Fri, 18/07/2008 - 07:00
Manuel Alejandro Dopazo, managing director of London-based investment manager and corporate advisor Fincere, says that despite the recent impact on emerging markets of global financial turbulence, the world's developing economies are well placed to continue to build on their growth of the past few years.
HW: What is the background to your company?
MD: Fincere is an investment manager and corporate advisory firm based founded by Natalia Navarro and myself in London in 2006. Fincere, which is authorised by the FSA, focuses on the growing importance of emerging markets in the global economy, capital markets, wealth creation and flow of money. The Fincere Emerging Markets Portfolio, which will be managed by Natalia and myself, is scheduled to launch on August 1 with seed capital of USD20m.
HW: Who are your key service providers?
MD: LaSalle Global Trust Services (Dublin) is our custodian and our administrator, KPMG (BVI) is the fund's auditor, and Ogier is our legal advisor.
HW: What is your investment process?
MD: The fund is a dedicated emerging markets credit and fixed income fund. We use a top-down approach, starting from macroeconomic and secular trends. We break these down into industries, and then pick and choose the remaining specific sectors and send them on to sovereign, quasi-sovereign and corporate issuers' selection.
We seek to take advantage of growth trends within emerging market countries that also take a top-down approach to their economic outlook and invest in fixed income, commodities and derivatives in all emerging markets.
Our main aim is to maintain an attractive growth outlook and the best risk-adjusted return among different asset classes and investment strategies. Emerging markets continue to meet this requirement in the most efficient way.
HW: What level of performance are you targeting?
MD: We are currently targeting annual returns of between 15 and 20 per cent net of fees, with target volatility of no more than 20 per cent.
HW: What events do you expect in your sector in the year ahead?
MD: I strongly expect emerging markets to continue to build on the growth they have experienced in the past few years. A glance at emerging markets' investment statistics and growth projections tells its own story.
Emerging market countries represent more than 80 per cent of global population and about half the world's GDP at purchasing power parity. Over the past five years they have accounted for more than half of the growth in world exports and are now sitting on two-thirds of global foreign exchange reserves.
The International Monetary Fund estimates that emerging market countries will drive about three-quarters of world output growth and wealth creation in the next decade, and that in 20 years' time they will account for two-thirds of global output.
HW: How will these developments impact on your own portfolio?
MD: Emerging market countries will continue to attract capital flows as a result of secular trends that are themselves driven by demographics and economic convergence. They will continue to increase their share of global market capitalisation, offer attractive risk-adjusted returns, and offer diversification benefits for global portfolios.
HW: What differentiates you from other managers in your sector?
MD: Many people think that the hedge fund industry's low survivorship rate is primarily due to poor performance, but we believe it's also due to poor marketing and business management. The Fincere Emerging Markets Portfolio will look to earn the confidence of investors by making them understand why its approach makes more sense than a multitude of other strategies.
For us, it is not all about numbers. For instance, we see funds failing to communicate effectively who they are, what they do and, most importantly, why they're the best choice for an investor in the medium to long term. We firmly believe that those that thrive long-term will be those that combine superior performance with effective business management.
HW: What are your views on risk?
MD: In our view, hedge funds suffer from herd behaviour, following common trades and strategies sold by investment banks that have increased rather than decreased performance correlation and systemic risk. A lack of risk management has also impacted risk-adjusted performance, as well as making funds over-cautious, delivering poor after-fees performance for investors.
HW: Are investors' expectations moving upward?
MD: Yes, the pressure on managers from investors is always growing. The generous compensation implicit in the 2/20 fee structure means that investors will demand that hedge funds outperform benchmarks on a risk-adjusted basis. To deal with this the market is coming up with competing solutions such as synthetic and tracking indices with much lower fee structures, which will increase pressure on fund managers to deliver net of fees returns.
HW: How do you distribute your products?
MD: We draw on seed capital raised through personal contact with high net worth individuals. We are also scheduled to sign distribution agreements with financial advisors and institutions.
HW: Are you planning any further launches this year?
MD: We never close the door on opportunities that may arise, but at the moment our next launch is scheduled for 2009.
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