Pieter Laan has headed up the external manager capabilities of IBS Capital Allies since April 2017. In this role he is responsible for the fund selection and monitoring within all listed investment categories (equities, bonds, commodities, listed alternatives etc..). Prior to joining IBS Pieter was employed for nearly 15 years at Kempen & Co where he had multiple roles and sat on various investment committees. The majority of his years at Kempen were spent as a fund analyst in the Multi-Management Team, while his last role focused on portfolio construction.
What do you think it takes to have a successful career in the fund industry? What advice can you give young professionals looking to establish themselves within asset management
Within fund selection it’s good to develop a sensible dose of scepticism and not to trust the managers blindly. We follow a rigorous process in order to guard our objectivity and not to get too impressed by great marketing stories. To be successful within fund selection you have to be able to take a helicopter view so you don’t get lost in details that blur your vision. Additionally, I feel that the most successful fund selectors are intrinsically motivated to select the best funds and follow markets closely. I love the challenge to select the best funds out there and it gives pleasure and satisfaction when you achieve this goal. For young professionals the best advice I can give is to start early in managing your private portfolio. Try to build a solid investment case for all the companies/funds you own. This will force you to think more strategically (and from time to time hopefully also out of the box/disruptive) about asset classes, business models and valuations etc.
What do you like most about your job? How do you stay motivated?
What I like most is meeting and speaking with the fund managers, preferably on-site. During on-site visits you can really asses the fund manager’s capabilities best as they are acting in their own natural setting. We can access systems/models in action when sitting next to the PM/analyst. During the office tour we can also form our opinion how the interaction within the team members is set-up (open floor/cubical or separate offices) and try to feel the investment culture that is embedded within the firm.
I stay motivated by continuously speaking with new managers to grasp information which we can use to assess the quality of existing managers on our approved list. Within the team we arrange ‘lessons learned’ sessions and we frequently challenge each other in order to minimize the risk of becoming complacent. We also find it interesting to speak to managers which are performing less well. We try to identify the reasons why they lag their peers. We can use this knowledge to create/adjust our list of conditions a manager must possess to increase the probability of generating a positive alpha over the long-term.
What is the greatest challenge as a fund selector?
Within IBS Capital Allies we follow a disciplined and thorough investment process for selecting funds. We have a set of qualitative and quantitative criteria we deem important. The first steps of the process, constructing the long-list and subsequently drilling down to the short list, takes quite some time. On average we have 15 to 25 managers on our long-list when we conduct a search. The greatest challenge within our team is to pick the best one or two managers from the short list. All the short list managers score well on the set criteria, so in the final phase it’s all about nuances. We tend to have lengthy discussion on presented stock examples, track records, stability of the team as well as certain soft factors. It happens occasionally that we select the fund where we feel the team dynamics are the strongest (i.e. a collaborative team approach, low key-man risk, low dominance lead-PM and driven and energetic team members).
Which aspects do you consider most important when selecting a fund for a portfolio?
Strong team dynamics, alignment of interest, performance in line with expectations and a consistent, but adaptive investment philosophy are important conditions for future success. We have a preference for independent investment boutiques. Within investment boutiques ownership tends to be spread among the firm’s investment professionals. Additionally PM’s/analyst invest most of their private wealth in the strategies they run which creates a strong alignment of interest with their investors. Within IBS we favor a team approach where the role of PM and analyst is integrated. Via this set-up the whole team is involved in managing the portfolio which fosters the discussion around specific companies and the total portfolio characteristics. We are less convinced in the long-term success of a fund which is managed by a star PM who relies on a battery of analysts who work for multiple funds. This set-up is vulnerable as it increases key-man risk and the analysts are less aligned with making the specific fund a long-term success. Performance is obviously a key factor as well. We assess the performance of the funds on multiple levels. We compare the performance with a broad benchmark, a specific style benchmark and we look at their ranking within the peer group. With regard to investment philosophy we like consistency, but one must not be complacent to think that a certain investment philosophy/process will work indefinitely. The Covid-19 crisis for instance made clear that some (sub-) sectors/business models are in a structural decline and this decline actually accelerated. We find it powerful if managers acknowledge these changes and refine their philosophy/process on certain screens/criteria to become more robust.
What kind of adjustments have you made in your portfolio management so far in 2021, perhaps in terms of hedging or risk management
The most important adjustment we made in fund portfolios is the addition of European Asset Backed Securities (ABS) at the expense of European Government Bonds. In this low yielding environment we were looking for an asset class that provides a spread pick-up in combination with a similar credit rating profile. The yield is approximately 125 to 150bps higher than European Government Bonds and the fund we selected currently has a ‘AA’ credit rating. The interest rate duration is around 1,3 year which will provide some cushion if interest rates continue to rise. Including ABS in our portfolio’s also results in diversification benefits as the correlation with traditional fixed income bonds and equities is relatively low.
Any current advice for investors as we think about the 1-5 year investment horizon?
Within IBS Capital Allies we are long-term believers in investing in Quality Growth companies. This investment philosophy had a strong run over the last years. Currently however these type of companies are somewhat beaten up by the market on the back of rising interest rates and higher commodity prices. We feel this is a temporary setback which could last some quarters. But we are confident that over time this investment philosophy will prevail.
Additionally we take the integration of ESG as paramount in the investment solutions for our clients. We notice an increased demand/awareness for ESG and also Impact investing in the markets and among our clients. The launch of the Sustainable Finance Disclosure Regulation (SFDR) will probably give this an extra push. We selected two funds in 2019 (Montanaro/Hermes) within the Impact space. The track records are relatively short, but the performance numbers so far are encouraging and the prospects are good.