This page contains a Flash digital edition of a book.
Jabre Capital Building on 30 years of fundamental investing HAMLIN LOVELL


F


or hedge funds, “equity-like returns with bond- like volatility” is a typical performance target. However, not only is the Sharpe ratio implicit


in this aim unrealistic according to Philippe Jabre, he also wants to beat equity markets, and thinks that double-digit volatility is naturally concomitant with his target. In 2013 only a minority of hedge funds outperformed long-only equities to any degree, and Jabre’s flagship multi-strategy fund, up 43.03%, did so by a large margin. 2013 was one of Jabre’s banner years but he has had plenty before, including 2009, 2003, 2000, 1999 and 1998.


Boundlessly energetic, Jabre has been running money for nearly 30 years (including UCITS funds for 15 years). Yet his own stature should not obscure the team of 50 that he and his partners have spent seven years building in Geneva.


Some Jabre portfolio managers have considerable autonomy. For instance, Ziad Tabet’s event-driven strategy also had a good 2013 and sidestepped virtually all of 2008’s deal breaks. No less impressively against the headwind of declining markets, Carl Tohme’s emerging markets equities strategy made money in 2013 – and has hugely outperformed since it started life.


Feeding the information monster Thoroughly thought-through fundamental analysis is the way of working for the investment team at Jabre, whom The Hedge Fund Journal met at Jabre’s central Geneva offices, Number One, Rue des Moulins. Philippe Jabre’s voracious appetite for information keeps the team busy, says Roberta Ventura, head of equity research, who has worked with him since inception. The need to store research information in a database almost seems superfluous in light of Jabre’s “amazing elephant- like memory for prices, charts, news and whatever was discussed at meetings years ago.” The team holds between 1,000 and 1,500 meetings per year, including company visits, analyst visits and conference slots. Jabre Capital are now into their seventh or eighth annual rendezvous with most firms. Less competition for company meetings is, Jabre finds, an advantage of being in Geneva says Ventura, “We always get a one-on-one and do not need to fight for it.”


Long-term vision Having been on the sell side – where Jabre was her best client – Ventura knows how to best use bank research. She assembles a mosaic drawing on the strongest insights from each brokerage house. “Some analysts may have terrible models but great relationships, while others might have brilliant models with no relationships,” she explains. Jabre rarely build their own valuation models as they have ample access to the best on the street. Having


studied economics, Jabre understands the macro angle and continues to read “everything on the planet”: sell-side research, newsletters, economic research and the specialist press.


This roving approach applies to internal analytics too. Jabre sees himself as a central core surrounded by satellite providers of information doing converts, credit, flows and analytics. “Different people feed me information on product, sector and geographic levels,” he says, to help “get new ideas and develop new strategies.” The developed equity team includes former sell-side analyst Philippe Ziegler and ex-equities trader Mona Elisa with erstwhile high-yield analyst Julien Dumas-Pilhou working on credit. As much as 25% of the multi- strategy fund can be independently managed by managers such as Carl Tohme and Ziad Tabet (profiled separately). The team has been stable and Jabre likes this continuity. Yet this does not mean Jabre is a “consensus-driven house”. Although Jabre is the ultimate decision maker, room remains for devil’s advocates. However, the duration of holding periods suggests that after a healthy internal debate, the team does develop shared confidence in core holdings.


Brokers have sometimes observed that Jabre sticks with stocks for longer than traditional long-only managers, with some of his biggest winners in the fund for years. This longevity may not be reflected in average holding period statistics, since Jabre trades around core holdings very actively to stay in the flow of information. For instance, trading later in the day can let Jabre feel the pulse of US investors’ activity in a stock.


Always opportunistic Jabre does not sell stocks in order to rest on his laurels. Ventura explains: “Jabre trades like there is no tomorrow every day and is always going for maximum possible upside. When we are right we massively outperform and shoot the lights out. Throughout 2013 Jabre consistently resisted the temptation to take profits. Jabre would never think in terms of hit rates or win/loss rates. He is so focused that he ideally wants a 100% hit rate.” One of Jabre’s counterparts, Derek Bandeen, global head of equities at Citi, says, “Philippe is a natural trader, with a keen insight into market dynamics. His comprehensive understanding of the economic and political backdrop of the markets combined with his ability to be in tune with investor psychology have allowed him to deliver very impressive results.”


That said, Jabre will not sacrifice liquidity on the altar of return seeking. The portfolio is intended to be saleable within three days. Jabre meets small- cap management teams to get general colour on sectors but seldom invests in small caps.


Style and sector agnostic Jabre’s unconstrained approach means the countries, sectors and styles driving returns in any period cannot be used to extrapolate what happens next; conventional ways of categorising managers would be a straitjacket for the mercurial Jabre. As Bandeen observes, “Having focused mainly on the Japanese market originally, he has successfully branched out to take advantage of value opportunities from a global perspective.”


Ventura recalls how in 2009 the fund became “a quasi-financials hedge fund with more than half in banks.” Jabre’s conviction here was based on analysis of price to normalised book value and normalised earnings. The team’s research suggested that banks could easily make double-digit returns on their prevailing book values, and that they were therefore trading on single-digit earnings multiples. Whereas some other funds only made brief excursions into financials, Jabre stayed in the trade throughout 2009 and beyond. At the same time, Jabre’s Global Balanced strategy shows there is no hard-wired bias to being permanently long equities. This fund benefited from increasing its bond weightings in the second half of 2008, and managed a small profit that year.


Winning contrarian calls Jabre recalls many instances where his contrarian calls paid off in a big way. He has always had a strong macro view, which can deviate from consensus at times. If Jabre sounds like a cheerleader today he has also been a Cassandra in the past. He was particularly prescient on housing. As early as 2007 he was on a US roadshow warning everyone about the risks to US housing due to excessive leverage in the system.


Another daring stance was taken in 2013 after Softbank announced a bid for Sprint of the USA, and traded limit down over borrowing fears. Jabre adroitly picked up Softbank stock down 20-30% and swiftly profited from the rebound. The huge position taken in US banks in the spring of 2009 was another case in point, where many investors shied away from the flood of new issuance and placements. Jabre was happy to actively participate in these re- capitalisations and hoovered up heaps of stock. His timely move into Japan was also contrarian, straight after Abe was elected in November 2012; Jabre says he bought much earlier than most others.


Yet Jabre, ever the chameleon, is not always contrarian. On Google Jabre has shared the consensus bullish view. Here his edge came in how he expressed the idea – and in timing. By using cheap options to get long of the stock, Jabre made a far greater return than he would have by simply buying it. After the stock got dragged down by a general panic over US government shutdowns, Jabre saw scope for


13


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72