Managing risk is an essential task but how do you best go about? A leading invesment professional shares his tactics and reveals parts of the market that he is looking at.
Selector: Vladimir Danesi
Company: CBT Gestion
We look for two different things. Firstly, any kind of investments which are linked to inflation, but without any interest rate duration.
So it could be pure break-even or a long-short market neutral on real estate, which can be something linked to inflation. Everything which can be linked to inflation but without any sensitivity to standard markets is something that we are looking at.
Secondly, we try to get pure exposure to specific factors without exposure to the standard market. For example, pure exposure to credit without exposure to interest rate duration and floating rate bonds.
A few things that actually made it into our allocations in order to get some alpha or some exposure to specific investments without getting the risk of standard ones.
The hardest thing is to be exposed to pure alpha without exogenous risks. By exogenous risks I mean US policy, Fed policy, European elections etc. These are risk that are so exogenous that we cannot hedge these risks.
We try to do two things. First, we try to find managers who can navigate through risk and we try and do it ourselves by mixing different types of managers who are navigating different trades through risk.
What we mainly try to do is to ensure that the managers we are selecting have sustainable processes. Those that stay the same over time without any changes so that we have a clear view of the kinds of risk that we are taking. In my opinion, this is the best way to manage risk.
Michael Clements has impressed me. He came into SYZ taking a fund which was successfully managed previously. To cover this fund and to build something which was quite different, but also quite successful. He did it in a quite short period, as it took him six months to a year to build a new fund, which is quite impressive.
The other one is Jean-Pascal Rolandez. He has a very small boutique but he has been managing his fund for 15-20 years with the same process.
He has a turnover ratio which is the lowest I have ever seen - something like 10-15 %. With that very pure concentrated sustained approach he is quite successful and usually outperforms the market.