Olivier Mollé and Gilles Sitbon, Sycomore Asset Management: “Basel III and Solvency II should be a game-changer for the way banks and insurers manage their capital reserves”
Olivier Mollé (pictured) and Gilles Sitbon, who run the L/S Market Neutral and L/S Opportunities funds respectively at Paris-based Sycomore Asset Management, say both the long/short funds are seeing increased interest from investors seeking more uncorrelated returns for a greater portion of their assets under management, whether they are focusing on capital preservation or looking for equity market exposure with lower volatility.
GFM: What is the history and background of your company, principals and funds?
OM/GS: Sycomore Asset Management is a Paris-based independent investment management company founded in 2001 that manages European equities through Ucits long-only and long/short vehicles.
The firm has 34 employees, including 12 investment professionals; it has approximately EUR1.75bn under management, of which EUR200m is invested in long/short strategies. The firm has been rated M2- (strong) by Fitch Ratings for the past three years and is regarded as a top player among the equity-based investment management boutiques in Paris.
Our 12 investment vehicles include two long short strategies, the Sycomore L/S Market Neutral fund run by Olivier and the Sycomore L/S Opportunities fund, a directional fund, run by Gilles. Both are French-domiciled Ucits Fonds Commun de Placement with daily liquidity.
After 24 months of active strategic product launches, Sycomore is now focusing on organic growth, both for our traditional long-only and long-short funds.
GFM: Who are your main service providers?
OM/GS: The service providers for our two long/short funds are PwC Sellam as auditor, BNP Paribas Securities Services as administrator and custodian, and Morgan Stanley and Credit Suisse as prime brokers.
GFM: What is your distribution strategy and targeted client base?
OM/GS: Since its establishment in 2001, Sycomore Asset Management’s strategy has been to target large institutional investors and high net worth individuals, seeking to achieve the highest standards of performance, transparency and operational processes to surpass the expectations of these demanding investors.
As a result, Sycomore has been recognised as one of the top three European equity management boutiques in Paris in the Amadeis survey of more than 60 large French institutional investors in each of the past three years.
Sycomore is currently looking to expand beyond its traditional investor DNA of French institutions, and to a lesser extent French-speaking ones in Belgium, Luxemburg and Switzerland, and to start marketing in the UK and German-speaking areas, both the country itself and Zurich.
GFM: What impact has the recent global financial crisis and economic downturn had on your business?
OM/GS: At the management company level, Sycomore’s fundamentals are very solid. The firm is independently-owned (90 per cent of the capital is held by founders and employees). The capital structure remained unchanged during the crisis and no senior portfolio manager has left the firm since 2001.
Both long/short funds are seeing increased interest from investors seeking more uncorrelated returns for a larger portion of their assets under management. Two sets of investors have emerged; those focused on capital preservation are attracted to Sycomore L/S Market Neutral, especially in the current low interest rate environment, while others seeking equity market exposure but desiring a lower volatility are more inclined to invest in Sycomore L/S Opportunities, our directional long/short fund.
GFM: Please describe your investment process.
OM/GS: A bottom-up fundamental approach has been the investment trademark of Sycomore since 2001. We do not make use of quantitative or automated trading tools. Meeting companies and analysing their financials is the bread and butter of our franchise; our investment professional made more than 800 company visits in 2011.
Our biggest asset is that the investment management team shares the same investment philosophy and is focused on European equities. Although each portfolio manager is the ultimate decision-maker for what goes into and out of their portfolio – we don’t make decisions by committee - they all act as buy-side analysts for each other, and share research and valuation work in a tool developed in-house called Sycovalo. All the investment professionals sit in the same physical space, which promotes ongoing sharing of ideas and points of view.
GFM: How do you generate ideas for your funds?
OM/GS: We generate ideas for our long-short fund with: systematic quantitative screening, news flow monitoring, ongoing company meetings, financial screenings on volume and price action, and continuous enlargement of our investment universe.
GFM: What is your approach to managing risk?
OM/GS: Sycomore AM has a dedicated risk management team of five people who monitor funds’ miscellaneous exposure (such as gross, net, long, short, industry and market cap), liquidity (liquidation time estimation), performance attribution and regulatory compliance.
Risk management is implemented differently in the long-short funds, but Sycomore L/S Market Neutral and Sycomore L/S Opportunities share: the use of stop-losses, a focus on very liquid names (the entire portfolio is sellable in one day at one-third of the volume), continuous monitoring of country, sector and size exposure, and ongoing dialogue with the management teams of the companies we invest in.
GFM: How have your funds performed?
OM/GS: Since changes of the portfolio managers in October 2010 for L/S Opportunities and July 2011 for L/S Market Neutral, the funds have displayed strong resilience in a tough market environment.
Sycomore L/S Market Neutral has demonstrated its ability to generate positive performance – up 4.92 per cent since July 2011 – on any market configuration, including during hard times when Euro zone equities as a whole lost 10.88 per cent. Over that period, the fund has always operated within its volatility constraints of between 3 and 4 per cent. The fund is up 2.14 per cent so far this year.
Sycomore L/S Opportunities shown its ability to limit capital losses, losing 4 per cent in 2011 when eurozone equities declined by 16 per cent, while capturing the bulk of the upside with a lower level of volatility, at around 14 per cent over one year. As a result the fund is up 13.1 per cent since October 2010, against a decline of 3 per cent for eurozone equities, and it is up 12.67 per cent for the year to date.
GFM: What do investors currently expect from managers, and how do you deal with those expectations?
OM/GS: We believe investors are looking for investment conviction, performance, transparency and strong operational processes that meet the highest standards of money management, which ultimately helps build trustworthiness. We remain in constant dialogue with our investors to make sure we meet their investment needs. In addition, Sycomore’s independent capital structure is a guarantee of pragmatic and opportunistic portfolio management.
GFM: What differentiates you from other managers in your sector?
OM/GS: We are a team of 12 seasoned investment professionals with a strong stock-picking track record acting as buy-side analysts for each other, and we have a strong risk management discipline.
We offer daily liquidity. Redemption requests for our long short/funds have always been met, even at the height of the crisis in 2008 and 2009 when many managers were putting up gates to limit withdrawals in a stressed environment.
Our independence allows us to remain under-invested if we do not identify investment opportunities that meet our high hurdle rate targets. We also offer transparency of the investment process and portfolio management.
GFM: How do you view the environment for fundraising over the coming 12 months?
OM/GS: The current environment is supportive of allocation to long/short strategies as they offer uncorrelated returns in low-visibility and macro-driven markets.
GFM: How do you expect your business to be affected by current and proposed regulatory changes?
OM/GS: Regulatory changes such as Basel III and Solvency II should be a game-changer for the way banks and insurers manage their capital reserves. Our teams are working closely with them to understand and discuss what their future constraints will be. We believe that as an asset manager we should act as a real partner and support them into this long transition.
This is why Sycomore has been regularly attending conferences as speakers on the impact of Solvency II on asset allocation for insurers. Recently we launched a specific Solvency II reporting based on solvency capital requirement for our two long/short funds.
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