Teamwork turns boutique asset manager into a $10bn player

When Macquarie made a $6.6bn move for Danish telecom giant TDC it was seen as an expensive and risky deal.

But fund managers involved in brokering the takeover already realised assets in the firm with more than 3m subscribers meant the risk was minimal.

Detailed research carried out by both Macquarie and analysts at Sandro Näf’s Capital Four before the deal became pubic had reassured them that it was a sound investment.

The “one firm one view” teamwork approach by the “boutique” brokers meant anyone heading a committee of five specialist teams could have vetoed the project in the run-up to announcing the deal.

Näf explained the philosophy and workings of the firm he founded in 2007, turning it into to a 10bn euro entity in a decade, during a talk to FINSIA members.

He said: “Many investors were a little bit hesitant to commit. It looked like a risky transaction - as Macquarie was paying quite a high price.”

“We were deployed early because we could put together a lot of capital. We are the largest independent player in the leveraged finance space in the European market.”

“Entities want to work with someone who can make a big contribution to this kind of deal.”

But having deep pockets is only half the story.

He added: “In terms of our strategy, we have an active approach. We look at credit rating from a bottom up basis. We do a fundamental credit and research analysis. We have a big team of investment professionals.”

“When it comes to making investment decisions, we take a slightly different approach to other Anglo Saxon managers.”

“We have a team-based approach where we have five portfolio managers sitting in on a committee.”

“What happens when we analyse a deal and decide whether we bring it on our portfolios all five have to agree unanimously.”

“All five have the right of veto. We all have to agree if it’s a good investment.”

“You make better investment decisions in the long term.”

Capital Four’s base in Copenhagen meant the firm was ideally placed to find other players in the buyout.

Sandro added: “We were also well-connected with the local community.”

“We spent a lot of time discussing this transaction with people we knew in the industry.”

“We started to understand the rationale of the transaction over time. Despite paying a relatively high multiple, they don’t intend to run it as a telecom business, but planned to spin off the infrastructure asset and the telecoms.”

“And that provided a higher level of safety.”

While Capital Four’s core business is in Europe where more than half of the top 10 big pensions funds in Scandinavia are clients, it is also has business in Hong Kong and Singapore as well as a Chilean pension fund. 

And as Sandro said on his first visit Down Under, asset managers are increasingly looking towards Australia - especially as pension funds are looking to diversify. 

With the fourth largest pension pot in the world standing at $1.6 trillion, it is understandable when Sandro says: “We understand there are some interesting things going on in Australia.”

“In many ways, Australia is similar to Scandinavia. There’s a strong resemblance between the two retirement systems.”

Pension funds with a large pool of capital who can’t invest it all here in Australia need to diversify overseas in jurisdictions they know - like Europe.

Sandro says he has taken inspiration from another asset manager who has seen a massive increase in business in the past three years, which he described as “mind boggling”.

But the Swiss-born banker did sound a note of caution for the economic leveraging cycle, saying: “There’s definitely trouble ahead..”

“As an investor or creditor you always have to be cognizant of the cycle. There is no question we are towards the end of the cycle. We are very aware of that in all of our strategies.” 

“It’s not the first cycle we are going to go through. But trouble means opportunity for us. This for us is the third cycle we are going to go through. In 2001, 2002 the market was very young and diversified. In Europe, it was worse than 2008-9.”

“But that was also a very dramatic period, in particular for us. Imagine being a relatively inexperienced entrepreneur, it tested your emotional robustness.”

“We are very hesitant in saying there is going to be a financial crisis. Having said that, there’s also been developments that are somewhat worrying in terms of the growth of the debt in world markets.”

“To start with, everyone realised there was too much debt during the financial crisis and that we needed to do something about. Now there is even more debt around us.”

“There is more sovereign, corporate and emerging market debt. We solved the debt the problem with more debt.”

“That should make us pause and think a bit.”

Sandro was speaking at FINSIA’s latest roundtable in Sydney, which is one of more than 100 organised every year. Save the date and secure ticket for our signature event Summit 2018, which is now less than a month away, on 11 October at the Hilton in Sydney.