a team of traders executing all around the world. While opening trading offices in Asia and Latin America was beyond Javelin’s resources, it soon became clear that, for the long-term payoff in efficiency, it would be worth spending significant time and money creating a new engine that enabled global trading, in real time.

“It always costs more to launch than one anticipates or would like,” Pina says.
Moreover, this expenditure creates cost savings and efficiencies over the medium term.
The quant screening for the pairs-trading gets recycled into the ‘Fundamental’ strategy, for example.

“That’s how we compete,” says Pina. “We can’t support armies of analysts, but this
massive screening effort immediately focuses the universe for the research resources that we do have.”

And, of course, despite an ongoing pipeline of strategies to keep Javelin competitive, the capital put to work in its first 18 months is now a sunk cost that will deliver benefits congruent with the success of the strategies in the markets.

First-year performance was satisfying. On deliberately subdued risk, the portfolio delivered just under 2%, net, between October 2010 and October 2011, while emerging market indices lost 18.5%.

A new UCITS version was launched in January as a Goldman Sachs International SICAV platform and, with the process now bedded in, investment risk will be increased. Pina concedes: “The first thing people ask is: ‘Why market neutral in emerging markets?’”

But the real question, he suggests, should be: ‘Why not?’ The depth and liquidity is such that, operationally, it is now possible and cost-effective; and yet the markets remain inefficient and rich sources of alpha. In many ways, market neutral EM is in a sweet spot - and some large investors have recognised as much.

“Especially in the US, where we met with a few large institutional clients and have seen the trend towards separation of alpha and beta in developed markets, we have found investors very keen to do the same thing in their emerging markets books,” says Pina. “But it turns out they can’t find true market-neutral funds in emerging. I hadn’t been aware of that opportunity for us until relatively recently, and that’s where we are trying to position ourselves for the institutional investor.”

Mandarine Gestion
Andreas Krebs

• Established: 2008
• HQ: Paris
• Assets under management: €1.5bn

• European value equities
• French growth equities
• European small & mid-cap growth equities
• European SRI equities
• Equity/bond asset allocation (with Edmond de Rothschild Asset Management)
• 21 employees including 5 fund managers

“Founding asset management boutiques will be increasingly difficult,” says Andreas Krebs, partner and managing director at Mandarine Gestion. “Not only are investors nervous - at the same time, the trend is towards the same regulatory environment, regardless of whether you are Allianz Global Investors or Mandarine Gestion - and meeting those requirements takes an awful lot of investment.”

Mandarine’s financial backing came from fellow Parisians La Française Asset Management, the Dassault family office and the Banque Postale-owned seeding entity AmLab, which hold 15% each alongside the partners.

But that backing also went beyond mere cash. Back in 2008, AmLab was 50%-owned by OFI Asset Management, which provided office space for the embryonic Mandarine and also access to its main server as back-up while technological infrastructure was being built. Moreover, Mandarine’s flagship product, Valeur, has a track record stretching back to 2007, thanks to the fact that it was initially launched at OFI AM - and for a few months, to faciltate the transition, OFI AM even employed the junior portfolio manager who left Commerzbank with Mandarine CEO Marc Renaud.

There was also some assistance with marketing - La Française offers a gateway into Italy and Spain, for example, and Mandarine self-consciously aimed to be a pan-European asset manager from the start.

But the main reason why the firm went from €200m seeding to a peak of €2.1bn in June 2011 was, of course, thanks to the reputation and networks built by Renaud himself.
Renaud was head of Commerzbank’s French equity asset management - Caisse Centrale de Réescompte (CCR) - from 1997 until 2007, when the bank decided to exit the business and sell CCR to UBS. London-based Jupiter Asset Management was sold by Commerzbank at the same time; Mandarine is its equivalent in Paris. It launched in February 2008 and after surviving the storm of that year, business began to take off.

“In May and June 2009 we witnessed significant inflows,” says Krebs. “There was definitely a benefit from investors, particularly in the German-speaking world, who knew Marc Renaud and could see his long-term track record.”

Nonetheless, it was not plain sailing. Krebs, who is based in Frankfurt, says that if you had asked him about the process of setting up shop in Germany pre-2008, he would have told a simple story of securing two or three big segregated mandates as a foundation for the more complex business of establishing a Spezialfonds.

Post-Lehman, a boutique cannot be so picky. You have to be prepared to accommodate the many more tactical investors who would be willing to put €5m or €15m to work in your mutual fund - which is a higher-margin product, after all - whether that be for six years or six months.

“From the logistical, distribution, administrative and client-servicing points of view, it is crucial for a economy like ours to be ready to meet the needs of these kinds of investors,” he says. “Making sure a German investor could buy a French-registered mutual fund involved complex discussions between our custodian, the transfer agent, the settlement agents for German banks, and so on.”

Moreover, while the name recognition that Renaud carries is a nice problem to have, it is undoubtedly a problem in at least one sense: Mandarine was set up with the definite view that it needed to be more diversified than just a French-value equities shop. Mandarine Opportunités, a French growth strategy managed by Joëlle Morlet-Selmer, was up and running as early as September 2008 - but today 75% of its assets still sit with Valeur.

“That’s definitely something we have to work on,” says Krebs.

These things simply take time. Where a large institution can dispatch a team of product specialists from its various local offices to spread the word about a shiny new strategy, a boutique first needs to find talented managers who are comfortable communicating with clients - and then find time to get them on the road.

“Large organisations have gifted fund managers who barely talk to clients; as a boutique you can’t afford to work that way,” says Krebs.

Leveraging off the your partners’ brands helps, of course. In Mandarine’s case that means not only the brand of La Française, but also that of Edmond de Rothschild Asset Management, with which it offers its Reflex multi-asset strategies.

At the same time, Mandarine certainly isn’t playing it safe. As Krebs puts it, the solid foundation that the success of Valeur provides enables the firm to take some short-term risk on strategies that it believes will pay off in the long term. That is how this small boutique felt able to take the unusual step of launching an SRI fund, Mandarine Engagements, in 2009, and even a social venture capital fund, Mandarine Capital Solidaire, in 2010.

“People talk about SRI and ESG a lot, but it’s not yet the huge asset collector,” says Krebs. “But when thinking about building the long-term existence of the company we believe the SRI topic needs to be addressed seriously - and it would be impossible to follow that so seriously if we were not so profitable across the ordinary business.”