6 APR, 2022
By Constanza Ramos
Jean-Baptiste has an engineering degree from Ecole Centrale de Nantes as well as a master degree in business administration from the IAE Paris. He starts his career in Luxembourg in 2005 as a quantitative analyst within the management company J.Chahine Capital, and then became portfolio manager in 2007 in the same company. He joined the multi-management team in April 2016 in order to take care of Emerging Equities and fixed Income funds selection. He leads the funds selection team since 2021.
At BLI, the fund selection process is in two parts. The first one is quantitative and helps us to narrow down the investment universe into a more comprehensive list. The second part is purely qualitative and constitutes the real added value of the analysis.
In more details, the quantitative part serves in different ways. First to find funds that comply with our minimum requirements (AUM, track record, legal structure, country sales registrations, size, liquidity, etc.). Second to focus on funds that meet the search specifications in terms of management style, biases or portfolio characteristics (market cap, duration, credit ratings, etc.). Third to analyse quickly the risk/return profile of each candidate through different in-house tools.
When a short list has been taken out of the whole universe, then the qualitative analysis kicks in. Analysts will lead a full due diligence on different topics: management company, investment team, management process and philosophy, research, portfolio characteristics, risk management, fees. ESG is standalone due diligence led on the company and the fund.
The selection team is made up of 4 people, organized by asset class and/or region. Obviously, as we are only 4 analysts, each of us is responsible for several asset classes and/or regions. My scope for instance covers emerging markets equity funds, as well as ex-Europe investment grade and high yield bond funds, flexible bond strategies, emerging markets debt, etc. Each analyst is fully responsible for her/his asset classes and/or regions coverage.
The team is sitting in the same open space, which facilitates open discussions. We also have formal meetings on a weekly basis.
The most challenging part of the job lies into new market trends, regulations that come up and that we have to integrate in our process. It forces us to rethink our way of selecting funds and develop specific tools.
Currently, the biggest challenge that we face is the ESG revolution. ESG is a completely new world, away from market knowledge or portfolio analysis, that evolves quickly. Moreover, regulations regarding ESG, like SFDR or taxonomy in Europe, are not only a nice option to comply with, it’s a full set of obligations to fulfill with. As financial analysts, hopefully we are used to interpret how these new sets of rules are embedded into management processes. Our aim is to avoid green washing in the funds we select and help managers to improve their ESG standards to meet our requirements, and our client’s needs.
ESG is a concrete example of how regulations or market trends impact our selection methodology. These are exciting challenges.
The most important when selecting a fund is to fully understand its style and characteristics, this helps to determine its behavior in regard to the market environment. The fund should be aligned with its objectives. This is deeply linked with the management process understanding.
I like to challenge managers on the funds behavior during different market conditions. Knowing what decision they took and why helps to understand the manager’s reaction to unconventional market moves.
We assess managers in different ways, on one hand we focus on the manager himself and his team, meaning that we take a deep care of the historical track record, experiences, turnover, how the team is organized and how they interact with each other, where they are located, what is the decision tree, the number of strategies and the assets they manage. On the other hand, we assess the fund itself, which is the representation of how the manager feels and read the market. Here we analyse the process, the systematic biases, the portfolio construction (buy and sell discipline). We also analyse what is the fund reaction to specific market environments (stress tests), the ability to deliver consistent and regular returns.
If a strategy passes all the steps mentioned above, the only red line that is still present on my due diligence questions list is communication. A good and transparent communication is key! A good communication means having access to the manager (or a portfolio specialist), receiving clear and complete reports on a regular basis, obtaining performance attributions to understand the fund’s behavior, having quick answers to one-off questions, having access to research and market outlook.
On themes/sectors side, historically, we do not deal with complex strategies as we only select UCITS funds. Historically as well, we do not select financial sector funds (legacy of 2008 GFC).
Tricky question as we enter in an era not seen for the last 40 years. In the team, we see clouds gathering over the markets for the next months/quarters as western central banks are now engaged in a fight against the overheating inflation, and we expect macro and micro data to deteriorate in the coming weeks. The potential fiscal stimulus that states will probably announce to support the economy will also be inflationary, so we don’t see inflation cooling down soon.
In this environment, we will tend to favor no duration strategies like Nordic high yield bonds, or uncorrelated strategies like cat bonds, local Chinese bonds. Equities will be certainly underweight if a gloomy situation persists. We would also favor value pockets in equities. We will prefer assets capable to outperform in inflationary environment. Gold and natural resources will certainly be in the top investments. Cash will probably be considered as a defensive asset class.
Optimistic, communicative and perfectionist.
My passion is tailoring, so in my spare time I make suits. I have a tailor diploma and I run my own little business to sell suits after work! Moreover, I like doing sport, it’s a good way to evacuate work stress. I like to discover, whether it can be museums, cities or great spaces.
By Constanza Ramos
By Constanza Ramos