UK Edition
£1.8bn fund manager: 'I invest in northern Europe and I holiday in the south'
While British companies are permanently occupied with Brexit, the effect on European firms is not often considered.
But on the Continent too, firms are preparing, often on top of complex political and economic domestic situations in many countries – not to mention Italy being on the brink of recession.
Many large companies have seen their valuations decrease significantly as a result.
Richard Pease, who runs the £1.8bn Crux European Special Situations fund, told Telegraph Money why he believed good companies lost value last year, how Europe could overcome its challenges and why a German property firm had been his best buy.
Who is the fund for?
It is for people who want to buy into a longer-term story. People get obsessed about what is happening each quarter but, for us, it is about looking at a five-year plan.
What effect has Brexit had on European investors?
We all wake up and read the headlines about Brexit. I’m longing for us to be able to put it behind us. From an investment perspective, the sort of companies we’ve got have handled everything from a complete financial meltdown to all sorts of ugly politics. The adage about never wasting a good crisis applies.
A lot of these companies can increase their market share and do better deals. For the longer-term investor, even though it doesn’t feel good, you can actually build in these times. Out of the companies we own, they probably make less than 5pc of their sales in Britain.
Do Eurozone crises, such as the threat of Italian recession, pose a challenge?
We don’t have much exposure to Italy. That’s been the case for many years. We don’t rule things out but a lot of the better companies don’t list in Italy, and the same is probably true of Spain. We seem to find better value in more northerly countries. I typically go on holiday in southern Europe and invest in northern Europe.
If you take some of the political challenges in the continent, when things get tougher politics gets uglier. You can see the challenges but behind all that there are great businesses doing everyday stuff very well.
The world doesn’t stop, even if it is unsettling.
Are there any sectors that you avoid?
We have always tried to buy businesses with recurring revenues that don’t need huge investment. That would exclude hotels, car manufacturers, steel firms, telecoms companies, utilities and big oil. All these types of business need you to write big cheques to grow.
To use oil companies as an example, you’re being asked to invest in places you wouldn’t take your wife and kids on holiday to. I think we do naturally find ourselves underexposed in some of these areas. We look more towards service companies.
What has been your most successful investment?
One of my best investments has been a German-based commercial property company, Aroundtown. It requires a lot of cash but I was seduced into buying it because it is run by a very impressive man called Yakir Gabay. He has a great record and always seems to under-promise and over-deliver.
He owns about £3bn worth of stock in the company, out of £8bn. He doesn’t even pay himself. He does it for shareholders (because he is the biggest shareholder). The company buys properties that are in the hands of receivers across good parts of Germany: Frankfurt, Berlin, Munich and Hamburg.
He looks for a desperate seller, purchasing B-class buildings in A-class areas. He is currently buying properties that have a 5pc rental yield and then improving it to 7.5pc. That’s our only exposure to real estate.
And your biggest failure?
We’ve had a few – last year wasn’t a good year for us. Sometimes I think we’ve got things wrong, or timed it badly, but with some I think we ultimately will be proved right.
One poor performer was Spie, a French-based outsourcer. It is European-wide, with a third of its business in France, a third in Germany and a third in other parts of Europe.
People got scared of outsourcers because they saw some of the bad examples in the UK, although Spie has a high revenue. But it agreed a big deal that pushed its debt levels higher, and this made people worried. It was a perfect storm.
Are you invested in the fund? How are you paid?
Yes, and so is my poor wife. I have a flat salary and bonus based on performance, which goes into a Crux fund. So they’re a commitment to the fund. We very much eat our own cooking.
What would you have been if you weren’t a fund manager?
I have a dog, and it always costs me a fortune to take it to the vet so I think I’d be a vet. I always liked the idea of working with animals, and it is something that would pay the bills. I’m too squeamish to be a doctor.
In focus: Nordea Bank
We wouldn’t normally be invested in banks, but the biggest shareholder in Nordea is Sampo, a Finnish financial firm, which we also hold. Sampo is good at focusing the board of Nordea to do the right thing.
It has cut costs and taken out any drama. We haven’t invested much in banks because there are very few that have made investors rich. Since the crash, you don’t get the returns you used to get and online bank rivals worry us too.
But it is all about returns and we get a large dividend from Nordea of over 8pc.
This is a good return on a business that is pretty sensible. When interest rates are where they are, if you can get a safe dividend, there are worse things to invest in.