Business

From BlackRock to boutique family office-oriented investment group

Not content with managing his own wealth, Arno Kitts is building an investment business, five years after retiring from BlackRock, the largest asset manager in the world.

Perspective Investments, currently seeking family office clients, bolts together opportunistic deals, employing short positions to minimise its exposure to market crashes. It manages just shy of $50 million.

We can afford to be patient. We also know that if you aren’t in a good position when prices wake up it’s pretty hard to catch up

The approach is familiar to families keen to preserve their wealth for future generations. It bears comparison with a football team that use defenders to protect its scoreline, while strikers chase the goals. 

Kitts’ 10.3% return in the three years to May lags the 14.3% generated by the MSCI World. But its maximum drawdown of -4.2%, against -34.2% from the index, offers compensation. 

Since inception in 2004, it has returned an annualised 7.6%, not far adrift from long-term market returns. But the fund’s drawdown of -16.9% compares well to -50% from the index.  

Nervous of elevated stock markets, Kitts has been running short positions on the S&P 500 and MSCI World.   

He says: “I would guess they have cost us 3% to 5% per annum. But we also have long positions in equities, like uranium and gold, which made us money last year but would go down in a crash.” 

Kitts took out his first individual stock short in Tesla in January. He recently added to the exposure: “It’s had a run recently, but its price has been seeing lower highs and lower lows.”

To an extent, Kitts is out to time the market. But his positions are relatively small and diversified. Unlike hedge fund traders, he does not get involved in a frenetic search for one short after another, because he only wants to make a move when prices are way beyond the norm.  

He has no wish to chase momentum: “I’ll never go long on anything that is expensive or short something that’s cheap.”  Perspective has lately had leverage of 150% across its portfolio, relatively conservative against most hedge funds.  

“We can afford to be patient. We also know that if you aren’t in a good position when prices wake up it’s pretty hard to catch up.”

Many family offices still like using stock pickers. But Kitts believes theirs has become a crowded profession.

“When I worked at BlackRock I saw their scientific equity team and there are many quant managers. It’s really hard to be a stock picker these days, except for small caps and emerging markets. You need to be an expert on trading as well as fundamentals for those sectors, and we’ve been happy to delegate the opportunity to a small-cap hedge fund.”

Kitts is renowned for his skill with spreadsheets. On a continual basis, he studies chart patterns and prices to unearth opportunities. After years in the asset management business –  most recently heading up BlackRock’s $350 billion UK  institutional investment business – he comes across a range of deals of which 10% have potential.  

His chief investment adviser is Nigel O’Sullivan, a former Goldman Sachs partner. Gordon Craigen, his finance and operations chief, used to run Lloyd TSB’s loan trading business.

The team is ready to sanction a broad sweep of opportunities. The firm took a positive view of commodities in the second quarter of last year, when their price suddenly fell: “We thought there was going to be a good chance of supply disruption. Our fund was 20% long in agricultural commodities, we saw them rise and within two months our trade was done.”

Perspective moved the other way this year by shorting timber when its price spiked, as housebuilders emerged from lockdown. The trade made 40% on a relatively small trade over a few weeks.  Kitts has made a more typical 5% profit after closing a long position on cocoa.

Perspective has no interest in listed credit, where junk bonds are returning less than 4% for the first time in history. 

But it takes a view on opportunities in the private market as they pop up. Some years ago it took an opportunity to lend money to a legal firm secured on divorce litigation. The prospects for a successful settlement for the cases were good so Kitts was happy with the security, in the event of the legal firm defaulting.  In the event, the legal firm did repay its loan, and Perspective has taken advantage of another litigation finance opportunity, where if the litigation fails, Perspective’s position was protected by an insurance claim and Kitts confirms the returns have been: “very decent, relative to the risks we thought were involved.” He declined to confirm a yield but the returns were sufficiently good for shareholders to allow litigation finance allocations to go from the normal 20% to 30%. Kitts hopes to offer its larger clients co-investment opportunities in due course.

Elsewhere, Perspective has backed syndicates invested in commercial and retail real estate. One of its best deals involved the purchase of a partly-let office block for £3 million.  On resale less than a year later, it fetched £5 million. Other deals have gone well, apart from some High Street retail space which is still on the books. 

You can’t win ’em all. But Kitts says: “They say if you get 55% of your decisions right, you’ll be top quartile. And we’re running an average higher than that, which is kind of cool.” 

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