ETHENEA: the future remains exciting
Ten years ago, Luca Pesarini and Arnoldo Valsangiacomo, founded ETHENEA Independent Investors S.A. Eight years before that, they had put a little known idea into practice with the launch of their first fund, the Ethna-AKTIV. InvestmentOfficer had an exclusive interview with these two pioneers of multi-asset funds.
ETHENEA is a non-bank affiliated investment company headquartered in Luxembourg, which actively manages three multi-asset funds: the Ethna-AKTV, the Ethna-DEFENSIV and the Ethna-DYNAMISCH.
Investment Officer had the opportunity to interview Luca Pesarini and Arnoldo Valsangiacomo, who look back on the company's milestones, as well as the difficult market phases and crises of the last 10 years. The two company founders talk about their experiences during those years, how they mastered challenges, and what they see as the future of multi-asset funds.
ETHENEA is celebrating its 10th anniversary – congratulations! What motivated you to launch your own funds?
Arnoldo Valsangiacomo: Thank you! After many years’ experience in the financial sector, Luca and I wanted to set up a fund according to our own ideas and values. After 9/11 and the bursting of the dotcom bubble, there was a mood of tremendous upheaval on the markets. We wanted to limit the impact of these types of events on client assets by offering a balanced, flexible strategy across equities, bonds and cash that would generate a continuous, positive return for the client, taking appropriate volatility into account. We wanted to take responsibility for active asset allocation.
Luca Pesarini: At that time, multi-asset funds were barely represented, instead more traditional forms of investment were offered. Back then, there were hardly any multi-asset funds. That's where we saw our opportunity. For us, it was important to not only offer large institutional investors, but also retail investors, an actively managed "one-size-fits-all" product that was better able to cushion these capital market fluctuations. Based on these ideas, we launched the Ethna-AKTIV in 2002, the Ethna-DEFENSIV in 2007 and the Ethna-DYNAMISCH in 2009. And these guiding principles have accompanied us for almost 20 years now. In order to manage the three Ethna Funds, we founded ETHENEA Independent Investors S.A. in September 2010 as a non-bank affiliated investment company.
What made you decide to give the funds the prefix “Ethna“?
AV: "Ethna" was created in reference to Mount Etna, the volcano. The idea was to give the first fund something disruptive and active, therefore Ethna-AKTIV. A volcano is constantly in motion and bringing forth something new. We found the symbolism very appropriate at the time.
Over the last 10 years, ETHENEA has undergone an interesting development. Where do your entrepreneurial ideas come from? What inspires you?
LP: Our world is constantly in motion. The markets, products and sentiments change. In order to keep up with this, it is important that you also keep moving. What the development of ETHENEA shows is that we have the will to remain in the market. In this respect we are not running out of ideas. One example from our recent history is FENTHUM S.A.. The transfer of our business development support and marketing activities to FENTHUM was a logical step after Haron Holding acquired a majority holding in MAINFIRST Asset Management S.A.. This allowed us to use synergy effects for ETHENEA and MAINFIRST and the companies can focus on their respective core business.
Shortly before ETHENEA was established, there was the last global crisis on the capital markets. Today, we are in the middle of the next one. What were the requirements for managers of actively managed multi-asset funds then and what are they today?
AV: Flexibility, flexibility and more flexibility. This is something you have to demonstrate as an active portfolio manager. Ideally, one should anticipate a crisis or market movements and act accordingly, i.e. before these movements affect the portfolio. Of course, this does not always work, but you must at least be able to react promptly. This is why we also place a high value on liquid assets in our funds, in order to have control over the risks in the portfolio. But as Luca just said, the world is in motion. What worked at the beginning of the 2008 crisis no longer works the same way today. Back then, when there was still 5% for cash in the portfolio, this was naturally a good option. Today, with negative interest rates, it is a completely different situation. The need to be flexible and able to react remains. That was true then and it is still true today.
You just mentioned the importance of flexibility. This, together with active management, an interim high cash ratio and a well-timed re-entry, describes ETHENEA's successful crisis management during the global financial crisis in a nutshell. What lessons from this period do you still benefit from today?
LP: Modestly humility and knowing that you can and will make mistakes. You have to accept that and stand behind it. Then, you have to adapt flexibly to the new situation. As mentioned, during the previous financial crisis, a cash position worked well. Today, this is no longer possible due to the low interest rate environment. And, you always have to reassess the situation and be both flexible enough and creative.
Nobody saw the coronavirus and its implications for everyday life and the global economy coming. In this respect, everyone had to adapt to a new situation. What long-term effects of the virus do you expect? What short to medium-term developments on the capital markets do you think will result from this?
AV: We have to differentiate here. There is a long-term trend that has nothing to do with the coronavirus. Worldwide, but in particular in Europe, economic growth is levelling off. Then, on top of these developments we have Covid-19. This has clearly not been conducive to economic development but has rather exacerbated the situation. In other words, Covid-19 further accelerated the already ongoing fundamental weakness of the economy, which had not been averted previously by central bank measures and fiscal policy. This will certainly cost countless jobs and could also create social tensions. Nobody knows how long the coronavirus crisis will last. We can only hope, it won’t be too long.
LP: For us, this means that we are also exploring new paths in portfolio management and using new instruments. For example, only a few years ago, due to the continuing economic weakness, we made the decision to use gold. Since the coronavirus, in particular, gold has become even more attractive for us. In addition, we still consider a defensive positioning for our Ethna Funds to be appropriate.
Could you explain this in more detail? How will you position the Ethna-AKTIV in the short, medium and long term?
LP: We live in a world that is manipulated by central banks and governments in every sense, i.e. both currencies and interest rates are controlled, and in some countries this definitely applies directly or indirectly to equity markets. We need to adapt our portfolio to this environment and act flexibly. On the equity side, our positive stance on gold is also evidenced by gold mine operator stocks and we favour technology, i.e. anything to do with online trading, cloud computing/data processing, payment services and software. Overall, we are positive about the US equity market, as evidenced by our S&P-500 position, and remain rather pessimistic about the European market. On the bond side, we consider a neutral position in the Ethna-AKTIV of around 50% in the coming months and probably also for 2021 to be appropriate. In addition, we will opportunistically use an exposure of 5 - 10% for high-yield securities in the bond portfolio.
AV: The most important recent decision was to close our US dollar position. This was a big decision for us and one we made at the right time, just before its devaluation. We did this despite our pessimistic outlook for the euro. We also expect the CHF to continue its positive development.
If we were to look one year into the future, what topics do you think will continue to occupy us in 2021?
AV: At present we do not know how long Covid-19 and the coronavirus crisis will affect us. However, we believe that the trade war between the Americans and the Chinese could continue to play a role in 2021, depending on the outcome of the upcoming US presidential election in November. Moreover, there is the high level of unemployment and the respective fiscal policies in the different countries. And perhaps we will also have to adapt to a new way of working. In doing so, distance will have a completely different significance than in the past. At this stage it is impossible to predict how the markets will develop in the coming year. But we think that 2021 will certainly be a long and exciting year for all of us.
Looking back, what were your greatest highlights and challenges both as an entrepreneur and a portfolio manager?
AV: I think I speak for both of us when I say that we have experienced a number of highlights with ETHENEA in recent years. At the beginning we did not expect this kind of success and it was also hard work. Of course, the 10th anniversary is a significant milestone, which we are proud of and very grateful for. Nevertheless, it is the decisions, which in retrospect may turn out to be mistakes, that bring you back down to earth very quickly. But this is also part of it and helps you to grow.
LP: Yes, that's right. All in all, both the modest early years with only a few employees and the further development are something we remember with pleasure. Of course, there were also difficult phases on the way. The important thing is not to become discouraged. We both felt the need to be entrepreneurial after previously having been in salaried positions. If we had listened to the advice not to set up our own business, we would definitely regret it today.
You have both been active as portfolio managers since the beginning. What motivates you to be involved on a daily basis even today?
LP: We both enjoy making decisions. We still enjoy our jobs immensely. It's fun to create, to change, to learn, to exchange ideas with colleagues and competitors and to talk with companies. I can't imagine a better job. If I could, I would do it for another 100 years.
What does the future look like for ETHENEA?
LP: We want to continue to deliver the best for our investors. Together with them, and our colleagues and employees, we want to drive ETHENEA forward. And, of course we already have ideas and plans for the future. We hope to be able to provide you with more information on this later this year.
How do you feel about 10 years of ETHENEA?
AV: Happy and proud. We are grateful for the trust our investors have placed in us and proud of the progress we have made over the past 10 years together with you and our employees. We will continue to be there for our clients and partners in the future and look forward to the years to come.
Thank you for talking to us.
Please contact us at any time if you have questions or suggestions.
ETHENEA Independent Investors S.A.
16, rue Gabriel Lippmann · 5365 Munsbach
Phone +352 276 921-0 · Fax +352 276 921-1099
firstname.lastname@example.org · ethenea.com