M17: Controlled steps
M17 is a relatively young organisation and has not undergone any M&A activity. So explains Markus Matuszek, managing partner and chief investment officer of the Pfäffikon and London based organisation.
“In the run up of our launch of the M17 European Market Neutral Ucits fund, we had several discussions with investors who were interested in an equity stake or in providing working capital, yet we felt that most offers were not compelling as they required us to give away too much of the economics or wanted to take advantage from the more difficult asset raising in the early stages of an asset manager.” As a result, the business has hitherto been self-funded, Matuszek notes.
“One of the consequences of this was, and still is, that we are keen on ensuring that costs for both the Ucits fund and the asset manager are kept as low as possible while maintaining an institutional setup. LRI Invest, our Luxembourg based ‘Manco’, has been instrumental in this effort.
“Initially we wanted to use another company name. However, when we approached investors with it, we learned that the name was already associated with existing asset managers in other countries. Also, our legal counsel strongly suggested not to go ahead as the potential ramifications were simply too high.
“That day, I mentioned the situation to my wife Natalia who came back to me after some time and suggested using the combination of a letter of my initials (M) and my lucky number (17) as a brand, as she explained that true success only comes from hard work (M) and a bit of luck (17). The entire team found this unique and liked the philosophy behind it,” explains Matuszek.
The M17 European Market Neutral Ucits fund was launched in February 2018. Six weeks into the launch, the
business stood at €45m, with subscriptions continue to come in on a weekly basis, enabling the closing of the founders share class by the end of June. “The investor base consists of European onshore investors although we are in discussions with several Asian investors and thus hope to broaden the investor base over coming months,” Matuszek says.
“We have institutional and qualified investors only as we decided to wait with offering the fund to retail investors. Our mix is quite broad, consisting of pension fund advisors, fund of funds, single family offices, wealth/asset managers and high net worth individuals.”
The company currently only manages the M17 European Market Neutral Ucits fund which is an absolute return equity long/short market neutral product.
M17 has offices in Pfäffikon (near Zurich, Switzerland) and London. These offices are not profit or cost centres like at other, bigger asset managers but serve investment and operation teams to conduct their work, explains Matuszek.
“The organisation is quite process driven and is based on a high frequency of interaction between the respective team members to discuss research findings, analyse scenarios, risks, etc. Since M17’s investment approach is quite fundamental, the office locations and other serviced offices serve as bases whenever the investment team is visiting companies or conducting other research activities.
“Our focus is to maintain an annualised volatility level of around 6% while making sure both our long and short books generate enough alpha so that we finish the year with good performance. For our strategy, investors expect to receive 8-15%, depending on the type of investor. “On the client segment side, we want to ensure that we have a well diversified portfolio of investors, be that geographically, type of investors as well as concentration,” he adds.
“As mentioned before, we are currently raising capital for our M17 European Market Neutral Ucits funds and that keeps us extremely busy with around 20 investor meetings per week.”
M17 is not developing any new products for the time being, although it frequently receives queries about whether the same strategy is offered in an offshore version or in a managed account format. Matuszek believes that it is only a matter of time until the business secures a European investor who wants to invest in the strategy but is also willing to be an anchor investor for an offshore version. However, this is not being actively pushed. The other key development is that some larger institutional investor are conducting due diligence on the operations.
“We currently don’t plan to expand our physical presence, nor do we want to significantly expand our investment universe. You cannot be the master of all trades but have to stick to industries and regions you already
understand very well,” comments Matuszek. Prior to launching the Ucits fund, the company carefully considered how and when they will grow their team.
Matuszek adds: “We have a specific plan in place for all areas of the firm, be it in terms of analysts, risk and operational roles. While most of those considerations are confidential, we implemented in our DDQ a review mechanism which is triggered at certain AUM levels to ensure that M17 as an asset manager has all the required people, systems and processes in place before aiming to raise more capital.
“Put differently, we will suspend capital raising until our organisation is ready to make the next step as we want to ensure that we grow in a controlled and sustainable manner.”