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Bruno Crastes : « Our models are still based on an enhanced version of the Black-Litterman model »

Former star managers of Amundi, Bruno Castres and Vincent Chailley have created H2O Asset Management, a London-based alternative management company. In an interview with Next-Finance, Bruno Castres unveils the firm’s objectives and strategy

Article also available in : English EN | français FR

What were your motivations to leave Amundi whereas you had just been appointed Deputy Head of the Institutional Investment Division, in charge of supervising Global Fixed Income, Absolute Return and Equities ?

I had already been enjoying the great opportunity to work for leading groups in an exciting field for over 20 years. The H2O project had been in my mind for a while and I felt it was the right time, at 45, to start an entrepreneurial venture with the right partner.

You created the famous Amundi’s range of VAR products. Is it a management style you intend to pursue within H2O?

The success of the VAR products is explained by its innovative approach in Europe at the time it was created. We had a structural high quality alpha that we provided through products that met the demand. Today, our offer is more mature. First, governance and organization are 100% focused on clients’ best interest and satisfaction. We want to offer a product with the best design, an optimal fees structure and, finally, the best performances. Second, we have spent six months to redesign entirely our models and our investment process. We have incorporated innovations to enhance robustness. Our models are still based on an enhanced version of the Black-Litterman model which was conceptualized in the late 90s. However, our value-added lies essentially in the quality and the shared experience of our teams.

You have recently launched a range of UCITS III funds: H2O Patrimoine, H2O Multibonds, H2O Adagio, H2O Moderato. What is your management policy and the key features of this offer? What are your performance and volatility targets?

Because performance depends as much on market anticipation as on the quality of the portfolio, the policy of H2O Asset Management is based on three main points:
- The search for constant diversification, in all its dimensions: in terms of asset classes (sovereign bonds, loans, currencies and equities), of markets (developed and emerging), of strategies (directional, relative value, etc.) and of investment horizons within the portfolio.
- Permanent control of consistency between anticipations, positions and results, which guarantee long?lasting performance and transparency for the investor thanks to the optimization and analysis tools developed by the team.
- Controlled risk management throughout the investment process, via dynamic market and liquidity risk allocation. The management has developed specific management tools to quantify, allocate and manage the active risk for each strategy in real time. A separate risk control has also been set up for the H2O funds carried out by the risks department of Natixis Asset Management (market, liquidity counterparty and regulatory risks).

The H2O range of funds provides institutional, corporate and private investors with privileged access to global macro type strategies within UCIT funds and comprises four funds:
- H2O Patrimoine: flexible diversified management, with a three?year goal of maximizing performance beyond its reference indicator [3] while promoting wealth growth.
- H2O Multibonds: multi?currency global bond management with a three?year goal of outperforming the JPM Government Bond Index Broad by 2% per year (Part I).
- H2O Adagio and H2O Moderato: non?benchmarked management with an annualized performance goal over 1 year and 2 years: capitalized Eonia rate +1% per year and capitalized Eonia + 2% per year (parts I), while maintaining the lowest possible correlation with markets.

Can you give us an example of a trade that creates value and meets your management policy?

I shall provide a generic example because we do not disclose our positions. Very roughly, we would rather set up arbitrages on assets exposed to a given scenario than acting on scenarios themselves like most investors. Today, we find risky assets ahead in their cycle that we sell while buying those that are rather behind the times.
For this specific case in our risk allocation, we are immune against an error in anticipated scenario

What types of investors are you targeting and what is your AUM objective? Isn’t the size of your structure an issue?

H20 Asset Management is open to all investors: institutions, corporate and individuals seeking positive and sustainable performances, regardless of market conditions.
We plan to manage between 10 and 20 billion euros, mostly coming from international institutional clients.
I strongly believe in the efficiency of human-scale organizations to better serve the interests of institutional clients.

Do you plan to expand your range of products to other asset classes, such as commodities for instance?

The field of expertise of H2O AM is to provide the more diversified available additional performances with stability over time. We sometimes apply some strategies to proxies of commodities. However, we will not offer products designed to get exposure to a given asset class.

We plan to create four other funds that will complement our existing range. Some are already approved or pending approval by the AMF. In particular, we designed a bond product with no exposure to declining interest rates but only a synthetic exposure to the alpha available in this asset class.

How relevant is the partnership with Natixis Asset Management? Do you have any constraints in your asset allocation or your management style?

From the outset it seemed clear that to satisfy our customers, we needed to be backed by a structure with powerful tools (product marketing, legal support, information systems, organization of risk control ...). Our added value lies primarily in management, innovation and customer service. This scheme will allow us to be 100% focused on it.

Natixis AM is among the top European asset managers. Pascal Voisin and I have worked together for 8 years and we have built a relationship of high quality trust. We share the same approach to our business. As a result of the partnership with Natixis Asset Management, we leverage the support of its sales teams and expertise of one of the very top European asset managers.

H2O Asset Management established a partnership with Natixis Asset Management to leverage the support of the sales teams of Natixis Asset Management in France, and of Natixis Global Associates abroad. It will also rely upon the expertise of Natixis Asset Management corporate services such as middle office.

In terms of management, H2O AM remains autonomous and independent. H2O AM teams cover all the expertise required to manage global macro : architects and experienced specialists on all the major asset classes.

RF , March 2011

Article also available in : English EN | français FR

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