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"The main principle that makes a huge difference in finance is discipline"


Cédric Kohler
Head of Advisory, Fundana SA

Cédric is Head of Advisory at Fundana, an alternative investment boutique based in Geneva. The firm is celebrating its 25th anniversary this year and has an impressive record of success. Its expertise lies in sourcing and selecting hedge fund talent. Clients include pension funds as well as family offices and independent asset managers.

Before joining Fundana, Cédric worked for Lombard Odier, heading their fund-of-hedge-funds team. From 2004 until 2007, he was Global Head of Firm-wide Risk at Citadel Investment Group in Chicago. Prior to this, he was a Managing Director at Merrill Lynch in New York in Risk Management. He started his career with UBS in New York, London and Zurich.
Cédric is a member of the Alternative Investment Manager Association’s Research Group, SFAMA’s Alternative Investment Council and the Swiss Hedge Fund Council.

What was your best career decision?
Clearly, leaving for the US! Not only was I exposed to many trading and investing strategies, but also to some of the largest markets and financial institutions in the world. I also enjoyed their work environment a lot: the focus was on getting the job done. Your background didn’t matter much as long as you could get it done. It’s not for nothing that Nike has “Just Do It” as its tagline.

Who do you think of when you hear the word “success”?
Ken Griffin, founder and CEO of Citadel Investment Group, a multi-billion dollar multi-strategy hedge fund based in Chicago, and one of my previous bosses. He impresses me not only because he started his fund with literally just a few million dollars, but also because he’s still very hands-on and passionate to perform and keep learning, even after so many years and so much success. To this day, he still goes to the office one day every weekend.

What are your main principles/values?
The main principle that I think makes a huge difference in finance is discipline. It starts with identifying what you’re really good at and sticking to it, even when what you do is out of favour for a while. The temptation is quite strong in asset management to create products that are fashionable in a given year, try to raise assets, and claim that you’re innovating! You should bear in mind that innovation can actually destroy your existing business. In essence, if you have a limited amount of resources, taking some away from your core expertise which works and allocating them to something else can potentially be damaging. We see it often with managers trying to do too many things: launching a flagship fund, a UCITS or a 40 Act fund, several managed accounts and so on. Do you know how many products a USD 10 billion asset manager typically manages? More than 33! Where’s the focus, and what motivates the manager? Performance or asset levels?

What pushed you to do what you are doing today?
Back in the ’90s, a Swiss citizen had three options to choose from: watches, chocolate or banking! Since I never much enjoyed watches, it was down to chocolate and banking. In the end, I decided to just eat chocolate while pursuing a career in finance, given the large range of challenges to take on. While initially the technical aspects were my main motivation, I later payed more and more attention to qualitative issues. For example, in risk management most firms expend 90% of their resources on risk measurement, but how you handle risk is much more important than how you measure it. Even today, I see that most failures are not due to measurement but to dealing with the tough questions of how to actively manage risk. The bigger the organisation, the harder it is to effectively manage risk. Look at the list of the largest trading losses (https://en.wikipedia.org/wiki/List_of_trading_losses). Typically, the biggest losses arise from a combination of a large organisation or unit, derivatives and huge trades. It happens over and over again, and in that sense history does repeat itself, but we should be able to learn from it.

What do you like the most in your job?
At the end of the day, I think Nirvana is when you perform but also when you earn your clients’ trust. Periods of underperformance invariably happen, but as a company that’s been around for more than 25 years it’s crucial to learn something from them and emerge a bit stronger. Earning your clients’ trust in our industry is not easy given how competitive it has become. However, I think trust can be built up if you’re patient, disciplined and consistent.

What future do you see for the Swiss asset management industry?
Only one or two Swiss players can compete at the international level with a wide range of products. All the others should focus on expertise in a specific niche, such as alternative investments. Indeed, there are many small to mid-sized Swiss firms that currently compete internationally but are not very well recognised in Switzerland. Many institutional Swiss investors assume that talent is mostly found in London or New York. Of course, proximity should not be the main selection criterion, but for the same performance, local managers should be favoured. The other question is whether Switzerland should become more proactive in attracting foreign asset managers. Unfortunately, outside of tax considerations, our country has not been as competitive as other countries like the UK, France or Germany. Many would like FINMA or our politicians to be more proactive, but they’re failing to understand the DNA of our institutions. Switzerland is a great example of successful decentralisation with little by way of top-down regulation, historically speaking. It’s thus up to the industry itself to foster dialogue and address its demands directly to our politicians – for example through the Asset Management Platform Switzerland.

How do you unwind in your spare time?
Running is the default activity I come back to regularly. I have practiced several sports, but I find running to be not only the most efficient, but also the one where I can connect to the current moment the fastest. All you need are running shoes (barefoot runners would actually argue with that) and your running gear, and you’re good to go at any time of the day (or night). It’s also a time during my day where I can very quickly connect to the moment and simply enjoy the exercise, the path or simply the view. I’ve also tried long-distance running in the desert, which is a unique experience.

What advice would you give to a young professional starting out in asset management today?
Whether that young professional wants to be in portfolio management or in sales, I would advise him or her to do both. Knowing what it takes to manage risks makes you a better salesperson, and knowing what it takes to acquire and keep a client makes you a better portfolio manager. For anyone looking to start up a new business in finance, I would urge them to make sure they have two of the following three things: CHF 100 million in client money guaranteed, CHF 5 million in working capital and a “wow” product, by which I really mean a product that’s ten times better than anything the competition has. One that solves a problem no one else is solving or has even thought of solving. Anything short of that will have a very hard time surviving. Finally, I would suggest that they read “Liar’s Poker” by Michael Lewis, an exceptional book to help you understand that finance is first and foremost about incentives and human ignorance, greed and fear.

Who would you like to have dinner with?
Louis De Funès, the French comic actor from the ’70s. He made me laugh as a child, and I still enjoy watching his movies with my children. Everyone seems to enjoy his high energy, his wide range of facial expressions and his impatience. While his acting may seem natural and easy, what really impresses me is how much he actually worked for it: more than 100 plays and 140 movies, 80 of them in minor roles. He was in for the long run while at the same time making sure he enjoyed what he was doing in the short run. These are values we share at Fundana.

Which book are you currently reading?
At the beginning of each year, I force myself to re-read “More Than You Know” by Michael Mauboussin. Michael is one of the best investment strategists (Legg Mason, Credit Suisse, BlueMountain Capital) I have ever known. He’s great at highlighting the major pitfalls of investment analysis. For example, one of the main temptations investors face is extrapolating performance (outcome) without really understanding how it was achieved (process). In other words, is the manager really good or simply just lucky? Of course, in the long run, only skilled managers will beat the market. However, in the short run, it’s impossible to separate luck from skill without analysing the manager’s investment process. How and why did they achieve their performance? Can it be replicated? Is it scalable? Unless you can consistently gain that understanding, your investments are nothing but speculation. I highly recommend this book to anyone in asset management!

What do you do during a short train journey?
I often take the train across Switzerland, a much more efficient way to travel than the car or the plane. I find the environment conducive to writing, especially early in the morning as you aren’t interrupted by calls or colleagues. This enables you to stay focused for a few hours to write an article, for example. We aim to communicate a lot at Fundana, given that there are many false ideas about hedge funds out there. And as many other things in life, it’s not as simple as black or white. People like to assign labels to make their life easier, but that’s just a short cut. Fundana is active in talking about the pros and cons of hedge fund investments, be it at events like the Swiss Employee Pensions Conference or via industry associations such as SFAMA’s Alternative Investment Council, the Swiss Hedge Fund Council or AIMA’s Research Committee.

If you could choose a country, where would you live and why?
I have worked, lived and spent holidays in many countries, but there isn’t one that comes close to Switzerland in the end. The combination of the rule of law, our highly developed financial sector, the exceptional scope for outdoor pursuits and the quality of life in general make it a great place. While the US offers pretty much the same, we have it in a much more condensed version here. You can ski in the morning, meet a hedge fund manager and a client during the day and still be able to go wakeboarding on the lake before dinner!

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