Illiquid assets are ‘the way to go’, says Futura Investment Management

Transcript

Adequate risk and return investments have proved illusive following the global financial crisis, where governments have implemented quantitative easing and, as a result, low interest rates to boost economic recovery. World Finance speaks to Alberto Matta from Futura Investment Management about which investment opportunities are the most buoyant.

World Finance: Now Alberto, Futura Investment Management focuses on niche markets, so why was the company set up and what’s your investment style?

Alberto Matta: If you look at banking and asset management, they both work as completely separate industries. In banking you have financial sophistication, you have flexibility, you have balance sheets, and you can provide investors with tailor-made solutions that work according to the specific needs they have.

Asset management works in exactly the opposite way. Asset management was very much a value creation, or there was a culture for value creation – from alignment of interests, which is very important in asset management. And also in a way, a transparency; but of course there, there was no flexibility.

Most asset managers were creating a product that investors either liked, or didn’t like. So what we try to do with Futura is really to try to merge the two cultures.

What we see right now is an undue reward for illiquidity

World Finance: Where are you concentrating funds currently and where are the best investment opportunities?

Alberto Matta: It is a difficult market environment at the moment. What we see right now is an undue reward for illiquidity. So if you look at the illiquidity premium, i.e. the excess return you get from illiquid assets, we think that this premium does not justify the real risk of illiquidity.

We are in an environment where interest rates are very low again, so it’s very difficult to make money for you as an asset manager. We try to focus on illiquid assets because we think that that’s where the value is. Coming from a risk return point of view, that is where most of the value is. And we have the type of investors that allow us to do that.

So if you look at, for example, investors that have long-term investment horizons like 15 years, if you look at a pension fund or an insurance company, they don’t need their liquidity. So it’s actually a sin for them to go after liquid assets, because they lose out on all the extra premium they could get, and they really don’t need it because they have long-term liabilities and should have long-term assets. So we try to focus on these type of investments, and this is why one of the main focuses for us is real estate, we also look at secondaries of private equities.

World Finance: What are the challenges of investing in these areas and how do manage risk?

Alberto Matta: You know how it is, investors sometimes change their minds or their objectives change, and all of a sudden it’s difficult for us to liquidate a portfolio, if an investor decides that they want to only invest in liquid assets. So we always have to keep a clear balance between our full investment portfolio, also allowing for that one or two investors that might change their strategies.

In terms of risk, the way we try to de-risk the portfolio is first of all with local presence and local expertise

In terms of risk, the way we try to de-risk the portfolio is first of all with local presence and local expertise, because at the end of the day, the more you know about what you are buying, the lower the risk you are going to take.

Secondly, we try to have a match between the liquidity of the assets that we own and what we say in the documentation. We don’t promise the possibility to instantly redeem the funds, so investors that are coming into the funds know that they are there for the long run, so that we can exploit the strategy.

World Finance: Well you are based in Malta, and the tax structure in Malta is significant for investors – what are the incentives?

Alberto Matta: That’s not the main reason why we are in Malta. I mean Malta is a hidden pearl in my point of view, because you have availability of skills, which is unprecedented. You have this real eagerness to succeed and to work.

The responsiveness you have from the MFSA, which are the regulators, is exceptional. So the reason that we are in Malta is really for that. We were trying to have an alternative market for Luxembourg, but we also have a Luxembourg platform.

Malta is, you know I always say, they have the mind of the English and the heart of the Italians, and luckily it’s not the other way round. It’s really a place where people, they want to do business and it’s something which is very much appreciated.

Unfortunately if you look at Luxembourg, which is a competing market, in fact it’s a leading market; I think they are being so successful that they are becoming a bit complacent. And I think the responsiveness you get from the regulators, from the lawyers, from the service providers there, reflects a lot of opportunities for them. So they’re not as responsive, whereas in Malta, everything works like a Swiss clock.

World Finance: You have a close partnership with Optimum, why is this beneficial for your clients?

Alberto Matta: Unfortunately the only, let’s say, black mark of Malta is perception. So a lot of institutional investors don’t like Malta, and they prefer Luxembourg for some reason; it is more due to past reasons, or perception.

Malta is a hidden pearl in my point of view

At the end of the day, Malta is a member of the European community, so there is no reason why there should be more recognition to Luxembourg than Malta. But that’s the way it is, and unfortunately we have to adjust to what the market wants.

So why Optimum; Optimum is our Luxembourg platform and a lot of the investors don’t want to invest in Malta, they want to invest in Luxembourg; so we need to provide the two alternatives, in order to attract investors and give them the choice.

World Finance: So finally, what plans do you have for future growth?

Alberto Matta: We will continue to be in illiquid assets, because we really believe that that’s the way to go, and that’s where the opportunities are. So right now we are in a number of markets, real estate markets, around the world.

We would like to launch a second US fund, we think the US market continues to offer great opportunities; it is probably one of the only economies that is growing significantly and consistently.

We would also like to go into emerging markets, so that is something that we might do in the next two to three years. But I would expect to launch a second US fund very soon.

World Finance: Alberto, thank you.

Alberto Matta: Thank you very much.