Fund - Banca del Ceresio

Background:

Although Banca del Ceresio was founded in 1958 by Giambattista and Alberto Foglia, the family’s involvement in asset management and securities brokerage dates back to 1919 when their father, Alberto, established a financial-services business in Milan. The Lugano-based private bank was created to allow the family to better manage their clients’ international interests.

Despite a 46-year track record of hedge fund investing, Banca del Ceresio’s managing director, Federico Foglia, says: “Since we dislike the hedge fund terminology, we prefer to call it a search for investment talents. We comb the world for aggressive, talented risk-takers who are not necessarily concerned with building a big business, but are capable of compounding assets at a much higher rate than we could achieve. Starting from that principle, we can combine them into a multi-manager fund or various other kinds of alternative or long-only vehicles. However, the key is to be able to identify those managers.”

Over the years, the bank has consistently diversified into a suite of FoHFs through its wholly owned subsidiary, Global Selection Advisors Ltd, and its Italian-domiciled global programme, the Global Managers Selection Fund. Overall, the group’s assets have steadily grown to $7.9 billion. Hedge fund assets amount to around $2.8 billion, including $1.6 billion in the various FoHFs and the single lines held in client portfolios.

In 1999, the bank launched the Luxembourg-based Vitruvius SICAV, a $1.1 billion umbrella UCITS programme comprising eight portfolios that are advised by external managers. “In Vitruvius, we select gifted managers that we have discovered in our hedge fund business, but who are also capable of managing long-only mandates,” says Foglia. In 2011, the Vitruvius US Equity portfolio won the best Global Equity fund category at the inaugural Absolute UCITS Awards.

Banca del Ceresio has also carved out a significant discretionary account and advisory business where it advises a limited number of institutions and other multi-manager funds with invested assets of around $4 billion. For many years, the Foglia brothers have served as active advisors and board members on the investment committees of Haussmann Holdings, Leveraged Capital Holdings and Trading Capital Holdings, among the oldest and best-performing FoHFs in the industry. These products are also utilised in putting together discretionary accounts for Banca del Ceresio’s clients.

In keeping with the traditional role of Swiss private banks, private clients still constitute the core of Banca del Ceresio’s client base, However, over the past 15 years, the clientele has become more diversified due to the bank’s success in attracting pension funds, Italian and Swiss endowments and family offices. “Because we don’t distribute our products through sales networks, we have mostly a proprietary client base whereby people approach us directly,” explains Foglia. “As our clients are the end users and not the intermediaries, we’re able to maintain a more stable asset base. Not having a distribution network allows us also to keep our fees low; so, for example, we don’t charge any performance fees.”

Banca del Ceresio spends a lengthy time gaining an understanding of a manager’s investment style and hedge fund or long-only skills, before it is prepared to cautiously allocate capital. The key manager research and selection process is supported by London-based Belgrave Capital, which the bank acquired in 1999. Historically, the bank has been very successful in identifying turbo-charged investors such as Louis Bacon and Michael Steinhardt, and, in a particularly far-sighted move, acted as one of the seed investors for George Soros.

“The principle is actually very simple,” says Foglia. “For many years, economic theory claimed that it was impossible to beat the market. However, our experience shows that in terms of taking risks in financial markets, there are people that excel. We like managers who don’t feel boxed in by any fashionable constraints and our best long/short managers are not shy about putting a macro overlay on their portfolio when they see macro misalignments. In tennis, for example, Roger Federer obviously plays tennis better than you or me. So our objective is to identify the Roger Federers of the financial world. ”

Directional long/short equity and macro strategies account for the majority of the Global Selection FoHF portfolios, partly due to the liquidity they provide, while quantitative and systematic strategies tend to be avoided. Foglia not only regards liquidity as a good discipline for the managers, but it also enables the bank to meet client redemptions – a key advantage during the financial crisis when it did not impose any gates. “In general, people who are too complacent about their liquidity terms also tend to make mistakes over time in their portfolios,” notes Foglia.

In contrast to many hedge fund firms that categorise their FoHF ranges by style or asset class, the Global Selection funds are divided along geographic lines by focusing on the US, Europe, Asia and Japan. The Global Selection Holdings, which invests in the regional funds, reflects the managers’ top-down views.

Starting with a bottom-up approach and drawing on a global pool of 120 underlying funds, the managers construct highly concentrated portfolios. Generally, the regional FoHFs with around 30 managers will allocate 50% to 70% of the portfolio to the top 10 managers. This decision reflects the bank’s trust in the managers that have typically had at least a five-year relationship with the bank.

While Foglia admits that it has become more challenging to find outstanding new talent, emerging managers nevertheless comprise around 10% to 15% of the portfolio. He points to Asia, and particularly China, as areas where his analysts are finding good independent money managers off the beaten track. “If managers feel they are justified in charging two-and-20 fees over a cycle, they really need to be excellent,” says Foglia. “That is why, over time, we only retain a small number who can demonstrate an edge or the potential to become extraordinary managers.”

Rather than maintaining a separate risk or operational due diligence team, the bank regards the essential portfolio risks as an integral, very controlled part of the investment process. It will only invest where it fully understands how the managers generate their returns. Equally important, underlying managers are expected to have their own capital invested in their funds, which Foglia believes “is the best kind of risk management you can have, and we also like to allocate to managers who don’t necessarily need our money”.

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