The Interview: Mark Baak, Finles Capital Management: "We expect quite some turnover as many hedge funds and managers shut up shop"
Mark Baak, head of portfolio management at Finles Capital Management, says the Utrecht, Netherlands-based firm is well placed to benefit during what is likely to be a difficult period for hedge fund asset-gathering by virtue of its innovative fee structures and experience of managing genuinely hedge portfolios.
HW: What is the background to your company and fund?
MB: Finles Capital Management is an asset manager, focused on alternative investments. The parent company, Finles N.V., was launched in 1977 and is owned by the two principals, Rob van Kuijk and Hans van der Holst. The company manages USD260m and has an advisory and representation business with assets of more than USD100m.
The group's current funds include the Finles Collectief Beheer Fund launched in 1985, a multi-manager, multistrategy fund that includes long-only investments that are managed according to our macro view.
Other funds are the Finles EMS Top Rente Fonds established in 1993, an investment grade bond fund managed by an external adviser; the Finles Lotus Fund (1996), a multi-manager fund focusing on Asian equities; the Finles European Selector Fund (2001), Finles Star Selector Fund (2006) and Finles Alternative Bond Fund (2007), all multi-manager hedge funds: and the Finles Liquid Macro Fund launched on March 31, a single-manager discretionary global macro fund.
The portfolio managers currently working for Finles Capital Management have all been there for at least five years and none has left the company.
HW: Who are your key service providers?
MB: Our auditor is PricewaterhouseCoopers, the external administrator is Institutional Trust Services, and the executing broker is Interactive Brokers. The custodian is KasTrust, legal counsel is provided by Greenberg Traurig and our tax advisor is Deloitte.
HW: Have there been any recent key events such as fund launches or changes to the management team?
MB: Before the introduction of the Finles Liquid Macro Fund last month, the most recent launch was the Finles Alternative Bond Fund in 2007. This fund has a performance fee-only fee structure (like Finles Star Selector) and enjoyed a slightly positive performance in 2008.
HW: What is the profile of your current and targeted client base? What is the split of your assets under management between institutional and private clients?
MB: Our targeted client base consists of institutional investors such as insurance companies, private banks, wealth managers and pension funds. Our current asset split is roughly 65 per cent institutional money and 35 per cent from high net worth individuals.
HW: How do you generate ideas for your funds?
MB: For the Finles Liquid Macro Fund, idea generation is based on both internal and external (macro) research. In addition, Finles benefits from the worldwide network of institutional investors that we have built up over the years.
The main focus is on top-down ideas rather than security selection, as we have been doing for our Finles Collectief Beheer Fund for many years. The only difference is that the Finles Collectief Beheer Fund plays these macro views by investing in ETFs, long-only funds and hedge funds.
HW: What is your approach to managing risk?
MB: We have a broad range of restrictions to avoid excessive risk-taking. In addition, trailing stop-loss levels are determined prior to putting on each trade.
HW: How has your recent performance compared with your expectations and track record? Do you expect your performance or style to change going forward?
MB: Last year was a disappointing one for most investors, including ourselves, even though the Alternative Bond Fund didn't lose money and our performances were at least in line with our peers. However, we were not able to produce absolute returns with most products, so this is something we would like to improve. One change is the new fund that has more flexibility on the short side than the long-biased Finles Collectief Beheer Fund.
HW: What opportunities are you looking at right now?
MB: We expect gold and gold stocks to outperform the S&P 500 for years to come. We see the current low treasury yields as a bubble, so we are waiting for this bubble to burst. We expect below-trend growth for many years as government intervention puts a lid on future economic growth.
HW: What events do you expect to see in your sector in the year ahead?
MB: We expect quite some turnover as many hedge funds and managers shut up shop. We expect to see net inflow into hedge funds again in the second quarter or the third at the latest. Investors will come to the conclusion that hedge fund may have disappointed in 2008, but they have been outperforming equities and bonds over the past 10 years. In addition, most investors are cautious at the moment, so they will be more interested in a hedged portfolio than in a long-only portfolio.
HW: How will these developments affect your business?
MB: We expect decent inflow in our product range over the rest of the year.
HW: Are investors' expectations moving towards capital preservation? If so, how do you deal with this?
MB: Investors are certainly more cautious, just as we are. We lowered our market exposure in the summer of 2008, and we might launch a fund of hedge funds that focuses primarily on delivering low or even negative correlation to the equity markets.
HW: What differentiates you from other managers in your sector?
MB: Our customers mostly say that our transparency, flexibility, long experience and innovative fee structures are reasons to invest with Finles Capital Management.
HW: Do you foresee problems in raising mandates from investors through 2009? If so, what factors will drive investors back to your funds?
MB: Raising money in 2009 will be harder since investors took such a big hit during the crisis. There is simple less money to invest. The factor that will increase our assets is the increased focus on hedged investing.
HW: Are you planning any mergers or acquisitions this year, given the talk of further consolidation in the industry?
MB: We certainly expect further consolidation but have no plans to participate at this stage.
HW: Do you have any plans for other product launches in the near future?
MB: In addition to our idea for a fund of hedge funds with a primary focus on delivering low or negative correlation to equity markets, we are also working on launching a fund that would donate part of its assets to charity each year.
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