The Hedgeweek Interview: Aiming high with smaller companies: Claire Griffiths, Portfolio Manager, Gibbs Tyser Capital Management
The Maga Smaller Companies Fund Limited is being launched on 1 April by
London-based Gibbs Tyser Capital Management Limited (GTCM). Claire Griffiths
outlines the background and investment strategy of the new fund.
HW: What is the background to GTCM?
CG: GTCM was established in October 2000 and was the first investment
manager to be incubated by Eureka Strategic Partners, a vehicle set up by
Marshall Wace Asset Management to provide services to new hedge fund
In December 2000 GTCM launched Maga Fund Limited, a European long/short
hedge fund. The Maga Fund currently has USD 350 million in assets under
management. GTCM is authorised and regulated by the Financial Services
HW: Which are the other funds that Marshall Wace have incubated?
CG: Plexus, a convertible arbitrage strategy and Magenta, a global equity
HW: Who are the portfolio managers at GTCM and what are their
CG: GTCM was founded by Andrew Gibbs, who runs the Maga Fund together
with Harry Tyser.
Andrew Gibbs has 14 years of investment experience in both hedge funds and
long-only mutual funds. Formerly a director of M&G Investment Management,
Andrew successfully ran the M&G European Smaller Companies Fund between
1998 and 2000, producing a return of 232% since January 1998, placing the fund
first out of 116 European funds. Prior to M&G, Andrew spent four years at Odey
Asset Management and four years at Lazard Brothers Asset Management.
Harry Tyser spent 10 years working predominantly in New York as a Pan
European Equity salesperson, providing an idea generation service for both long
only mutual funds and hedge funds. Between 1996 and 2001 he worked at ABN
Amro, most recently as a managing director on the European Equity desk. During
this time, ABN Amro achieved a number 1 ranking for Pan European Equity
distribution into US accounts.. Prior to joining ABN Amro in 1998, Harry worked
as a Pan European salesperson for Cazenove and JP Morgan.
I am the portfolio manager of the new Cayman-domiciled Maga Smaller
Companies Fund. I joined GTCM in January this year having spent the last 12
years with Invesco Asset Management. During this time I built the European
Smaller Companies team and the assets under management from GBP 16
million to over GBP 2 billion at their peak. I was appointed a Global Partner of
Amvescap, Invesco's parent company, in 2000. Between 1989 and 1991, I
worked as an Assistant Fund Manager on the European desk with the
HW: What is the investment objective of the Maga Smaller Companies
CG: The fund is a European small cap long/short fund. It's investment objective
is to provide investors with positive absolute returns primarily through investing
and trading in equities of smaller companies incorporated or whose principal
operations are in Europe and whose market capitalisation is below Euro 2.5
billion. The minimum size will be Euro 100 million, with no more than 4% of the
portfolio invested in any single company.
HW: What is the size of the European small cap universe and what is your
investment philosophy within this sector?
CG: The universe is around 3,500 companies. I believe that positive absolute
returns may be achieved within the European smaller companies universe by
disciplined stock selection and by capitalising on the opportunities provided by
the dynamics of the European smaller companies asset class.
I intend to use the same basic principles of investment philosophy that I used in
my previous role at Invesco. I am a fundamental bottom-up stock picker -
facilitated by an intense program of company visits - with a bias towards growth
companies when looking for investments in the long book.
HW: What is the investment process of the new fund?
CG: Disciplined stock selection drives the construction of the portfolio and has
two elements: core and tactical ideas:
* Core positions will be identified by carrying out fundamental research on
the market place in which a company operates. Each company's products,
revenue and profit potential, financial resources and the management are
all assessed and where disparities are identified between the valuations
produced by this analysis and stock market valuations, strategic positions
may be established. Companies at the lowest end of the market
capitalisation scale are often under-researched and therefore significant
opportunities may exist.
* Tactical ideas will be triggered by a change in the economic cycle or
evidence of corporate change in the market place, the management or the
product, where this is supported by an extreme under or over valuation.
These holdings are likely to have a shorter time horizon and may include
opportunistic trades as well.
HW: What are the current interesting themes within the sector?
CG: EU enlargement is one. Others are themes driven by Europe's ageing
populations such as dental implants and hearing aids.
HW: What are the prospects for the small cap sector this year?
CG: We've got really good prospects for strong absolute returns from small caps
this year. Small caps outperformed large caps by around 14% last year, and the
prospects for this year are looking good, firstly because they are cheaper than
large caps - small caps are trading at a discount of about 8% - secondly, they
have got faster earnings growth - in the range of 32-33% compared with large
cap growth of 18-19% - third, we have a supportive macro environment, i.e. low
interest rates, recovering economies and investor appetite for risk.
Last year we had very strong returns from the whole of the small cap class,
particularly cyclicals and tech, this year I expect much more differentiation, so it
is going to be important to pick the right stocks.
In the last 2-3 years a lot of the big investment banks dropped coverage of the
small-mid cap sectors, creating a lot of opportunities for managers like us to
unearth value in these areas.
HW: What is your approach to risk management?
CG: Risk will be managed at the stock level and at the asset level.
Returns from smaller companies can be highly variable and these companies
may be at an early stage of their corporate life cycle. This stock specific risk will
be managed by holding a diversified number of stocks in the portfolio, and the
weighting to individual names will be appropriate with regard to the expected
volatility of the position. As I mentioned earlier, a typical holding is likely to range
between 1% and 4%.
Risk to the asset cycle will be managed at several levels. The fund's net and
gross market exposure will vary according to my view of the prospects for the
asset class. The overall net market exposure of the fund will not normally exceed
a range from 20 per cent net short to 70 per cent net long and gross market
exposure is unlikely to exceed 150%.
The portfolio's exposures are monitored by extensive attribution analysis,
allowing for a continuous evaluation of the expected returns. Risk/reward ratios
are ascertained across not just stocks, sectors and countries, but any investment
themes considered to be relevant. A decline in these ratios will flag structural
changes that may be underway in the market and influence the composition of
the portfolio. Daily reports will provide data on value at risk, liquidity and the
correlation between assets, as well as the fund's exposure levels.
HW: Which investor groups are targeted by the new fund?
CG: The fund is aimed at institutional clients and high net worth individuals.
HW: Who is the prime broker to the fund and what it is the minimum
CG: Deutsche Bank and Goldman Sachs are the prime brokers and custodians
to the new fund. Minimum investment is Euro 250,000 in the case of Euro Shares
and USD 250,000 in the case of US$ Shares.
HW: What plans does GTCM have for further launches this year?
CG: We have no plans at the current time, but we are seeking to recruit new
talent to join us on our existing European desk. GTCM has recruited three
people, including myself, since the beginning of this year, taking the team
strength to seven. We are now looking to further build the team.
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