Mon, 23/10/2006 - 06:58
Francisco García Paramés and Álvaro Guzmán de Lázaro discuss the characterisitics that distinguish Madrid-based Bestinver, which is preparing to launch a new hedge fund.
HW: What is the background to your company and your funds?
FP/AM: Bestinver was founded in 1987 as a family office with 90% of managed assets owned by the Entrecanales family (Acciona's majority shareholder). The success of our mutual funds has turned Bestinver into a company where more than 90% of AUM belongs to external clients. We currently manage more than EUR 3.9 billion worth of assets through 6 mutual funds, 32 Sicavs and 3 pension funds.
We began investing in Spanish equities in 1993 and in the past 13 years have achieved an average annual return of 22.17%. In 1998, we began investing in international equities, posting an average annual return of 13.23% over 8 years. We have been awarded 42 other prizes from the most prestigious mutual fund rating agencies.
Due to the returns achieved and especially given the solid performance of our Funds and Sicavs during the stock market crash of 2000-2002 - in 2002 our Spanish equities fund obtained an 8% return compared with a 28% fall on the IBEX- our client numbers have swelled to more than 25,000, whilst we currently have the largest Spanish equity fund.
HW: What is the background to the managers of the funds?
FP/AM: Francisco is the Chief Investment Officer and brings 16 years of experience to this role. After obtaining an Economics degree from the Universidad Complutense and his MBA at IESE (in 1989), he joined Bestinver, where after 2 years as an analyst of Spanish stocks, he began managing portfolios and funds. Self-taught, his management style is based on the strict application of the principles of value investing within a framework of detailed knowledge of the Austrian theory of economic cycles.
Alvaro, the Portfolio Manager, has 10 years of experience. He has worked in Arthur Andersen, Bunker Trust and as equity analyst in Value Management (a company founded by a former employee of the legendary Peter Lynch), Beta Capital and Banesto Bolsa. He is also a professor of fundamental analysis at the Spanish Institute of Financial Analysts (IEAF) and at the IEB (Stock Exchange Study Institute). He managed private portfolios beetwen 1997 and 2003 with outstanding results.
They jointly manage domestic and foreign funds.
HW: Which fund managers do you respect most?
FP/AM: Warren Buffet, Peter Lynch, Charles Munger, John Templeton, John Neff, Walter Schloss, Mario Gabelli, Daniel Russo, Felix Zulauf, Bill Miller, Van Otterloo and Marc Faber.
HW: How and where do you distribute the funds? What is the profile of your current and targeted client base?
FP/AM: We distribute our funds in Spain. They are not commercialised abroad but foreign investors may subscribe to them through us.
Our target investor is one who shares our investment philosophy, is patient, and is looking for medium- to long-term investment.
HW: What is the investment process of your funds?
FP/AM: The process involved in implementing our strategies is the following:
This is not a static process. Monitoring the companies in which we invest is an ongoing process, and target prices can vary according to different factors that can affect the valuation of the company, such as the publication of news, information from the company or its rivals, broker reports, etc. We also follow the companies for a long time, sometimes many years, before investing.
HW: How do you generate ideas for your funds?
FP/AM: There are various possible sources for our ideas:
Finding ideas is not a problem. It is not a question of lacking ideas but of how to distribute the time to analyse them.
HW: What is your approach to managing risk?
FP/AM: For us, risk is not measured by volatility but by the real possibility of losing money. Volatility is not necessarily a problem: the more a market falls, the more opportunities there are to find undervalued stocks.
The most important means of managing risk is to assess the competitive advantage of the companies in which we invest. If we think they have competitive advantage, and it turns out they do not, then the risk becomes ours. Therefore, the only factor we 'measure' is the possibility of a permanent impairment of value in any of the stocks.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
FP/AM: We do not set targets for returns. Our only objective is that our clients continue to achieve a return on their money and grow to reasonable levels, allowing us to continue operating in accordance with our investment policy.
We have a strict management style and this will not change. It is not just a style but a philosophy and we think that the only way to achieve sustainable returns going forward is by investing in undervalued companies that are trading at a large discount to their intrinsic value. We are very disciplined when it comes to making investments and we employ the same strict analysis process to each and every one of the companies that we analyse.
HW: What opportunities are you looking at the moment?
FP/AM: Attempting to predict market behaviour is a complicated task that requires a great deal of dedication; even then, forecasts rarely prove accurate. We do not spend any of our time trying to understand where the market is going in the next twelve months. It is not our job. Accordingly, we prefer to seek out solid and undervalued companies, as they will certainly outperform the market regardless of its performance.
Any undervalued company that is a good business, a competitive edge over its rivals, with a strong management team and transparent information can represent an opportunity for us.
HW: What differences you from other managers in your sector?
FP/AM: The following characteristics distinguish Bestinver managers from its rivals:
- Adhering to a military-style discipline with regards to our required IRR.
- Valuation skills.
- Fund managers' firm commitment to their investment management role.
HW: Do you have any plans for new products in the near future?
FP/AM: The Synergy Small Caps fund, which we have been co-managing with four other European fund managers since 2003, has been approved for distribution in Spain and we will begin distributing it exclusively in less than one month.
We are also preparing the launch of a hedge fund, taking advantage of the new Hedge Funds legislation in Spain. The fund will have the following features:
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