Performance review March 2015 – Comment “Should an active investor give money to a money manager ?”

Just a quick reminder: this will be the last monthly update, from now on I will switch to quarterly updates.


In March, the portfolio gained +2,1% against +3,6% for the Benchmark (Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%),MDAX (20%)). Year to date, the score is +11,5% against +20,2% for the benchmark. Since inception, the portfolio is up 104,3% vs. 73,3%.

Major winners were TFF (+19,6%), Drager (+8,4%), Hornbach (+6,5%) and Thermador (+6,0%). Losers were Ashmore (-7,1%), Van Lanschot (-6,4%) and TGS (-4,3%).

Overall, performance was again behind the benchmark but with around (2,1/3,6)= 58% of the upside fully in line with the current allocation of the portfolio with regard to cash and beta of the investments.

Portfolio transactions

In line with my self-prescribed “slowness” I only made one position change this month: The full sale of my KAS Bank position in mid march. Within my existing positions, I added to my Romgaz stake following the good results.

Cash and “cash similar” positions are now at around 27%, a pretty high percentage but maybe not too bad going forward. So far of course, the conservative approach has cost me a lot of performance, but the year is not over yet. The current portfolio, as always can be found under the respective portfolio page.

Comment “Should an active investor give money to a money manager ?”

I am currently preparing my first investment into a fund actively managed by someone else. For me, as an active investor, this is quite unusual, so far I have only invested in ETFs in order to gain exposure to sectors or directly into stocks and bonds. The big question here is of course: Why should I pay management fees for someone doing the same stuff that I actually enjoy doing myself ? So for myself a tried to rationalize the decision a little bit and came up with 5 criteria which are important to me for trusting my hard-earned money with someone else:

1. The manager has to be trust worthy
2. The manager should have most of or even better all his money in the fund
3. the manager has a different skill set than oneself or just better skills or access to different assets
4. The manager should still be “hungry”
5. The fund manager is not only in for the money
6. The investment vehicle should be a “fair” structure

Interestingly, those criteria are not that different from investing into a stock, but let’s look at them one by one:

1. The manager has to be trust worthy

This sounds more easy than it is. In order to know if someone is trust worthy, you either know someone really well or there is a long track record of this person proving that she/he will always act what in German we would call “in Treu und Glauben” or in English as a true Fiduciary of one’s money. In a standard asset management organisation, this cannot be taken for granted. In many large asset management companies, the main target is not performance but management fees and not the performance of the money invested.

One of the worst cases would be investing into someone where you know that this guy is “bending the rules” somewhere and hoping that still everything would be ok with your money. With Bernie Madoff for instance, many people thought that he was making the nice and easy money in his “hedge fund” by scalping and front running his customers on the trading side of his business and thy were OK with it. Without accusing him in any way, Bill Ackman for me would be also a questionable character. Both, with Herbalife and Valeant he is “bending” the rules to his advantage, how do you know that he will never does the same within his investment vehicles ? I think this is clearly the area where one should never make the slightest compromise.

2. The manager should have most of or even better all his money in the fund

This is something which is especially important if there is a performance component in the fee structure. A performance fee is essentially an option and the value of any option increases with volatility. If a portfolio manager however has invested all his money in the fund, he will think twice about maximizing only the option value…..

3. the manager has a different skill set than oneself or just better skills or access to different assets and the investment process is transparent

Sounds pretty obvious but is still worth thinking about. If I invest in a value investing strategy, this only makes sense if I am sure that the manager does have skills that I don’t have. This could be either very deep research and a concentrated long-term portfolio or access to markets/assets which I don’t have as a private investor. in any case this requires that the manager is transparent on what he is doing at that an investor understands the investment process. Fundholder letters or even better “manuals” are a big plus here.

4. The manager should still be “hungry”

The typical story in investment management goes like this: Manager starts small fund, has great returns, nobody is interested at first. After 3-5 years of great returns, fund gets onto the radar screen of large investors and grows quickly. Performance drops as investment style cannot easily be scaled up and/or investment manager cares more for his Ferrari collection. In any case, I think it is more interesting to invest in the early phase than in the later phase despite a potentially higher fee percentage.

5. The fund manager is not only in for the money

That sounds strange at first, why should a money manager not be in for the money ? What I mean here is that there are a lot of people in the investment management business who see this as the fastest way to make a lot of money. In my experience, those people are generally not good money managers in the long-term. The really good ones are those who actually like what they are doing and do it because its their passion. Those guys will go the extra mile and read annual reports on week ends and in their vacation because they don’t consider it as work.

6. The investment vehicle should be a “fair” structure

As I am an individual investor I would for instance have a problem with a structure where I pay upfront commissions or custody fees that an institutional investor would not pay. Also, if I plan to invest long-term, I would not want to invest in a structure where other investors could hurt my returns by either putting in a lot of money on a daily basis or pulling their investments at any time. As a long-term investor, I would need to be sure that also the others are in for the long-term and no “hot money” can disturb the investment success.

It makes also a lot of sense to look at other investors in a fund vehicle. It is an advantage if other investors are known and reliable.

Those are the 6 criteria which are important for me for trusting my money to someone else. Of course this is no guarantee that the investment will perform well, but at least the risk to the downside is limited to a certain extent if all criteria are met.

More on the specific fund investment will come in a later post this month.


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  • I ve just bought Pershing Square Holdings shares just before I read your comment about Ackman. I was already regretting my decision when I found this headline in valuewalk : “Ackman Flashes Success, Buys Expensive NYC Apartment
    The purchase of this “Mona Lisa of Apartments” was done for “fun,” violating some of his apparent investing methods”. ( I began to think that pershing square holding is just a subtle way of making liquid the porfolio of their investment and cashing on the activist fashion)

    I completely agree with your criteria for selecting an investment fund, I ve decided a few years ago to invest in fund for tax reasons (in Spain you don’t need to pay taxes when you move your money from one investment fund to another), because Parames was well known and respected and because not knowing exactly what I owned and locking my money in the fund was the only way for me to be patient.

    But because of current market I was thinking that I would like a new fund:

    More concentrated: I think that opportunities should be currently scarce and I don t want to pay to be invested in an index. I also suppose that a concentrated portfolio would mean more career risk for the manager and consequently would require a deeper analysis of the invested companies.

    Activist fund: I think that in this current market, activism would be one of the only source of true alpha.A european activist fund would be ideal. I think that some companies in europe are suffering from bad management protected because of political reasons.

    Let me share additionally my thoughts on the current markets , I would appreciate if you let me know your thoughts also (even if it is futile exercise for a value investor):

    – Obviously low (negative) interest is disturbing perceptions and share valuations.

    – At the same time good (buffet style) companies (I would add premium real estate assets) are trading at high (some times excessive) multiples but cyclical companies not. This would mean investors are risk aware and are not betting for a recovery?

    – There is a special category of company that markets love and reward with incredible multiples: The cannibal (Constellation, Transdigm, Valeant, Danaher, Diploma,Assa Abbloy, Aryzta, Bunzl, Platform Specialty Products, Colfax,…)

    – As Shiller mentioned in a presentation, investors are investing with anxiety (Valuewallk: Shiller’s Claim That It is Now Investor Anxiety Rather than Investor Exuberance Pushing Stock Prices Up Is Unconvincing. “People today are worried about their future, and that is part of the reason why asset prices are so high….It seems obvious to me that we are living in a time when people are thinking ‘the job I have today might be obsolete in ten or twenty years.’ I think it reflects a deep anxiety and I think it must have ramifications in financial markets.” Shiller’s thought is that people are saving more than would be expected during an economic recovery and that the added saving is pushing stock prices up.)

  • The another Blog-Founder “Valuematze”?

  • I would tell Ennismore funds
    or Sextant Funds
    or Giverny capital
    or Moneta funds
    or a future launch by francisco parames garcia?

  • Francisco Garcia Paramés, he left Bestinver, last year. He is going to open a new fund next year…

  • Thanks again for this valuable blog. I have a growing suspicion that it might be your own fund. Be aware of regulation & good luck!

  • Hallo MMI , schau Dir mal WL ROSS Holding an 😉

  • I would add “has lived through at least one full boom and bust market cycle” to the manager criteria (though that may conflict with the “hungry” idea, if they survived successfully).

  • Really interested in knowing what kind of fund is. Good luck!

  • this is really interesting. Would you mind sharing what kind of fund you’re looking to invest in? because it seems that you already have a wide range of skills in terms of geographies, styles, and sectors. thanks

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