Luca Pesarini is a busy man. The Italian is a sort of "miracle man" of the fund industry, raising billions of euros from investors for his Ethna-Aktiv mixed fund each year. With more than €13 billion ($14.2 billion) in assets under management, his investment firm, Ethenea, is one of the faster growing independent asset managers. The company increased its assets under management by more than €3 billion this year.
The 54-year-old, who lives in Zurich, has invested, in his words, "substantial" amounts of his own money in the firm's funds. But, as Mr. Pesarini concedes, the markets are now causing problems for him.
Handelsblatt: Mr. Pesarini, you will collect billions of euros in new money this year. How does that make you feel?
Luca Pesarini: The funds are attracting record amounts of money. This is indeed a lot of money for an independent investment company like ours. Of course, this is much easier to achieve for a truly large financial firm like JP Morgan or Goldman Sachs.
How much capital is coming from Germany?
We don't have our own sales department, so I can't say exactly. I estimate that about a third of new money this year comes from German private investors.
Many independent asset managers in Germany are not growing or are not even surviving. Very few stand out. You are one of them. Why is this?
The regulatory environment, with its requirements, has become extremely demanding and complex. Not everyone can do it. By the way, honesty is a condition of success.
That's a big word. What exactly do you mean?
On the subject of honesty: I want to deliver a good trade balance. But things aren't going so well this year, including at our firm. I'm very open about that.
And what does that mean?
Our goal is a reasonable, positive return for the investor. On an annual basis, we are at about zero with the Ethna-Aktiv fund. This is not a reasonable positive return, which means that we haven't met our objective. And one shouldn’t forget that we pursue a fundamentally defensive strategy.
What led to the current result?
Our outlook on the markets was too defensive. In other parts of the year, our cash quota was very high. Starting in May, we were struggling with falling bond prices, especially with U.S. corporate bonds. We are heavily invested in pharmaceutical stocks, and the sector hasn't done well. We also experienced panic buying with corporate bonds. It was massive and it affected us.
What's wrong with the bond markets?
In my opinion, the interventions of central banks and their bond-buying programs are dividing these markets. They are buying government bonds, which is one market, but then there are the corporate issues, which is the other, unregulated market. As central bank interventions increase, so does uncertainty in the markets. That's how I see it.
And the reason for that?
Until now, bond prices have risen as a result of the bond-buying programs. But the mood shifted this year. Investors began asking: If all the interventions by central banks were ineffective, that is, failed to stimulate growth, what do we do next? This uncertainty led to pressure on the bond markets.
What leads to this conclusion?
The flood of money from central banks has befuddled and intoxicated all players. It's possible that many companies with questionable business models were financed with cheap money. This is a big risk for bonds. We notice companies where the corporate risk does not correspond to the bond yield.
Is the outlook becoming blurred?
Clearly. It is becoming much more difficult to achieve profits. This applies to bonds. But it also applies to stocks.
You always have a high percentage of bonds in large funds. What will you do now?
Liquidity is declining in the overall market. That's why individual results become more important and determine prices. Now we have a clear idea about the actual value of a company. But even a good company can be punished more heavily once in a thin market like today's, because short-term moods are playing a stronger role. Verizon and T-Mobile in the United States are recent good examples. Good numbers, but bond prices declined.
What are the implications for the structure of your flagship fund?
We were highly liquid until the end of September. I'm talking about roughly 20 percent cash. Add to that in September, for example, about 15 percent in short-term government bonds, usually federal bonds with terms of no more than three years. In the meantime, we have reduced our cash position to 6 six percent and short-term government bonds to about 10 percent.
And with what do you earn higher profits?
Interest rates are indeed very low with euro corporate bonds. That’s why we have about 32 percent of fund moneys invested in corporate bonds in U.S. dollars, with about half in investment grade and half in non-investment grade ratings. And there is another 21 percent in other bonds, which also include subordinated bonds.
So because of the high percentage of bonds in the fund, there was little money left over for stocks?
It was about 20 percent in the summer. This is a small share, which we heavily expanded in late October. Nevertheless, we lost a lot of money during the turbulent course of the year. Our stock selection was not good. We focus on stocks in three areas: Technology, pharmaceuticals and consumer goods. U.S. pharmaceutical stocks, in particular, did very poorly, losing almost a quarter of their value in the summer, at the peak of the market.
Can you remember the first security you ever bought?
I think it was a municipal bond from Baden-Württemberg [a southwestern German state], with a 7.25 percent coupon. Based on the interest rate, you can try to guess how long ago that was.
Nowadays you have to buy a Russian bond to achieve such a high interest rate, right?
There are other options. For instance, a company like Netflix has a great rating, as well as a great business model. We are certain that the company will continue to grow strongly in the next five years, and we have a small position in the fund. These are the kinds of opportunities we seek.
Ingo Narat is an editor with Handelsblatt's finance section. To contact the author: [email protected]