As the private bank based in Germany’s capital, Weberbank feels closely connected to Berlin and its people.
Since 1949, it has offered private and institutional investors nationwide comprehensive advice that is focused on the interests of individual customers, while seeking exposure to targets such as sustainable earnings.
While not disclosing exactly what proportion of its asset management is in funds, there is a substantial asset allocation programme ongoing for approximately €6bn in AUM, explains Jens Herdack, portfolio-management director.
The widespread use of funds and the breadth of investment areas invested in via collective investments means that there is a steady stream of candidates for replacing existing investments “in case they lose their ability to generate additional alpha”, as well as react on an ad hoc basis to sudden market developments, he notes.
“When investing into an actively managed fund, we always check the probability of generating alpha. We find regions/sectors in which this is more likely and others where it seems to be more difficult to generate a persistent outperformance. In the latter case we prefer passive strategies. For example, this is the case in the standard fixed income markets like European investment grade corporates, because the managers cannot earn the additional fees of active vehicles.”
“We prefer managers with a repeatable track record. Which means that we tend to invest in managers who constantly generate additional alpha instead of trying to find the best manager of the year.”
The quantitative part of the selection process relies on databases supplied by Morningstar and Bloomberg, but also Weberbank’s own network built over the past 20 years to find new funds for potential investments.
“In the first step of selection process, we use quantitative measures to filter the investment universe for alpha continuity in comparison to historic drawdown behaviour,” explains Herdack.
“This gives us a first overview of which fund manager or strategy generates a preferably regular outperformance compared with their peer group and/or benchmark while not taking too much risk. Risk is a very important point in our selection process because Weberbank‘s philosophy is that avoiding losses is much more important than to be the star in upside markets. Following the idea that you need to earn 100% when you have lost 50% of your assets to have your originally invested money back.”
“After having generated a list of possible candidates that meet these requirements we start an intense qualitative analysis with RFPs, manager meetings/conference calls and simulations of portfolio behaviours in case of an additional investment.”
What the process is seeking to confirm is a set of attributes that Weberbank seeks in respect of its philosophy.
“Continuity is very important: You don’t buy the past performance of a fund, you buy the experience of the manager and his ability to act successful in future environments,” Herdack notes.
“Today it seems to me that everyone is thinking about investments as a simple math calculation. Take the past performance of a fund, put it into an optimiser and you will get a good future performance. Let me tell you from my 15-year experience in the fund space: This isn’t the way to success! And this is the reason why simple optimising fintech robo-portfolios will fail in the next big market stress.”
“We don’t have automatic red flags. In case the alpha continuity starts to fade we analyse the possible reasons. Sometimes it is because of an intended defensive or offensive behaviour within the portfolio and not because of a management weakness.”
“Our clients tend to be sceptical about absolute return investments. And to be honest it even seems to us that it is harder to find an absolute return manager who delivers a positive performance constantly. But we integrate useful absolute return strategies to protect our fixed income portfolio in the current low-interest environment.”
“We expect our managers to manage their draw down behaviour. The way they reach this target is open to the manager. Of course, we check the plausibility of the risk-control approach, but we find it interesting to have managers with different risk management sets in our portfolios.”