Investment

Can a fund using billionaire companies outperform the market?

Billionaires aren’t always winners. Following a poor debut, a fund investing in their companies has axed its exposure to 30 of them after reviewing their governance.

Altana Wealth’s Global Billionaires Fund has said farewell to 17 Chinese tycoons, Mark Zuckerberg’s Meta Platforms and four billionaires distanced from day-to-day management.

Family-owned businesses also enjoyed superior returns over the long term, prior to GBF’s launch in September 2020

Altana manages $700 million. It is led by Lee Robinson whose $3 billion event-driven hedge fund, Trafalgar Asset Managers, cruised through the 2008 crisis due to its bearish stance. Before Trafalgar, he built a risk arbitrage business for US billionaire hedge fund manager Paul Tudor Jones.

Robinson set up Altana in 2010, initially as a family office, but later decided to market strategies to third parties. Many of them have done rather well. Corporate bond and speciality finance funds outperformed. Funds backing digital currencies and carbon futures excelled. 

A distressed fund has pulled off some timely oil and gas deals, after a slow start. Another bought Venezualan debt at 8 cents in the dollar and needs to bide its time. Altana also runs a fund that invests in SPACs, which has gone quiet following regulatory pressure on the sector.

GBF’s manager is Samed Bouaynaya who, like Lee Robinson, has been a derivatives trader.  The fund evolved out of Altana’s conviction that billionaires are well-connected and take advantage of superior opportunities, with access to cheap funding. Their wealth grew 20% to $10.2 trillion between 2018 to 2020.  Altana took the view that wealth would build on wealth, at increasing speed. 

Data confirmed this. Between 2003 and 2019, listed billionaire businesses generated average returns of 17.8% a year, against 9.1% from the MSCI world equity index.

Family-owned businesses also enjoyed superior returns over the long term, prior to GBF’s launch in September 2020.

But many of GBF’s billionaires performed poorly almost immediately when the fund started trading. In the last quarter of 2020, it produced a return of 5%, well below 12.1% from its benchmark, the MSCI All-Country World Index. In 2021, it fell -4.5%, against a 17.4% gain from the MSCI, although there are signs of improvement in 2022 following a style reversal. 

The poor returns corresponded with an unusually weak performance for family businesses against increasingly tech-driven indices, as recorded by Family Capital and elsewhere. 

From the outset, GBF took steps to limit stock-specific risks by limiting billionaire representation to around 1% of its portfolio, rebalanced yearly. 

Its largest position in early 2022 was Steve Schwarzman’s Blackstone, accounting for 1.4% of the portfolio, just ahead of Sergey Brin and Larry Page’s Alphabet, Mohamed Premji’s Wipro, Roman Abramovich’s Evraz and Michael Dell’s Dell Technologies.

GBF checked the risk exposure for each stock against the benchmark. It diversified globally and reserved the right to hedge the portfolio during sensitive periods. To avoid bias, it invested on a systematic basis by following a set of rules. GBF also ensured that billionaires owned at least 10% of their companies. It required them to be involved in their companies by retaining executive status. Its template even checked on Next Gen’s involvement, seeing this as a positive. 

But after striving to balance things out, GBF ended up with an overweight position in emerging markets, against its peers, which cost it dear. It tripped up badly when Chinese billionaires fell victim to a government backlash. GBF was also biased to consumer cyclical stocks and missed out on some of the bumper tech returns from growth stocks enjoyed by others.

GBF reacted by applying ESG screens to its strategy, after noting that billionaire companies that complied with ESG outperformed. For ESG vetting, GBF used research from Sustainalytics and Arabesque S-Ray. It applied their findings to a February portfolio rebalancing.

This led to the departure of 17 Chinese billionaires, including Hui Ka Yan of Evergrande, although GBF allowed six Chinese entrants to take their place. Roman Abramovich was one of four billionaires excluded from the portfolio because they were no longer actively involved in day-to-day management of their businesses. Zuckerberg’s Meta failed the test due to: “corporate governance, data security and privacy” issues.

Newcomers include Brain Chesky’s Airbnb, Charles Schwab and Uigur Sahin’s BioNTech.  Hopefully, they will add a bit of fizz, now family businesses are starting to perform better compared to the rest of the market. 

Subscribe

You will need a Premium Plus Subscription to access this database.

Exclusive news, analysis and research on global family enterprise and private investment offices.

Access to the most comprehensive fully interactive database on global family offices, principal investment offices, and family enterprises.

Check Deal Data, Senior Staff, and New Analysis on more than 1000 family/principal investment and holding groups

Already have an account? Login

Subscribe

You need at least a Premium Subscription to read this article.

The most comprehensive information service on the global family enterprise world, featuring exclusive news, analysis, research and data on global family enterprises, family offices, and private investment offices.

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 1000 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

You've reached the end.

Continue reading free articles by registering as a Member.
Or choose a Premium Plan.

Membership

Free

  • Exclusive reports, analysis and commentary
REGISTER NOW

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 500 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

Leave a Reply