‘These are strange times indeed,’ says Rafaël Anchisi. The Geneva-based investor is trying to answer a question on how the Swiss funds industry is responding to heightened regulation, the loss of secrecy and global macro uncertainty.
Anchisi, who oversees CHF 10 billion (€9.1 billion) on behalf of high-net-worth individuals at Border & Cie, says the firm’s macro economist is probably better placed to answer.
‘He sits near my desk and we discuss ideas and positions but lately we’ve adopted a relatively defensive stance,’ he says. ‘It is a tough time for those who have to predict the market’s direction.’
So, how does Anchisi, who is entering his fifth year as head of manager research, navigate the uncertainty? ‘We are coming into an increasingly volatile period, surrounded by the feeling that we are in a more negative asymmetric risk scenario.
‘We have been more constructive on Europe than the US in recent months, but have still reduced our equity exposure across the board as a pre-emptive move. We are not the only ones who think valuations in the US are quite toppy and we take the view that these levels are not fully reflecting the coming interest rate hike.’
The in-house funds overseen by Anchisi and his team have a strong tilt towards equity, so he has been busy since the start of the year but has been able to draw on expertise from elsewhere. Anchisi is a named manager on the Bordier Global Emerging Market fund of funds and this has provided attractive hunting grounds.
‘At the moment I am looking more at emerging markets, not only because of the flows we have had over the start of the year, but also because I am involved in running a fund of funds in this area.
‘This means I already have a handle on a lot of the long-only equity managers but we are seeing increasing interest from Swiss private clients. These investors are traditionally more focused on capital preservation than appreciation, so fixed income is therefore the largest weight in their portfolios. The challenge is to diversify this pocket.’
Two of the most popular approaches in his fund of funds strategy over the past quarter have been the First State China Growth and the Fidelity Funds – China Consumer funds. These two strategies, Anchisi says, have helped him tap into the changing Chinese growth story more precisely than through a broad EM or China strategy.
However, he is not focusing solely on equity, and is, in fact, underweighting China as a whole. Developing world debt is another area of growing interest for Anchisi.
‘We are still finding opportunities in the emerging market debt universe and we have had a lot of discussions about the merits of going down the ratings quality spectrum to find yield. It is an ongoing debate: should you give up liquidity and go into areas with potentially good returns, or not?’
With private clients struggling to find yield, the question of how best to play the bond market has been consuming a lot of Anchisi’s time and sheds light on a key trend that he believes is reshaping the industry.
‘We are seeing a crossover here; a blurring of the borders between traditional long-only and alternatives. Long-only managers are realising they have to be more alternative, while alternative managers understand they have to be more liquid.’
It is at this confluence that Anchisi believes he has a competitive advantage. Having begun his career in the hedge fund world at Banco Santander (Suisse) and initially joining Bordier & Cie as a hedge fund analyst, he says he can walk this line with a more objective eye than many of his peers.
‘Coming from the hedge fund world, I have been schooled in putting a strong emphasis on active management, as we never wanted benchmark managers.
‘Before ETFs became a game changer, I could say that most long-only fund selectors were looking at managers who were following the benchmark with a moderate uptick. That was never the case in the hedge fund world, you wanted active exposure, so I have brought that across. You want someone who is able to express his convictions and add alpha at the same time.
‘There are obvious crossovers when you apply that to fixed income,’ he says. ‘You would debate whether to go into alternative credit or to buy and hold in tough times, but sentiment changes quickly and you have to be clear about what you are trying to achieve.
‘We have been looking more at this market, trying to find flexible managers and a real total return bond fund. A lot of strategies were branded as such but not many have achieved it.
‘On the other hand, increasing numbers of traditional managers are starting to use options or derivatives and have performed well as a result.’
Anchisi cannot be drawn on favourites in this field, due to ongoing active trading at present, but he does reveal some of the offbeat ideas that have appeared on his radar. He names Cheyne Capital, a London-based fixed income boutique, and is also exploring other niche areas.
‘We started to invest with a small Spanish group called Arcano, a boutique based in Madrid, which is offering a fund mixing senior secured loans and high yield from across Europe. It isn’t in Ucits format but is very interesting for our clients seeking yield and alternative exposure at the moment.
‘As this is not a plain vanilla fixed income fund, you need to do deeper due diligence. I went to Madrid, I met the entire supply chain, from manager to back office. This is the only way to ensure the fund matches our best practice criteria.’
In his current list of recommendations, Anchisi has increased exposure to Alternative Ucits funds, as he believes these are becoming ‘compulsory’ for investors. This, he says, is even more important if you’re trying to favour active management over passive products.
‘We are using a common-sense approach to investment, so we can be flexible in size and track record, and we like to look at boutiques,’ he says. ‘But we are at a point where we are seeing more and more ETFs coming to market and, while they can serve a purpose, this increases the onus on active selection.’
Covering the bases
Anchisi has another winning card up his sleeve: the bank’s increasing global reach. Despite describing the operation as ‘quite a small player’ in Swiss terms, Bordier & Cie has branched out across Switzerland, as well as Paris, London, Montevideo and Singapore.
‘There are only two of us in the team in Geneva, but we tap into something much wider,’ he says. ‘We have the additional resources around the world, and we all try to stay in step.
‘The separate teams are autonomous, in that there is no central house view, but we define the due diligence process in order to guarantee a common denominator which is broadly in line with our thinking.’
Reaching beyond Swiss borders is set to become more and more important, says Anchisi, as the domestic market is set for upheaval. In the face of demands for tax records from the US and changing legislation around retrocessions, traditional elements of the Swiss banking industry are being eroded.
Anchisi has mixed feelings about the situation. ‘The Swiss market is good news and bad, because we have lost the bank secrecy, which has dulled the market’s competitive edge as there is no longer that drive for investors to be in Switzerland.
‘However, that can serve as a wake-up call to those operating here, how do you stay relevant? You have to be cleverer, and the strong companies are the ones who will come through this.
‘There is now more pressure to be good fund selectors, good investors and good risk managers. There were a lot of people who were, perhaps, hiding behind the secrecy. Now they will have to work much harder. The new regulation will be tough for everyone, as we have to provide unprecedented levels of transparency. It is starting to be noticeable in the way we work.’
Anchisi says it is the smaller players, like his own firm, as well as boutiques and more recent entrants into the market, that will face the toughest challenge.
‘We have to be the best at portfolio management,’ he says. ‘However, fund selection is becoming a trade-off between investments and regulations.
‘What we think is in the best interest of the client in terms of investment rationale, may not be a good fit with regulation. We may love a fund but if it doesn’t meet new requirements, we can’t invest in it.
‘You want to deliver funds to your clients that will make a good return but also those that will offer protection and certainly those that fit the framework. I continue to use the barometer of whether I would be happy to have my own money in the fund – that is the only real measure.’
This article originally appeared in the November edition of Citywire Selector magazine.