Professional passion is a touchstone for Georg Skare Lund, head of manager selection for €50 billion Norwegian pension and insurance provider Storebrand, and it’s this quality that marks out someone worth backing, he says.
‘It is the passion and commitment to their job that distinguishes a first class manager from an average one. Being a top contender is not a nine to five job, in many cases it’s a lifestyle.’
However, investment can be ruthlessly competitive, and rising above the crowd brings its own risks. ‘It is very hard to stand out and do something alone. You are more vulnerable to attack if you are not in the pack and the wolves can take you if you are wrong,’ he says.
Following the pack may keep you safe, but this behaviour doesn’t tick any boxes for Skare Lund. He wants someone who can bring fresh ideas to the game.
‘If you are going to create outperformance you have to think differently from the crowd and that is what we are looking for in a manager.’
Eat, sleep, invest
The Lysaker-based fund selector has spent his entire career with Storebrand, originally joining the company in the mid-90s as a management trainee before rising through the ranks to become head of manager selection. Driving his ascent has been a willingness to push at any scenario he’s not satisfied with.
‘I have always enjoyed asking questions, I am not afraid to pose the difficult ones and this is perhaps an advantage for someone in my position.’
A keen sportsman who runs uphill races in his hometown of Bergen, as well as being an avid skier, Skare Lund also has the chance to stretch his legs at work using one of the company-supplied scooters to whizz through his office’s long corridors to his next meeting. He takes the rigours of manager selection in his stride and has the whole Ucits fund universe to range across.
‘On many occasions what will guide us is whether a manager needs to be replaced or if there are new areas offering good long-term prospects.
‘We don’t want to time the market when it comes to a style, the building blocks should be available to our clients for the long haul. We also prefer long-term relationships, we don’t want to throw away a manager who is underperforming because of a short-term headwind.’
As an example of the calibre of manager Skare Lund is looking for, he points to fellow Norwegian investor Kristoffer Stensrud of Skagen.
‘He is very passionate about investing, he lives in front of his Bloomberg terminal, it’s his big hobby in life. His perspectives are not based on consensus so he has been able to identify new trends early.’
The Citywire AA-rated manager and founder of the Stavanger-based Norwegian fund house has enjoyed considerable success. His emerging market equity fund Skagen Kon-Tiki has led the charge, from what is a relatively isolated location and a culture that promotes individual skill.
‘Skagen did it their way, they are not trying to look like everyone else and they are proud of it,’ says Skare Lund, who also holds the Skagen Global fund, run by Kristian Falnes and Søren Milo Christensen.
The characteristics these managers share seem like a prerequisite for the job in hand, but Skare Lund says a confidence in your own abilities allied to a thorough knowledge of your sector are all too rare. Instead he’s seen far too much of the opposite:
‘There are managers you try to forget, the ones whose most important contribution to the meeting is their presentation material. They start on page one and won’t be stopped – if you ask them a question they say “We’ll come back to that”.
‘They are so afraid to talk without PowerPoint in front of them, which is not a very impressive expression of their personality. We don’t spend time on managers like that.’
Biography: Georg Skare Lund
Georg Skare Lund joined Storebrand as a management trainee in 1996. One of his previous roles was to run the group’s life insurance business but he was increasingly attracted by the prospects its fund selection brought. He became head of its manager selection unit in 2005.
Outside of the office, if he’s not running up hills, he likes to relax with a good book. His latest recommendations include Michael J. Mauboussin’s Think Twice: Harnessing the Power of Counterintuition, which he says was ‘an eye opener for me’.
Nobel Prize-winning economist Daniel Kahneman also draws praise for his book Thinking, Fast and Slow which ‘contains an immense amount of knowledge about how our mind is susceptible to various biases.’
New funds on the list
A key advantage of the Storebrand set-up, says Skare Lund, is that it allows him and his three-person team to focus purely on manager selection.
Providing monthly investment reports to clients is tasked to another team, so he has no distractions from homing in on areas of the selection list that need strengthening.
Their European equity fund offering is a case in point. The continent’s recovery has been gaining momentum and while European equity funds have always been a staple of his list, Skare Lund recently added the T Rowe Price European Equity fund, managed by Citywire AAA-rated manager Dean Tenerelli.
The fund was a good all-cap alternative that has helped balance his fund offering, he says, providing a lower risk option than two of his other fund picks: the Delphi Europe, run by Espen Furnes, and the Handelsbanken Eurooppa Selective, which was recently handed to new Handelsbanken Asset Management recruit Viking Kjellström.
Both funds have fairly high risk profiles, says Skare Lund, and run concentrated portfolios of between 25-35 stocks. Tenerelli’s fund, on the other hand, provides a more comprehensive option to tap the market.
Another recent addition has been the Morgan Stanley Global High Yield Bond fund, a Ucits product which Storebrand and Morgan Stanley developed together to fill a gap Skare Lund identified in his asset allocation.
‘We did find one product that was already available but felt there was another manager that was better positioned to run the type of mandate we were looking for, so we did it with Morgan Stanley.’
Instead of investing in only short duration high yield bonds and thereby limiting the universe to a small and probably expensive part of the market, this fund invests in regular high yield bonds with long maturity and takes out interest rate duration by using futures.
‘So you get exposure to long credit rate duration but not interest rate duration which is hedged away using derivatives,’ says Skare Lund.
Smart beta bashing
‘I dislike the term smart beta,’ says Skare Lund, ‘it’s just a fancy, misleading word. Alternative risk premia is probably a better term for it.
‘Adopting such an imprecise label means it is not always obvious if the so-called smart beta product is a risk premia strategy based on a proprietary model or close to benchmarking. We should remember the Flash Crash of 2010 when too many people tried to do exactly the same thing.’
Reservations aside, Skare Lund does see potential in some of these strategies including low volatility fund SPP Aktiefond Stabil.
One solution he thinks does potentially work in this domain is combining the different factors these smart beta products are tapping into one strategy.
‘The risk of being tempted to sell an underperforming strategy at the bottom will also be lower, so the money-weighted performance of such an approach will probably be better than a time-weighted one.
‘I am surprised at how few of these strategies are combined. Low volatility, value, small cap are provided separately but not many firms blend them into one product for the end client.
‘The investor’s ability to time investing in the various alternative risk premia, like all tactical asset allocation products, should probably be questioned.’
When it comes to emerging markets Skare Lund highlights a number of managers he has built enduring relationships with such as Schroders’ Allan Conway who leads the team that runs the Schroder Emerging Market Equity and the Schroders Frontier Market Equity funds.
‘If our clients want exposure to Russia, we find it difficult to remove the fund after a severe market decline.
‘On the other side, our asset allocation group runs strategies where we can quickly can adopt to our current market view and we have underweighted Russia for a long time, even before the Crimea crisis.’
When it comes to striking the right balance between quantitative and qualitative analysis, Skare Lund believes selectors can be too reliant on past performance.
‘Quantitative data is always tempting as the numbers are hard to challenge, in contrast to qualitative factors which are often more difficult to substantiate and verify.
‘But figures can be misleading, the human mind draws patterns where none exist.’
An additional filter Skare Lund and his team use in their selection process is environmental, social and governance (ESG) criteria. Storebrand has been at the forefront of ESG investing for a number of years, and was one of the founding signatories of the United Nations Principles of Responsible Investing (UNPRI) back in 2006.
‘For us, the manager’s ESG policy and implementation is as important as the risk management process.
‘We’ve honed this part of our selection process over a long time. We spend more time on this than most other groups and some fund managers we interview are not used to all the angles and questions we bring to the table.’
Skare Lund pays particular attention to managers who are comfortable enough to go off script when faced with difficult questions as this shows they have a proper grasp on their strategy and their sector’s idiosyncrasies, he says.
‘You have to try and let people open up, to see what is behind the mask, and that is a challenge every time I have a manager meeting. I want to get them away from what they have rehearsed in front of the mirror and what the marketing people want them to say.’
This article originally appeared in the July/August issue of Citywire Global