17 Dec 2015 Marc Maudhuit, Client Portfolio Manager, H2O AM
Marc Maudhuit is a Founding Partner and the Head of Client Portfolio Management, at H2O Asset Management, an affiliate of Natixis Global Asset Management. He has been working closely with Bruno Crastes, CEO of H2O Asset Management, for more than 20 years.
Marc Maudhuit is a Founding Partner and the Head of Client Portfolio Management at H2O Asset Management, an affiliate of Natixis Global Asset Management. He has been working closely with Bruno Crastes, CEO of H2O Asset Management, for more than 20 years.
LuxHedge: First of all, can you describe H2O AM LLP?
Marc Maudhuit: H2O AM (H2O) is a Global Macro boutique with 37 staff, including 15 investment professionals (13 Portfolio Managers), and EUR 10 bn. in assets under management.
Even though the company is relatively new since it was established in August 2010, most members of the Investment team have been working together for the past 10 to 15 years.
They now have a long track-record of managing Global Macro strategies, starting with Global Debt and Currency markets before expanding onto Global Equities in 2004.
Bruno began managing portfolios in 1989 and his Global Fixed Income track record (as exemplified by the MultiBonds Strategy) dates back to December 1993. As for Vincent Chailley, the firm’s C.I.O., he began managing portfolios in 1998 and his global macro track record dates back to April 1999.
LuxHedge: Why the name H2O AM?
MM: The name H2O has a strong meaning: it conveys the idea of transparency and liquidity that is extremely important for our investors.
LH: Can you please tell us a few words on the nature of the relationship between H2O Asset Management and Natixis Global Asset Management?
MM: At the very beginning, H2O AM entered into a threefold partnership with Natixis Asset Management (NAM): first, capitalistic (NAM holds 50.01% of H2O’s capital), then operational (H2O relies upon various NAM departments inc. risk, legal, marketing etc.), finally commercial (NGAM is the exclusive distributor of H2O’s UCITS).
However, even as an affiliate of NAM, H2O remains totally independent in the conduct of its investment policy and management decisions.
LH: What is the promise of the funds?
MM: The investment process follows a fully discretionary approach based on strong convictions. Contribution to performance comes from Directional, Relative Value and Specific positions across three main asset classes where inefficiencies can be found: Global Fixed Income, Currencies and Equities.
The market environment that is mostly detrimental to H2O is that of rising correlations and collapsing diversification. This is the configuration H2O (and, before that, the team when it was operating at Amundi) faced in 2008 and 2011. It is therefore logical that H2O underperform when they seize value opportunities in the midst of (systemic) crises and asset price dislocations.
Conversely, as it is often the case with global crises, central banks end up injecting liquidity and this is when H2O strategies start rebounding (1995, 2000, 2009 & 2012)
LH: Could you say few words on the funds range of H2O Asset Management?
MM: All of our funds share the same macro views. Some funds follow an Absolute Return approach while others follow a benchmarked Relative Performance one. The reference asset classes involved are Bonds, Currencies and Equities. Not all the funds are exposed to the same asset classes, even though they are all exposed to the team’s currency positions. Every fund has a pre-set volatility budget which constitutes the definite framework within which the funds have to fit in order to deliver their investment objective.
Investors can then choose the product according to the risk they want to take, the approach they want to get (Absolute Return or Relative Performance) and the asset classes they want to be exposed to.
LH: Could you please go a bit deeper concerning the year 2011 and your macro views. What went wrong at this time?
MM: In 2011, we were in the midst of the European debt crisis and market participants had the feeling that another systematic crisis was about to start in Europe. At the same time, many investors were selling risky as well as risk-free assets like German bunds, while turning to cash.
In November 2011, the European Central Bank had not yet taken any action but we had the conviction that it was going to inject liquidity in the market since it was the only solution to avoid the spreading of a systematic crisis.
At that moment, we had taken long positions in peripheral European debt markets but the ECB took more time than expected to react. The performance of the funds suffered because, from a market timing perspective, the positioning happened to be premature.
LH: H2O Asset Management’s strategies invest in bonds, equities and currencies. What about commodities?
MM: As all H2O funds are UCITS-compliant, a direct investment in commodity markets is prohibited. Nevertheless, as we do have views on commodity markets, we express them through currency positions. As an illustration, some currencies like the Norwegian Krone, the Russian Rouble and the Canadian Dollar are very correlated with oil prices; they can thus be bought or sold as a substitute to a bullish or bearish view on oil.
LH: What makes your investment philosophy unique? How do you generate your “Market Views”?
MM: H2O’s investment style stands out thanks to a few distinctive features: we are a global macro investment manager, blending long-term top down and relative value approaches in unconstrained and diversified strategies. We implement a fully discretionary investment process based on strong convictions, which are elaborated collectively. We are also very sensitive to correlations, favouring low correlation with global market indices.
We believe that all-out diversification at every level, and across asset classes, markets, investment horizons and manager expertise, is the key to robust and long-lasting performance.
In order to build a well-balanced portfolio, we have to understand beforehand the drivers of each asset class so as to be able to take an informed decision. We do so by reviewing asset classes through three main prisms, which are the macro-economic environment, valuation considerations and liquidity flows. This is why the six senior portfolio managers who preside over the determination of the strategic market views are not organized along asset class lines, but according to these three inputs (plus a technical analysis one).
After assessing these different drivers, the investment team is able to generate its “Market Views” sheet, which is the listing and scoring of all the strictly qualitative calls H2O portfolios are going to be exposed to. These Market Views are split into directional, relative value and thematic views.
Source: H2O AM
LH: A word to conclude?
MM: H2O has been an alpha manager for the past 15 years. One of our objectives is to take advantage of the inefficiencies that can be found on global bond, equity and currency markets. The identification of such valuable arbitrage opportunities requires reactivity and efficiency. Experience and our relatively small size in terms of managed assets also contribute to this objective.
LH: Thank you very much!