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Sohn Investment Conference London Oct 2013 – Hedge Funds vs Pediatric Cancer

First Published in BBeyond Magazine 1/2014 – Download PDF


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Conversations with John Altorelli – Wall Street’s leading corporate lawyer

December 25, 2013 Leave a comment

First Published in BBeyond Magazine October 2013 – Download PDF – John Altorelli

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Conversations with John D’Agostino

June 12, 2013 1 comment

First published in BBeyond Magazine, May 2013. (Download PDF)

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Interview with T Boone Pickens

June 12, 2013 Leave a comment

First published in BBeyond Magazine  (Download PDF)

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Interview with Michael Keer-Dineen, CEO of Cheviot Asset Management

November 15, 2012 Leave a comment

This article was first published in B Beyond 2012/3 (page 78) by BB Publications – a niche publisher catering for the global HNW and UHNW community. (http://bbpublications.org/)

B Beyond’s David Wong caught up with Michael Kerr-Dineen, CEO and co-founder of Cheviot Asset Management.

Michael Kerr-Dineen is one of those financiers whose focus on class and quality can only be overshadowed by his determination to deliver on his promise. He has demonstrated this by walking away from giants such as UBS to prove that business can be done with complete honesty and integrity. As the former Chief Executive Officer of UBS Liang & Cruickshank, Michael led 80 bankers out the door when he left UBS to form Cheviot in 2006. In less than five years, Cheviot became one of the UK’s largest independently owned investment firms with over £3.8 billion in assets under management.

Before he founded Cheviot Asset Management, Michael’s career path took many interesting turns. He started in the business intelligence department of the Bank of England. Moving to the British National Oil Corporation, he then transferred to the Guinness Peat, Crédit Lyonnais and UBS. Having experienced both French and Swiss bureaucracy, Kerr-Dineen decided to set up a true partnership – Cheviot – embodying qualities of a ‘class act’, as he himself refers to, in his latest venture.

B Beyond’s David S. Wong, in an exclusive interview with Michael Kerr-Dineen, covered some of the most burning issues around the changing financial landscape.

BB Having been involved with so many prominent financial institutions, would you say it is harder to run your own independent firm now?

MKD No, it is much easier. Now I think it is traditionally acknowledged that the partnership structure is absolutely the best way to deliver to clients two things they want. One is a genuine personal service – which is what everyone says they offer, but in practice, constraints of big banks mitigate against them being able to do so. Personal service ensures there is absolutely no conflict of interest of any kind and that is even more important on the investment management side where we can be sure that the processes are entirely ours and we are totally independent. There is no forcing into funds. Of course, being independent does not mean you are always right but it gives you a much better chance to get it right and genuinely tailor services to clients’ needs on individualised basis.  The second thing is ‘class and quality’ – which we like to think we are about.

BB I would like to ask you about your views on the current Euro Debt Crisis.

MKD I am very bearish about the whole thing with its political side. Europe was in denial about it for a very long time and I think they are probably just coming out of the denial stage. You just cannot engage in quantitative easing without longer-term implications. The fact is, whatever they do in relation to piling money into the economies, the debt simply will not go away.

It is down to Germany, who has obviously benefited from the whole situation. They are famous for taking decisions in their own economic interest, almost prepared to subjugate their political freedoms for their economic interest. However, for the first time you see splits within the German elite as to whether this is a good idea or not. It was always unwise to have a single currency without a genuinely integrated fiscal and monetary policy as well. So inherently there was a flaw from day one. Greece, Ireland and Portugal were relatively minor problems. Italy is obviously a big problem, Spain is a big problem, and the French banks too, both in their domestic markets and their sovereign lending. Even without the benefit of hindsight, it was always ridiculous to have a single currency system without integrating fiscal and monetary policies. Interest rates will continue to remain low for the foreseeable future.

BB The finance industry as a whole has been tarred by the same brush. How do you address that at Cheviot?

MKD Banks have rightly taken responsibility for a large part of the first bit of the crisis. But that is not all banks’ fault. It is not the banks’ fault that the Greeks and Italians have a relatively early retirement age. And also there are issues such as over-reporting, overspending and funding. From the asset management perspective it is the big banks that have got the real problem. I think clients now realise that if they want their money properly managed, a private bank is not the best solution. If clients want to go to a private bank to avoid taxes, and keep their money offshore (in bonds or cash) and have someone pay their bills in Monaco, that’s fine. It is a service provided by the private banks. But this service is miles away from genuine management and running of assets in the markets for the purpose of generating the appropriate returns. At Cheviot, we have got a very good partnership structure in place. We have good organic growth and the brand name is strengthening, so we must be getting something right. The equity ownership of Cheviot by our partners is a unique selling point where we have good people willing to put their names and reputation on the line – something which is not found in most firms. Our growth mandate, our balance mandate and our cautious mandate are all in the top deciles in the last one, three and five years, so there is real substance behind the theory.

BB What advice would you give people looking to set up their own firm like yourself?

MKD It is tough. It is perfectly clear that the trend is to move away from big organisations into smaller boutique firms. Part of the reason why it is difficult to start a fund is that you need a brand and a track record. It’s difficult to differentiate yourself from the rest and I think in some ways we have managed to do that at Cheviot. You will also need strong relationships and a credible base team to establish a critical mass.

BB What do you think is the greatest pitfall of the finance sector as a whole? Or the greatest opportunity going forwards?

MKD The IFA (Independent Financial Advisors) and RDR (Retail Distribution Review) debate will certainly create big opportunities for the discretionary fund managers like us. The IFAs are just bailing out, which will create opportunities for us. I think the structure of investment management firms is also important and I like to think that we have got it. There is still a lot of money out there that is not managed by anyone and accessing it through IFAs is a distinct possibility. Most of the inflows we get are generally new money. People are also moving to a more personal approach due to the bad performance of mutual and pension funds. Structural changes in the industry will force private banks and some wealth managers to move up the value chain, quit the market or seek a managed exit.

BB Just to finish up, can you please tell us a bit about your investment ethos?

MKD The asset allocation is key. Of course it all depends on the individual clients and the benchmarks they follow.  Our investment process combines strong disciplines with flexible asset allocation and stock selection. Our belief is that the best results come from a mix of styles adapted to the market cycle. So I suppose it is more top-down than bottom-up and it really is a matter of a close understanding of our clients’ individual investment objectives.

Six months after the initial interview was conducted, Michael’s bearish outlook of the European Debt Crisis from the political perspective continues to unfold. Spain and Italy’s borrowing costs continue to soar as the European Central Bank cut interest rates to a record low of 0.75%. The US Federal Reserve is expected to keep short-term interest rates close to zero “at least through to late 2014”.  Cheviot Asset Management won the Best Performing Fund Award for its Libero Cautious Fund in March 2012. Cheviot’s Liverpool office, its first office outside of London, attracted £170m of funds under management in its first year.

For more information on Michael Kerr-Dineen and Cheviot, please visit: www.cheviot.co.uk

 

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Interview with David Rosier – CEO of Thurleigh Investment Managers

January 15, 2012 Leave a comment

The S&P 500 index ended 2011 relatively unchanged, despite a year of high volatility driven by the European Sovereign Debt Crisis and the pertinent risk of double dip recession. During the year, the markets witnessed the major impacts of the Arab Spring, Japanese earthquake, downgrade of the US credit rating and the risk of a Eurozone country defaulting on its debt obligations – none of which was ‘predicted’ by Wall Street analysts in the beginning of the year.

The future is a lot harder to predict than Wall Street would have us believe. As Nassim Taleb remarked, “To prophesize, don’t add anything to the future; just figure out and eliminate what will not survive.” This Popperian view that all investment hypotheses are provisionally accepted until proven wrong may not seem comforting to investors. Nonetheless, it has not stopped the influx of money flowing into hedge funds.

Hedge funds on average lost 4.83% in 2011 despite amassing a record $2.04 trillion in total capital under management in the first quarter of 2011. The industry – which caters to wealthy and institutional investors chasing higher returns for bigger fees – appears to be licking its wounds as fund managers finished the year in the red. The hedge fund industry, which prides itself on outperforming the market, has failed to live up to expectations and delivered one of its worst annual performances last year. As 2012 – the year of the black dragon according to Chinese Zodiac – rolls on, can the industry reverse its fortunes?

B Beyond caught up with David Rosier, CEO and co-founder of Thurleigh Investment Managers.

David Rosier and Charles MacKinnon, founders of Thurleigh Investment Managers, are a rare breed of investment managers who have skin in the game. David and Charles stress the importance of ‘eating your own cooking’ and have their own personal wealth invested alongside their clients.

BB In your view, what is driving the current market conditions?

DR At the moment, there is greed and there is fear. There is greed because you are leaving your money on deposit and earning next to nothing and there is fear because the markets have become so volatile. It is a ‘risk on risk off’ mentality. The flight to safety, or what investors perceive as safe investments, has been driving this ’bubble’ in the gilt-edge securities. I mean, it’s mad to buy 10-year gilts yielding less than 3% when inflation is 5%.

BB Has this affected your strategy?

DR The way we implement our strategy hasn’t changed. We have always focused on asset allocation and academic research has shown that 90% of portfolio returns can be attributed to asset allocation rather than stock selection. We have always invested in a mixture of index funds, ETF and absolute return funds. We believe that by active asset allocation it is possible to capture short-term cyclical opportunities to enhance the returns without increasing risk. I’d say the main change is we no longer invest in hedge funds with the exception of a few CTAs (Commodities Trading Advisors). People got very frightened in 2008.

BB Why do you no longer invest in hedge funds?

DR We no longer invest in hedge funds for two reasons: liquidity and control. Firstly, our clients wanted liquidity. After the credit crunch, our clients would ring us up and ask ‘how soon could we liquidate our portfolio?’, not necessarily doing it, but just the comfort to know they could turn it into cash. Secondly, when you invest in hedge funds, you lose the element of control. In early 2007, we put orders on to sell the hedge funds, but when we wanted the cash to invest – when markets had fallen – we couldn’t get the cash. It’s not that we don’t think there are some good hedge fund managers out there. The structure or the lack of liquidity is something that neither our clients nor we can take. Also, the UCITS III funds can essentially do what hedge funds do with slightly more onerous restrictions. With a UCITS III fund, you can get similar investment policies with the added benefit of daily dealings.

BB Can you tell us about your investment strategy and has that changed recently?

DR We have four core strategies based on volatility. The very low risk strategy has a maximum volatility of 4%, the low risk is 6%, medium is 8% and the high risk is 12%. Our strategies have not changed as we actively manage them to the desired risk levels. We are constantly checking our proprietary risk models to ensure our strategies run to a certain volatility level.

BB Any thoughts on the European Debt Crisis?

DR As central banks continue to debauch their currencies, government bond yields do not offer a smart risk-reward profile. We think there is a distinct possibility the Eurozone area would fragment with either departures or some form of dual currency emerging (convertible euros and non-convertible euros) to enable the most indebted nations to reflate their economies. It is unlikely for the Eurozone to survive in its current form. Regardless of the outcome, there will be a wealth of investment opportunities that will arise out of the ashes of the Euro project.

BB Any insights on investing in 2012?

DR We think that the large growth economies of China, Brazil, South Korea and Taiwan will continue to grow, and their currencies and bond markets will continue to deepen and strengthen. Within the equity and the bond portfolios, we will continue to move them towards a higher yield profile. We currently have 20% of our bond portfolios exposed to high yield, and we anticipate growing this significantly at the expense of the strategic bond positions. Within equity portfolios, we anticipate altering the weighting of the indices and funds we use to increase the dividend yield significantly with a continued focus on global multinationals.

For more information on David Rosier or Thurleigh please check out: http://www.thurleigh.com

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