Keep calm and carry on
The ability to keep calm during rocky times for markets are key qualities sought by Filippo Stefanini at Eurizon Capital.
Stefanini (pictured), who has been head of selection of third party funds at Eurizon Capital SGR since the beginning of 2012, says that the asset manager’s philosophy is oriented towards both safe and experienced managers and the search of innovative assets for the firm.
Eurizon Capital is the asset management company of the Intesa Sanpaolo Group with total AUM of €177bn (according to Assogestioni first quarter 2013 data, including Eurizon Capital SGR and subsidiaries Eurizon Capital SA and Epsilon SGR.) More than €10bn is allocated to third party funds through an open guided architecture that allows its portfolio managers to select among a ‘Buy List’ of some 200 global manufacturer names.
The Hedge Funds & Manager Selection team manages 40 model portfolios that focus on third party funds: long-only funds, funds of hedge funds, unit linked, building blocks for segregated accounts, and mutual funds.
Looking at the selection process, Stefanini says Eurizon Capital’s approach is a mixture between qualitative and quantitative and it normally starts from the need to find a manager who is able to add value to those ones already on the Buy List.
“Say that we’re looking for convertible bonds, skim through the databases and then, as an example, we focus on indicators of three-year risk-adjusted returns,” Stefanini explains. Once they have singled out two or three funds, Stefanini and his team check whether the candidates show a good Sharpe ratio, excess return compared to those ones already on the list, as well as if they are not too correlated to them.
As final steps, Eurizon Capital’s managers check whether the selected candidates have a cautious risk management strategy, and finally look for peculiarities.
“Our approach is very much based both on the analysis of the past performances and projection on what a certain manager can contribute to within Eurizon Capital’s offer,” Stefanini says.
Red flags: a ‘Djokovic approach’
While the qualities that Eurizon Capital seeks in managers might be “boring”, as Stefanini says, they are actually tied into what the manager calls “The tennis champion’s approach”.
“I was watching Wimbledon’s semi-final match between Djokovic and Del Potro the other day. The match was very balanced and it often seemed as if Del Potro could win. Actually, I believe the number of points scored by the two players was
very similar,” Stefanini explains.
“However, Djokovic remained focused and managed to win the most important points of the game. This is a good metaphor for money managers. Fund managers normally have similar hit ratios, but the most successful are those who make mistakes at non-crucial times and manage to keep calm and make the
right decisions at key moments.”
In the manager’s opinion, major red flags can be spotted in drawdown management, which usually gives away clues about how the manager handled
the situation over a three-year time period.
Seasonality analysis, as well as the analysis of both Sharpe and Information ratios, are at the core of Eurizon Capital’s selection process too.
“We try to avoid those managers who had particularly high Sharpe ratios, as they are not sustainable in the long run unless they’re part of quantitative strategies,” Stefanini explains. “In discretionary strategies, we are aware that a high Sharpe ratio is normally followed by a period of underperformance. We also try to keep track of the AUM’s fluctuation to be able to spot quick inflows or outflows that might be a canary in the mine.”