VIA AM is a Paris-based asset management company, formed in 2015 by a group of experienced “systematic-investment-strategies” managers and analysts.
This month, our co-founder Mr. Guillaume Subias sat down for an exclusive interview with Mr. Mauricio Zanini, Head of Research and co-founder of VIA AM, and Guillaume Dolisi, Manager and co-founder of VIA AM.
Quantilia [Guillaume Subias]: VIA AM gained notoriety with the “Smart” Equity fund range. These UCITS funds invest trough a systematic approach. Can you explain how you select the companies and in particular, your accounting data normalization approach?
Mauricio Zanini: our investment approach is inspired by History. We’ve looked for and analyzed best investment technics of all times. Typically, we’ve focused on guru investors such as Benjamin Graham and the duo Warren Buffett and Charlie Munger. There’s a lot of writing about their methods and we have back tested what they were writing. For a large part, their philosophy is very common sense and can be replicated through a systematic approach. If you take the duo, they like companies that are very profitable, are set to remain so and can be acquired at a relatively cheap price. It may look like factor investing (profitability and value), but it’s not the way it should be viewed. They don’t care about academic factors, they care about investing in highly productive assets at a discount, because everything-being-equal this is how value creation works. It’s all about mechanics not statistics.
But if they don’t care about academic factors, they really care about having a deep understanding of companies’ fundamentals; but they don’t take accounting ratios for granted, they do their homework instead. This is what we call accounting normalization.
Accounting is actually full of risks, meaning that there is too much flexibility in the way companies can make their choices in a full range of controversial items, from simple possibilities in the treatment of “development costs” up until more complex ones in M&A-related consolidation or spin-offs. In this context, when there are multiple choices there are also risks to investors, because the economic reality may not be taken into consideration, nor the consistency and comparability among individual stocks, sectors, or regions. Therefore, there are not only significant risks but also strict limits in using “ready-made” accounting data from an investor perspective.
So, we prefer to stick to what the most successful investors in history have done, in other words, correct, clean, standardize the data systematically before deciding on the names that are in or out of our portfolios. Only a full accounting normalization process on a large scale can expose the economic reality of corporates on a comparable basis, there is no shortcut or easier way to dealing with accounting risks and limitations, we think.
Quantilia: In your Paris office, I noticed a smartclock displaying the number of companies VIA AM is actually following. The number is above 3100. How do you manage to do this?
We manage to do this by maximizing the power of technology (our IT infrastructure) to buy the crucial time that analysts need to do their value-added job, which is to deal with all sorts of complex accounting issues to increase the level of what we value the most: precision. When we started VIA AM in 2015, 80% of the accounting normalization process was automated, and today, having additionally invested in our IT capabilities, and together with the coding skills of our team, we reckon it has reached 90%. That’s how we can cope with following 3100 companies globally without compromising the quality of the output.
To provide a bit more color, given the ambitious aim of accounting normalization, which is to attain the economic reality for exposing hidden risks and unearthing buried opportunities, a great deal of “granularity” is required. It means that all accounting raw data, non-financial data (mining reserves and production for example), consensus data, and pricing data (associates’ share prices and ownership) must be captured to feed our database infrastructure. That’s the first step. Then this “Big Data” must be carefully organized. That’s step two. 90% of it is organized automatically and the remaining 10% (the most tricky cases like completion of acquisitions) are dealt with by the VIA analysts. Then, in step 3, the economic versions of profitability and valuation become available to our investment process.
Finally, this economic data must be continuously updated in light of new releases, annual reports, quarterly reports etc, and here, once again the technology capable organizing this Big Data plays a crucial role. Even when controlling the quality of the output economic data, analysts receive automatically specific flags from where there are possible issues and inconsistencies to be fixed.
Quantilia: Your client base is very institutional. Is ESG a big topic for your clients and how do you address it?
Guillaume Dolisi: we actually cover both institutional and private clients. We really have two ways to answer the need for ESG considerations. The first is very basic, we apply our investment approach to filtered ESG investment universes. Before applying our fundamental selection criteria, we typically exclude the worst companies according to a defined ESG scoring. But more surprisingly, very sophisticated ESG investors tend to consider that the accounting normalization process is already a good way to measure ESG issues. Indeed, accounting normalization is all about taking into account all risks (environmental, legal, social, etc.), not only financial debt. All these risks are often found in the form of provisions. To us, they are liabilities and should be considered as debt equivalent, within what we call Full Enterprise Value (FEV), a distinctive feature relative to the traditional Enterprise Value (EV). For example, a company with €9 billion market cap, only €1 billion of financial debt and a large environmental provision (let’s say €10 billion) would be significantly penalized through our normalized valuation approach. We would see a €20 billion FEV against a €10 billion EV for traditional valuation.
Quantilia: More recently, VIA AM launched a multi-asset multi-strategy Absolute Return UCITS fund. How do you position yourselves with respect to other players?
Guillaume Dolisi: VIA AM was created end 2015, but we started creating and managing systematic strategies in 1999, mainly on the Investment Bank side at Société Générale, Deutsche Bank and BNP Paribas. We were at the very beginning of the Risk Premia indices “boom”. For the past 10 years, almost all major IBs have developed thousands of systematic strategies, made available through index swaps, certificates or funds. This is in fact a new form of synthetic Asset Management. In the alternative space, the value proposition is very clear: providing liquid strategies in a very transparent and potentially cheaper way than traditional Hedge Funds. In theory, it’s a way for investor to diversify their alternative allocation like they did for long only funds with ETFs and more recently Smart Beta. But it’s easier said than done, as a great majority of investors are already very busy selecting funds. If they also have to analyze all IBs strategies, they’ll have to work day and night. Plus, if they want to get access to all strategies, not only the one available through funds, they will have to take on managing swaps (ISDA contracts, margin calls, rolls, etc.).
We thought that there was a need for a more practical approach to this new investment opportunity. With our experience of developing strategies on the IBs side, we thought we had the expertise to select and manage them. So, early 2016, we launched the VIA Absolute Return Fund, which applies a “best of” approach in selecting absolute return systematic strategies from major IBs. Today, we work with 11 IBs, meaning that we have 11 ISDA contracts and we have more than 30 different index swap positions. On the delivery perspective, from December 2015 to December 2018, we have slightly outperformed the HFR Global index, with also lower fees 0.67% fixed fees and 10% performance fees for the SI share class.
Finally, we think that the Hedge Fund’s high fees issue is not the only problem. If modern diversified portfolio allocation should probably embed alternative strategies funds, it doesn’t mean that it’s an all-weather solution. Typically, investment history teaches us that even very famous Hedge Funds can suffer dislocation and awful performances (see LTCM). To us, it’s linked to the fact that they usually embed short positions and leverage, hence maximum asymmetrical risks. Risk Premia strategies bear exactly the same king of risks, but thanks to their high liquidity they can be disinvested quickly and cheaply. So in the VIA Absolute Return fund we have also embedded a systematic stop loss process at each sub strategy level and for the fund over all, so that we never lose more than 10% gross of fees over 12 months sliding.
Quantilia: VIA AM funds have been onboarded on Quantilia platform right at the beginning. What made you decide to be an early adopter and which are the key factors for a good partnership?
Guillaume Dolisi: I believe that we simply look in the same direction. We see Risk Premia strategies as a new investment tool. And as any new solution, it lacks infrastructure and services. While Quantilia offers a tool to better map and analyze the large systematic strategies investment universe, VIA AM offers a simple investment vehicle, UCIT and daily liquid, hence the synergy.
About VIA AM
VIA AM is a Paris-based asset management company, formed in 2015 by a group of experienced ‘systematic-investment-strategies’ managers and analysts. Their philosophy is not to stick to a specific investment style or factors. Their objective is to maximize funds performance using proven and robust investment techniques. VIA AM promotes two ‘state-of-the-art’ systematic strategies: long only “Smart-Beta” on equity and “Risk-premia” on multiple asset classes.
About Mauricio Zanini
Prior to co-founding VIA, he held a Senior Analyst position within the CROCI Research Group at Deutsche Bank. For over 10 years, he expanded and improved the global coverage of equities to enable the creation of various successful funds and structured products. Mauricio also held a Financial Analyst position at JP Morgan. Following his experience at Deutsche Bank, Mauricio founded VICAP, a research firm focused on providing institutional investors with first class equities valuation data. He designed VIPE®, a proprietary equities valuation model that systematically produces corporate economic data on assets, cash returns, and valuation.
Mauricio holds an MBA from Cass Business School (City University London).
About Guillaume Dolisi
Prior to cofounding VIA AM, he co-created and co-managed with Laurent Pla the Quant Equity GURU and the Quant Equity Income strategies at BNP Paribas. In their fund format, several were ranked 5 stars by Morningstar, belonged to the best 5% performers over 3/5 years and accounted for over 4 billion euros in asset under management (2015). Before joining BNP Paribas, Guillaume was Head of Long/Short Equity trading at Société Générale Securities.
Along his 16-year career, Guillaume’s work has been centered on trading and design of numerous investment strategies, first on Equity Arbitrage, before focusing on long term systematic methodologies such as “Smart-Beta” or “Risk-Premia”.
Guillaume graduated from ESLSCA Business School (Paris) in Finance & Trading, and from the University of Nancy in Business Law and Economics.