Women in Finance:

Applying an Ironman mindset to value investing

As part of our Spotlight on Women in Finance series, globe-trotting Barbara Ann Bernard, Founder of Wincrest Capital explains why, when it comes to company research, there's simply no substitute for holding face-to-face meetings, walking factory floors, and meeting competitors…

“Women excel in finance and graphs like the one below make it particularly nonsensical that more funds have been launched by men called ‘David’ in the last five years than by women,” says Barbara Ann Bernard, on one of the rare occasions she finds herself back home in The Bahamas.

Bernard is the founder of Wincrest Capital, a value-driven global long/short hedge fund with a focus on seeking out mid-cap niche companies with dominant market share and very little debt.

“Going to meet with companies to see what makes them tick, I find really fun. We find we get what we inspect, not what we expect. I don’t have to go and see a company, I get to go and see them.

“I’ve found myself counting people in an Imax theatre at 3pm on a Saturday in Mumbai. I’ve been briefly detained at a Chinese border for having the wrong visa when attempting to visit a fish farm. Ultimately, there’s no substitute for getting out there and doing real research,” enthuses Bernard.

Having grown up in The Bahamas, Bernard’s story is one of single-mindedness, clarity of vision and a desire to become a successful entrepreneur in the highly competitive, male-dominated fund management industry and moreover, a desire to see the hedge fund industry democratised.

“I’m sure large pension plans would like to have access to the outperformance of the funds in the HFRI Women’s Index for example, but they can’t be a disproportionately large investor. Scale is the answer, and as a champion for entrepreneurship I’d love to see our industry democratised,” she says.

Ironman mindset

With a constant travel schedule, ready to fly out to meet the next portfolio target company,

her bag is always packed. It’s the kind of dedication one normally associates with elite armed forces like the US Navy SEALs. The stock market is Bernard’s battlefield, though. Referring to her numerous triathlon exploits earlier in her career, Bernard says that Wincrest is “my next Ironman.”

She is quick to point out that, in the current economic climate, risk is being mispriced. “The global economy is slowing, so the way to make money today is in what I refer to as ‘anti bubbles’ and fallen angels. In our fund, 72 per cent of our longs and 71 per cent of our shorts are in no index at all,” confirms Bernard.

During 2018, the Wincrest research team spoke to 247 companies, conducted 36 meetings with research analysts, and attended 21 broker conferences in six countries. The benefit of meeting so many companies in so many industries and countries, “is that it enables us to triangulate what we are hearing, reading and seeing. It helps with clarity. It helps build conviction.”

Bernard is proud to be an island girl and loves spending time at home in The Bahamas in between her relentless travel schedule. Growing up, her enthusiasm for business was early to see. One of her neighbours was a liquidator. With her interest suitably piqued, she would deliver the newspaper every day and ask a multitude of questions.

From one temple to the next

Returning home from boarding school one Easter, Bernard aged 15 secured a holiday job at a bank called Deltec. Eager to get started and take the first step towards a career in the investment industry, she turned up only to be told that she wasn’t needed. The markets had taken a downward turn and with the bank laying off staff, taking on an intern was deemed inappropriate.

“I walked out into the sunshine and thought: ‘Now what?’ It was 9am on a Monday morning, I was dressed for work, so I walked up the hill to another financial firm: Templeton. I walked in and asked to speak to Sir John Templeton, who had moved to The Bahamas in the 1960s, where he built the Templeton business from a small, humble office located above a liquor store and the police station.

“I asked Sir John if I could volunteer and he agreed. There were boxes upon boxes of essays on the floor for an essay competition he was running. He needed to ensure his judges received a copy of each essay, that the marks were tallied correctly and the winning essays were properly compiled. This ultimately led to the publication of a book he authored called ‘The Laws of Life’,” recalls Bernard.

The next few summers saw Bernard working under the tutelage of Sir John’s CIO, Mark Holowesko, who at the time was running two of the world’s largest mutual funds: The Templeton Growth Fund and the Templeton Foreign Fund.

I’m sure large pension plans would like to have access to the outperformance of the funds in the HFRI Women’s Index for example, but they can’t be a disproportionately large investor. Scale is the answer, and as a champion for entrepreneurship I’d love to see our industry democratised.”

During this period, Sir John continued to feed Bernard tasks of increasing complexity. She refers to one particular example: “At the time, central banks were dumping their gold reserves and he asked me to author a report determining what value an ounce of gold should be. Mark later told me that Sir John carried that report around with him all summer!” enthuses Bernard.

Like Sir John, when she was a student, Bernard wanted to explore the world. “Unlike Sir John, I did not travel on my poker winnings, but rather, on the monies Templeton paid me during my consecutive summer internships,” jokes Bernard. “Sir John had an extraordinary generosity of spirit. Not only did he write my reference for university, he also took the time to return a photo I took of the Cao Dai temple whilst backpacking in Vietnam, with a thank you note.”

Bernard now travels the world with a laptop rather than a backpack, but still finds it just as enthralling. When it comes to investing, especially in emerging markets, she believes there is no substitute for face-to-face meetings, walking factory floors, meeting competitors, “and soaking in nuances that are virtually impossible to read about in an annual report.”

Convertibles are cars…right?

One of the first companies Holowesko asked the aspiring value investor to write an investment recommendation on was General Mills. Seconds into her presentation, Holowesko stopped and asked, “Did you look at the convertible?” His next question, no doubt based on the look on Bernard’s face, was “Do you know what a convertible is?”

“I hesitated, made reference to cars without roofs, at which point he laughed and walked me through the day’s newspapers and asked me to study the convertible bond. At this point I was still only 16 years old, but I went back every summer until my penultimate year of university and loved every minute.

“As inspiring as Sir John was, Mark was more than a mentor: he was my hero. Mark showed me that the sky was the limit – like me, he had grown up in The Bahamas, he worked hard, he’d done well professionally and athletically and I’ll always be grateful for the time he gave me.

“If I were to use a cycling analogy, I started working with Mark when I was 16 and left Holowesko Partners when I was 35, so how do you begin to thank someone for that many years of training wheels? This industry is an apprenticeship and I hope I can do the same for others,” comments Bernard.

Business BABs

While studying at the London School of Economics – where she was Chair of the LSE Business Society – Holowesko recommended that Bernard apply for the Goldman Sachs Investment Banking programme. Before this materialised, with a keen entrepreneurial spirit, Bernard determined that the LSE was in need of a careers fair. A hotel ballroom on the Strand was duly rented where the likes of Goldman Sachs, Deutsche Bank and Accenture, paid to have a booth.

“We also ran a Recruitment Series and charged firms to host engaging recruitment events on campus. I was on a first name basis with lots of HR personnel in the City. Ben Melkman, the founder of LightSky Macro, was the LSE Business Society’s Social Director, and he coined my university nickname: ‘Business BABs’,” remarks Bernard.

All Spice

After Goldman Sachs, Bernard joined Managing Director, David Zobel, to build the fund of hedge fund business in London at Deutsche Bank. While there, she then received a phone call from Holowesko, who had spun out of Templeton to launch Holowesko Partners in 2000.

For the next decade or so, Bernard worked as one of four analysts at Holowesko Partners – a period of time in her career that she refers to as a “growth spurt.”

“By this point I understood the industry, but Mark really taught me the art and science of valuing a company. He gave me companies he knew well to research. It was a great way for him to determine whether I got it or not and to test my capabilities.

“Gradually I started to develop my own research ideas and then my own investment style. I was attracted to niche companies off the beaten path. Mark would tell me my investment ideas were the spice in the portfolio. That’s exactly what the Wincrest portfolio consists of today. Maybe I should have called the fund ‘All Spice’!” laughs Bernard.

Golden age of shorting

A deep value, fundamental skillset for picking stocks honed over the years has served Bernard well when it comes to the forensic approach needed to successfully uncover short opportunities.

Unsurprisingly, she is a big fan of shorting, confirming that Wincrest currently has a 52 per cent of the portfolio short, compared to 15 per cent in 2018. “What we short is debt, denial, disruption and profit-less prosperity. Every single short we own is a single stock short, designed to generate alpha in the portfolio. We don’t short indexes.”

She notes that the team is always laser focused on alignment of interests. “When it comes to shorting,” she says, “you don’t find them on a Bloomberg terminal. In fact, most of our shorts screen as attractive longs but they’re not… maybe a company’s dividends aren’t sustainable, or their balance sheet is not that strong, or they don’t own what you think they own because they are using complex JV structures, etc.

“We’re entering, in my view, a golden age of shorting. A lot of industries are being disrupted. It’s not that management teams don’t see change coming: it’s that they choose to believe it doesn’t impact them. The only way to seek out these companies is to put in the shoe leather costs and visit these management teams.”

She cites the media sector as being one area for shorting because it is cyclically and financially levered with a declining top line, increasing costs and getting disrupted by the likes of Netflix and other platforms.

“These aren’t value traps, they are melting ice cubes! When these industries get disrupted you get multiple compression and earnings compression; neither are going to come back unless they disrupt themselves. We also see short opportunities in the travel sector (e.g. TUI) and the technology sector where some companies look like nothing more than Ponzi schemes,” opines Bernard.

Nice moustache

During her brief periods of downtime and relaxation, Bernard enjoys the company of Monsieur Moustache, her beloved standard French poodle.

“He takes me for a run on the beach most mornings when I’m back home in The Bahamas – he’s so much fun. He comes to the airport to pick me up,” laughs Bernard.

Ever the eternal optimist, Bernard is nevertheless well aware of the challenges of being an emerging manager, which she is quick to point out, are not unique to women.

“Post-2008 the big allocators, the big asset managers and the big service providers all got bigger. Increased regulation has made it more costly to run a hedge fund, invest in a hedge fund, and service a hedge fund, so sadly, scale, not performance, is the biggest driver of a manager’s success today.”

“Small funds and entrepreneurs are falling through the cracks, not because they aren’t talented but rather they aren’t able to get to scale before running out of runway.”

“It’s a privilege not a chore to be a hedge fund manager, but you have to sacrifice a lot of things to succeed. It’s a total commitment,” concludes Bernard.

©Global Fund Media, published July 2019.

© Global Fund Media 2019

Women in Finance:

Applying an Ironman mindset to value investing