approaching problems, studying and addressing case studies,” he says. Jabre was a precocious student, in the top 1% when he studied economics in Canada and then the youngest in his class when he attended New York’s Columbia business school aged 20. He was highly unusual in obtaining an MBA in May 1982 at the age of 21. Incidentally, Jabre co-founder and business development director Mark Cecil was also one of the youngest to qualify as a medical doctor aged 22. Jabre still supports all of his alma maters. But his greatest philanthropic activity revolves around his foundation, which has put more than 1,200 of the brightest Lebanese youngsters through expensive universities, often in the USA. Two of four of family man Jabre’s own children have just finished their studies at New Jersey’s Princeton university.
Jabre’s career began with an internship at J.P. Morgan. His first job in finance was in Paris, which he recalls then had only one market quote a day and foreign exchange controls! Starting out when “financial markets needed to be recreated” was invaluable, and Jabre made early contact with sovereign wealth funds in the middle east. At age 24 he was running money for one of the biggest SWFs, accumulating experience very early on. Jabre seems to have a Schumpeterian view of crashes. He thinks “crashes every five years eliminate excesses,” and reflects on the crashes he has lived through: 1987, 1994, 1998, 2001 and then 2008. “If we don’t get eliminated by these crashes we will have good years after them,” such as 2009 and 2003. “You bend but you don’t break,” he says. So is Jabre salivating for the next crisis? “No! No! The Nikkei down 500 last night kept me up all night,” says Jabre; although the others say that such nocturnal trading habits are not unusual.
Jabre’s funds have always had rocky phases. Range- bound markets have sometimes been challenging. Jabre recalls how in 2011 “for eight consecutive months markets were up or down by 8% and then ended flat.” This was his hardest year, when many options expired worthless. Reaching further back Jabre also remembers 1994 as a tough year when “short equities failed to offset the downdraft in convertibles arising from rising rates and widening credit spreads.”
In sum, 28 years of working together has taught Cecil that Jabre “has a huge work ethic with time for everyone and everything. He always takes a call at 3am and never becomes arrogant,” says Cecil, who finds this attitude “exudes through and filters down the whole firm as Jabre leads by example.”
Gung ho investor base Cecil continues, “Jabre is a traditional hedge fund manager in the mould of George Soros, Julian Robertson and Michael Steinhardt.” These managers
Independent risk management
Risk manager Jan De Spiegeleer reports directly to the board, which is independent. He can also escalate any concerns to chief risk officer Phillippe Riachi, who in turn can also report to the board. De Spiegeleer is constantly monitoring prospectus limits and UCITS limits. On top of the hard limits there are plenty of softer limits on which he intervenes – he terms these “risk guidelines”. Suspicious of spreadsheets to run the risk of a hedge fund, De Spiegeleer instead likes to use a real-time risk engine and position-keeping system. He has chosen Sophis because it can, for example, handle a broad range of asset classes, including CDS, inflation swaps, variance swaps and convertible bonds. As soon as a position is added to a portfolio, it contributes in real time to P&L and risk. All the risk and compliance reporting originates from Sophis as well as the trade and position reconciliations with the prime brokers. The impetus for using RiskMetrics came from the need of an independent risk report which can also be used for transparency reporting to investors. While De Spiegeleer is confident enough to assert that “all stocks are extremely liquid,” he adds the caveat that “liquidity is a peacetime statistic,” harking back to the days of 2008 when convertible bonds, for instance, fell far further than they theoretically “should” have done. De Spiegeleer has authored the Handbook of Convertible Bonds, but stresses that Jabre has never done “textbook” convertible arbitrage hedging out all the Greeks, something that De Spiegeleer is wary of. He explains how in 2008 such a strategy could have suffered a double whammy: shorting calls would have been very painful as the VIX hit 80, while the convertibles would have cheapened.
De Spiegeleer realises the limits of statistical measures such as Value at Risk. While Jabre is required to report this to the CSSF regulator for its UCITS funds, the view is that “if everyone was a slave to VAR we would all do the same thing.”
A lot of time has gone into the development of risk reporting tools. This enabled Jabre to slice and dice the risk in any particular way. When it comes to risk reporting, investors have always had potential to get full portfolio transparency – even real-time if they want to pay a visit. Jabre does offer Open Protocol reporting, but admits that many clients continue to request their own, bespoke, formats. Already doing CFTC reporting, Jabre Capital will be happy to add AIFMD reporting later this year.
are opportunists who go where the action is, pursuing a very dynamic, aggressive investment style. Naturally there will be periods of volatility, but Cecil argues that investors should ride this out and focus on Jabre’s 30-year record, which he describes as “second to none.”
Around one-third of Jabre’s assets are “a cornerstone of investable money that never budged or went away,” dating back to Jabre’s BAII days in the 1980s; these assets populate the “discretionary” bucket where clients simply let Jabre decide how assets are split amongst Jabre’s five in-house funds. Jabre had outflows in 2008, because what he terms “peripheral clients” – private banks and funds of funds – ran into trouble. Cecil thinks that whereas family offices understand the volatility, institutions do not, and have been “seduced by the dream that they can make money without risk.” Jabre wants to broaden out the investor base but will not dilute the opinionated style of management to try and garner investors, because
“you cannot have the returns without the volatility.” Nonetheless, he has always adapted strategies to fit the regulated mutual funds he has been running.
Embracing regulation To access EU investors Jabre relies on private placement regimes, reverse solicitation and its UCITS platform. Jabre Capital awaits clarity before deciding whether to go for an AIFMD passport. November 2013 saw Jabre completing their first form CPO-PQR CFTC report, using internal automated processes. Currently Jabre is exempt from the SEC Form PF, but they think that they would find it similar to the CFTC reports. Jabre is anxious for Cayman to enter into more co- operation with Switzerland and EU states, so they can base a distribution office in Cayman. General counsel Leila Khazaneh, who once headed up European legal for J.P. Morgan Asset Management, thinks it is “good for Switzerland to come clean on tax, as it enhances Switzerland’s reputation, and so paves the way for smooth co-operation with EU countries.” She expects
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