Jean-François Hautemulle reshuffled the fund selection process at UniCredit Private Bank. Based on a truly pan-European approach, he tries to promote transparency and avoid bad surprises.
Last year, the fund experienced some headwinds, ending the year nearly flat in dollar terms, even as safer government bonds experienced strong gains amid the macroeconomic uncertainty. But this underperformance (see chart overleaf) is no problem for Hautemulle’s team.
“Hasenstab is a high-conviction manager and made very clear calls. In his view the main sources of returns are Asian currencies and short duration. That is a view that we have as well.
A question of trust
“Yes, he had a bad month or two, but for us there were no bad surprises because we understand and know his strategy. The team at Templeton did a good job explaining what was going on. We felt very comfortable with that fund, as did our clients. When we can’t tell the rationale behind positions, then we really have an issue.”
The need for transparency has the team around Hautemulle back away from more adventurous places in the market. That is true for absolute return strategies as an asset class. The products that flourish in low interest rate environments and volatile markets have garnered assets and attention in the past years.
Yet for Hautemulle, they are not good places to be in today. “We are still struggling with this area. A lot of the products are black boxes – we don’t like that. The strategies make very extensive use of derivatives, which we need to better understand to assess the counterparty risk. Adding to that, the jury is still out on whether these products add value or not.”
He raises similar objections to asset allocation products. “Asset allocation funds are a very tough call because their view has to be similar to ours.” But again, simplicity and understanding at the client level matters.
“We have a very conservative client base. Consequently, trying to explain an absolute return fund to a conservative client in his 70s is quite challenging.”
The same is true at the level of the fund manager. As attractive as they might be, boutiques have not been an option for Hautemulle. In some asset classes, single managers or small teams are able to establish themselves as successful brands, offering more targeted products to sophisticated clients. But due to the Preferred Partner programme, this product area is largely blocked.
Do the fund selectors at UniCredit miss opportunities such as these? “Yes, we probably do,” he acknowledges. “But do I care? Not really. What we are looking for is an operating model that is simpler and usable across the board. It is difficult enough to co-ordinate ten partners in our three countries to align the fund selection. If I were to add a few more local players to the universe, I could add a bit of value, but at the cost of more complexity.”
The financial crisis of 2007-08 has proved that strategy right, argues Hautemulle. As investors tried to find shelter from the global liquidity crunch, they tried to exit positions at asset managers. But especially for smaller fund groups with only a handful of funds, liquidity mattered.
“In some instances, they didn’t have enough liquidity and one was stuck with portfolios that were basically falling apart before your eyes. Sticking with big players is safer for us than going for the niche play. In the kind of business we are in and with our kind of clients, we have to stick with the bigger players.”
Thus, the team should focus to leverage its experience to pick the best-suited funds covering the 23 asset classes with both high conviction and more diversified managers. The UniCredit team already spends 150 hours a month talking to fund managers, according to Hautemulle.