Kempen Capital Management – Amsterdam

Mark Oud

Amsterdam, Netherlands-based Kempen Capital Management was established in 1991 and today manages €59.8 bn ($73 bn), of which €16.3 bn is in investment strategies and €43.5 bn in investment solutions. The firm has offices in Amsterdam, London, Edinburgh and Paris. The investment strategy is stable outperformance over the long term with ESG fully integrated into the investment process. Kempen’s investment strategies division has a number of equity strategies: small caps, high dividend, sustainable value creation and sustainable equity.

Mark Oud joined Kempen in 2017 as a senior portfolio manager for sustainable value creation. Before this he was a senior portfolio manager at Delta Lloyd Asset Management and head of Delta Lloyd’s Cyrte Investment. He previously worked at Main Capital Partners and Deutsche Bank.

Richard Klijnstra

Since August 2016, Richard Klijnstra has been head of sustainable value creation, having previously been head of Kempen’s credit team from 2006 to 2016. Prior to this, he worked at Fortis Investments in Paris and the Netherlands, and at Nationale-Nederlanden. Here he discusses Kempen’s approach to sustainable growth.

Are there any themes you favor?
We look at long-term drivers and currently there are three main groups: innovation, which includes mobility, artificial intelligence, cloud computing and industrial automation; people, which includes health and wellness, leisure and lifestyle; and planet, which includes clean energy – an important theme for future growth – and natural foods, given the trend toward healthier diets. For example, related to innovation we own Beazley, which is a leader in cyber-security. Long-term themes – particularly ESG-related – are important in our portfolio construction.

How would you describe your investment style?
We look for quality companies well positioned in industries that have room for sustainable growth. We are not value investors, although valuation is important to us. We use the Earnings Power Value model to evaluate investment opportunities, a framework we share with Kempen’s dividend team. We input growth and return on capital to the model and value that, too. If you look at our portfolio, we have a tilt to growth.

Do you confer with your colleagues? Could you own one stock across a number of strategies?
We do confer with colleagues and share meetings and ideas. There is full, open communication but all teams are responsible for their own individual portfolios. We could – and do – own stocks across a number of strategies so there is overlap between the portfolios.

Do you use a benchmark?
We use MSCI World and MSCI Europe as a reference but we have an active share ratio of around 90 percent.

Which screens do you use?
We use screening on an industry level. We look at long-term prospects and score, among others, expected industry growth, return on capital and development of market share, ESG and regulation. We look for the right companies within the industries we like.

Can you elaborate on your ESG focus?
Our ESG approach is best described as sustainable growth in a sustainable manner. ESG is an important part of our overall score when evaluating a company and we go a few steps further than other strategies. There are some industries we completely exclude because they don’t fit our approach. Examples are fossil fuels, all weapons and tobacco.
We use a best-in-class approach and only consider companies rated MSCI ‘BB’ or better. In assessing ESG, we use internal and external data. At the company level we look not only at negative, but also positive impacts. For example, we have a chemical company in our portfolio (Covestro) that has an innovative approach as it uses carbon instead of oil, reducing its usage of oil as a source material.

Do you have a market cap cut-off?
We generally look for companies with a minimum market cap of €1 bn.

What is your average turnover?
Portfolio turnover is between 10 percent and 20 percent as we are long-term shareholders and in general hold a stock for at least five years.

Do you prefer buybacks or dividends?
It doesn’t matter that much to us but paying a dividend can be a sign of a healthy capital discipline. On the other hand, we like companies that have room to invest in new opportunities in their business. If a stock is not overvalued, buybacks are fine, otherwise dividends.
In general, we prefer a company to invest money in profitable growth than to give it back to shareholders.

Do you have a target price in mind when you buy a stock?
We call it fair value. As we are long-term shareholders we don’t start selling once fair value has been reached. We look at the quality of a company first and the valuation second so we are willing to pay fair value for a good company long term.

What is your average position?
An average position is around 3 percent and our largest is 5 percent.

Is Corporate Governance important?
Yes, because it’s the ‘G’ in ESG so it’s taken into account in the total ESG score. What is particularly important to us is that we like to see long-term management incentives, not short-term ones. And by long term, we mean five years or more.

Can you discuss some of your holdings and why you bought them?
Valeo is a French car-parts manufacturer with a global presence. We like the trend toward electrification and autonomous driving and Valeo is well positioned compared with its peers in these two long-term opportunities. Within the car industry, there is also a long-term trend for original equipment manufacturers to outsource to suppliers. In addition, there are the electric vehicle and autonomous driving trends so suppliers can strengthen their value proposition.
Within any sector, there needs to be a long-term trend to enable long-term value creation. This enables companies to invest in new growth opportunities. So we have a positive view on the industry and, at the individual company level, Valeo is a strong, well- positioned operator with good returns.
Marine Harvest is a market leader in Norwegian seafood. Supply is limited and there are high barriers to entry as the industry is license-based and location- constrained because you can only farm in certain areas. Salmon (and seafood generally) is better positioned than meat because of the lower carbon footprint.
We are also invested in BlackRock and we like it for its clear trend toward passive investing – it is very well positioned in that area. The company also developed a market-leading tool for portfolio management called Aladdin that it sells to third parties.
Payment networks are an innovation theme we like because there is a trend for more digital payments. There are still a lot of cash and checks used, particularly in the US and emerging markets. We own both Visa and Mastercard, which are leaders and the strongest innovators with the biggest potential to benefit from this global trend.
On the small-cap side, we like cyber-security firm Beazley. We also like LHC Group, a US healthcare company that provides home-based care. It is well positioned to have more patients taken care of at home instead of at expensive hospitals.

Do you have to meet management before you buy a stock?
We like to but we don’t need to. We like to have a continuous dialog with companies so if we don’t see them before we buy, we make sure we see them in the months afterwards.

How do you prefer to meet management?
We prefer one-on-one meetings at our offices but if we need to travel, we will do. Site visits and capital market days are very helpful to us to better understand companies. We like to meet the highest level of management if possible – a CEO or CFO preferably. In the early stages of assessing a company we are happy to meet IR to build the relationship and get a better understanding of the business and the market. We also attend conferences and group meetings.

How has MiFID II affected you?
It has made it more difficult to meet a broad range of companies as there is a smaller supply of conferences for us. We now bear research costs on our own P&L, and we have a far shorter broker list than we used to – we use a maximum of 10 brokers whereas it used to be around 25. We reduced the number by looking at what we (and the other teams) needed and whether those investment banks provided short or longer-term research. We obviously favor longer-term research. Pricing can vary greatly, too, so this was also a factor. It’s been an extensive project: we now have three global brokers and a longer list of mostly regional specialists.
If we hear a company is coming to Amsterdam and we don’t have a relationship with its broker, we get in touch with the company directly. This obviously works best when you’re an existing holder and already have a relationship. We try to do this directly even if we don’t own the stock yet. Also, previously we asked brokers to set up conference calls for us but now we do this ourselves and go direct – it seems to work just as well.

Are there any conferences you particularly favor?
We’re still figuring things out – that’s the difficult part of MiFID II. The Nasdaq conference in London, which Mark attended in December 2017, is a great format. It’s an industry conference organized by an independent party but assisted by a broker.

Do you use independent research providers or expert networks?
Our aforementioned list of 10 includes independent research providers but not expert networks. Mark used expert networks at his previous firm and this is something the company is looking into.

Which companies do you find stand out in terms of IR practice?
Pharmaceutical company Novo Nordisk, insurer Allianz and Essilor, the ophthalmic specialist. And Valeo, which is responsive and has a broad IR team.

Why should corporates tarket Kempen?
If we are a shareholder or thinking of becoming one, we will be long-term partners. We look at a company’s strategic choices for the long term and on ESG-related issues. To have a critical dialog about the latter can be beneficial as we can share insight on what other companies are doing. If you know a company very well, you can have an interesting dialog about sustainable value creation rather than ask questions about tax rates or the next/last quarter. That’s the role we want to play.

A version of this article appeared in the IR Magazine


Impact of MiFID II after 11 weeks

Many market participants expected MiFID II to start slowly as the regulations rolled out over the course of this year.  Many companies also have been talking about ‘business-as-usual’ with many in ‘wait-and-see’ mode.  Now that a quarter has passed, what is the reality?  Particularly from the buy-side’s perspective.

To help answer this question, we interviewed a sample of 50 European-based portfolio managers during the 11th week after MiFID II (March 19-23, 2018).  Their answers painted a picture suggesting more revolution than evolution.  The buy-side is clearly experiencing significant change already and it’s clearly not ‘business-as-usual’.

The results show:
  • Access has been negatively affected
  • Investors have already reduced the number of brokers they are dealing with for both equity research and Corporate Access
  • Cutbacks in research providers is already leading to restricted access to conferences and non-deal roadshows
  • Price discovery for research is evolving quickly
  • The risks of companies and investors ‘missing’ each other during roadshows has increased
  • Interesting (and worrying) divergence appearing between the communication lines issuers-to-shareholders and issuers-to-non shareholders
  • Buy-side is contacting more companies directly and would like company IR teams to also do more themselves
  • Investors are strongly in favor of an independent model for providing Corporate Access
  • Bureaucracy has increased with all interactions being logged
  • Surprisingly, some buy-siders are reporting poor responsiveness from some IR teams
The changes started pretty immediately in January with many buy-siders issuing “cease and desist” style emails to the sell-side asking them to stop sending research unless they have a contract in place.  For example, typical emails were as follows:

Our research sample was as follows:

Has the number of meetings changed?

What do investors want?

James Hambro & Partners LLP – London

The Hambro name has been closely associated with the investment world for more than 200 years. Founded in 2010, James Hambro & Partners LLP (JH&P) is an Independent Private Asset Management Partnership with assets under management, advice and administration of £2.8 billion (US$3.8 billion). The partnership offers institutional-quality investment management to HNW families, trusts, individuals, charities and associated portfolios.

William Francklin joined JH&P in July 2017 and has over 30 years’ experience managing portfolios. He began his career in investment management in 1981, working at Morgan Grenfell Asset Management (in both London and New York) and latterly at Waverton Investment Management. William has also managed assets for American clients for a number of years. As JH&P has SEC authorisation (as of July 2017) he will continue to manage global portfolios for US clients based in the US and overseas.

Is there a connection between JO Hambro Capital Management and James Hambro & Partners?

The two businesses are completely separate economic entities, managing different pools of money for different clients. So no commercial connection. However, the founder of JH&P is Jamie Hambro who was previously the Chairman of JO Hambro Capital Management (JHCM) which was acquired by Australia’s BT Investment Management in 2011. Jamie remains on JOHCM’s board and some of JOHCM’s partners are investors in JH&P.

Current AUM are £2.8 billion ($3.8 billion) – do you have a final figure in mind?

Short term we would like to get AUM to £3 billion ($4 billion), medium term – £5 billion ($6.8 billion).

Of AUM what’s equity portion and geographic split?

70% equities. At this stage as we are predominantly a UK private client business, the split is 30% UK equities and 40% overseas equities. The remaining 30% of AUM is in fixed income, alternatives.

I understand you have SEC approval – discuss.

Historically, I started looking at offshore trusts for US clients who could not have a US money manager. These trusts are completely transparent from an IRS point of view. We also ran specialist portfolios for US family offices who invest outside of the US – for example – a specialist European portfolio. I also work for US clients based in London.

How is the investment team structured?

We have areas of responsibility. We have people looking at the UK, Europe (Mark Leach), Asia and Japan (Camilla Cecil, who until recently worked at Ruffer in Hong Kong) and the US (myself and Charlie Underwood). However, we very much have a “buy-in” approach so each idea goes to the stock selection meeting and has to get approval from that meeting to go on the recommended list.

So you work from a recommended list?

We very much have a recommended list and are very collegiate in what we do. For example, often at least eight of us will meet a company. We produce very detailed work on companies.

How would you describe James Hambro’s investment philosophy?

We look for high quality companies where we know the management well. Quality is very important. We like leading companies in their respective fields.

Which screens do you use?

We are not screen driven but do look at screening measures to check our research. But we are not HOLT driven for example. We just like to check that our investment thesis stands up.

Any sectors you won’t invest in? (e.g. tobacco, defense etc)

No sectors are excluded but some clients prefer not to invest in certain sectors.

Market cap cut off?

We typically invest in large cap and mid cap stocks. Occasionally we will invest in a small company if we have a very detailed knowledge of the company and know management really well.

Average turnover?

Our figure for turnover historically has been close to 25%. We are, however, very much looking to invest in companies for the long term.


For the UK clients we use Asset Risk Management (ARC) and for international clients we use the MSCI World Index.

Performance vs. benchmarks? Our global equity portfolios usually compares our performance with the MSCI World Index. In practice, our clients look at our returns both on a relative and absolute basis.

Active share ratio?

This is not a figure we monitor.

Any themes you favor?

Leading growth companies – for example Visa. Historically attractive total return stocks with income, such as Diageo, which we have owned for a long time. In Asia, a growth story like AIA, a life insurance company that came out of AIG and is a leading life company in Asia.

I believe you are bottom up? Discuss.

We are bottom up stock pickers but have a very detailed asset allocation process. You cannot totally divorce stock selection and asset allocation. However, top down macro investors are currently very bullish on emerging markets but we do not have much direct emerging markets’ exposure. We are always wary of places where we can have big currency risk. Emerging markets may do well this year, are very much in vogue and are deemed to be cheap.

Can you discuss some of your larger holdings?

Visa – we have owned it for a long time here at JH&P (and I owned the stock for a number of years prior to joining). It is the leading company in debit and credit worldwide. There are very high barriers to entry in the sector. Its secular growth is driven by the shift to electronic payment and away from cash. It is an incredibly high margin business. It has the highest margin of any company in the S&P 500. It has a consistently high growth rate. It has 59% market share of card volume in the US vs. Mastercard which has 26% and American Express which has 14%.

Diageo – originally was the merger of Guinness and a distillers business (Grand Metropolitan) in a hostile take-over (1997). That take-over turned out to be very good for shareholders. The reason it turned out to be so good for shareholders is that it happened before people recognized the power of global brands. In Diageo’s case they have some very powerful brands including Johnnie Walker, Gordon’s gin and Smirnoff, amongst many others. It is a long term holding. It generates free cash flow and has a rising dividend yield.

AIA – is a more recent holding. It gives our clients exposure to the fast growing life insurance business in Asia including China.

Samsonite – world leader in travel luggage with over four times the market share of the next largest player. Beneficiary of growth in the global tourism industry and seeing fast growth from Asia.

Any recent sales and why?

WPP is an example of a share we sold in July 2017 as we were increasingly concerned about the possibility of a profits warning. We continue to believe that advertising agencies will be under pressure from the shift to digital which favours Facebook and Google in particular.

Buy backs or dividends?

Probably dividends but it is hard to be too dogmatic. US companies have historically preferred buy backs. UK companies tend to prefer dividends.

Does a stock have to have a yield?

A stock does not have to have a yield but for some clients yield is very attractive. 10 year government bond yields are very low and yields on two year government bonds are negative.

Do you have a strict price target when you buy a stock?

We do not have a strict price target but if shares get very expensive yet the fundamentals remain good – we will top slice the position from time to time. If fundamentals change, we will sell.

Average position?

Typically 3% for a blue chip holding and 2% for a mid cap.

Is Corporate Governance important?

We do follow corporate governance and might be involved if we deemed it necessary.

Do you have to meet management before you buy a stock?

We rarely invest in a company where we have not met the management. Ideally we like to meet management one-on-one but group meetings are fine too. We also attend conferences. We will definitely attend the next Nasdaq conference in London. We aim to meet the management of companies we invest in including the CEO or CFO at least once a year.

How will MiFID II affect you?

MiFID II rules means we have set aside a budget so we can afford to pay for research every year whether markets go up, down or sideways. We also try to speak with companies directly to arrange meetings and we use independent providers such as Phoenix-IR.

Best companies at IR?

Lockheed Martin is a company that springs to mind. The company visits investors in London on a regular basis which is very reassuring for long term investors. The IROs are also incredibly well informed.

Why should corporates target James Hambro?

Our clients are people who genuinely want to invest in long term successful businesses. Our clients do not like high turnover – so we invest for the long term.

A version of this article appeared in IR Magazine


Larry Fink (BlackRock) – letter to CEOs

Larry Fink, the founder and CEO of BlackRock has written his annual letter to the CEOs of the companies in which the world’s biggest institution owns shares.  In it he urges CEOs to consider the societal implications of their business decisions and to focus on their long-term plans.  “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

He highlights BlackRock’s responsibility to engage with companies because index investors have become the ultimate long-term investors and he reaffirms his belief that companies are overly focused on the short term.

He calls for companies to articulate their strategy for long-term growth and explain their strategic framework for long-term value creation. “This is a particularly critical moment for companies to explain their long-term plans to investors.”

The letter, available below in full, is well worth reading…


Royal London Asset Management – London

Mike Fox of Royal London Asset Managers.

Royal London Asset Management (RLAM) was established in 1988 and is a wholly-owned subsidiary of the Royal London Group (founded 1861). The Group consists of the Royal London Mutual Insurance Society Limited (RLMIS) and its subsidiaries, and is the UK’s largest mutual life, pensions and investment company.

RLAM also manages assets to external clients, notably corporate pension schemes, local authorities, insurance companies, charities, endowments, universities, wealth managers etc. It has AUM of £106 billion/$140 billion (June 30 2017).

Mike Fox is Head of Equities and Senior Fund Manager of the Sustainable World Trust and Sustainable Leaders Trust, the latter role he has fulfilled since November 2003. During this time he has been awarded Citywire Top 100 UK Growth Fund Manager of the year (2007) and has a 4* Morningstar rating.

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Sarasin & Partners – London

Jeremy Thomas joined Sarasin & Partners in 2016 from Allianz Global Investors where he spent 12 years. Prior to this he spent three years at Isis Asset Management (now BMO Global), five years at Schroders and five years as a British Army Officer.  He has a degree in PPE from Oxford University.

London-based Sarasin & Partners LLP manages £14.1 billion ($18.3 billion).  Local management own 46% of the economic interest of the partnership with the remaining 54% owned by Basel-based Bank J Safra Sarasin Group (AUM $154bn).  Sarasin & Partners manages money for domestic and overseas private clients, charities, pension funds, institutions and retail investors.

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Aviva Investors – France

Matthieu Rolin joined Aviva Investors France in 2015 and covers US equities.  He was previously a senior portfolio manager at SwissLife Banque Privée (2010 – 2015) and a senior fund manager at Olympia Capital (2004 – 2010).  He has a Masters in Banking and Finance from Université Lumière (Lyon II) and SKEMA Bachelor.

Aviva is one of the world’s largest insurance groups with global assets of >$630 billion.  It is also France’s third largest multi-line insurer and has ~$50 billion under management.

How is Aviva Investors France positioned in the French investment management industry?
“We are a top 10 asset manager in France in terms of AUM.  We invest in all asset classes – equities, fixed income, real estate, multi asset and some alternative investments.  There are 35 in the investment team – portfolio managers and analysts and we also share resources with other Aviva offices around the world.  For example, there are nine analysts in the US, eight in London, two in Singapore and one in Toronto plus the four analysts we have in Paris.”

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A for Investors to Gain Corporate Access

A group of upstarts is seizing on new European Union rules to shake up banks’ matchmaking role between investors and corporate executives.

As investors prepare for EU regulations that will force them to pay for research products a la carte, one of the most valuable services is Corporate Access — the conferences, roadshows and face time with executives that can provide an information edge. Investors globally spend more than $2 billion a year for corporate access, according to consulting firm Greenwich Associates.

That spending was typically baked in to trading commissions paid to a bank. Making it a separately priced service provides a big opportunity for people like Adrian Rusling, founder of a site that counts executives at BlackRock Inc., Credit Suisse Group AG and FedEx Corp. among its users.

“It’s like,” said Rusling, who started in 2013 as an offshoot of investor-relations firm Phoenix-IR based near Brussels. “Instead of boys meeting girls, it’s companies trying to meet investors. We thought, ‘Let’s democratize this industry a bit and open it up a bit more.’”

Planning for Europe’s MiFID II rules, which take effect in January, has driven a 50 percent surge in daily user requests so far this year, Rusling said.

Link to original story: