Financial_Times_Asia_-_April_6_2020

4 | FTfm FINANCIAL TIMESMonday6 April 2020

FAC E TO FAC E P E T E R K R AU S

S I O B H A N R I D I N G

T

he last financial crisis

was a boon for Peter

Kraus. In 2008, he pock-

eted a $29.4m bonus for

histhree-month stint at

Merrill Lynch ahead of its sale to

Bank of America. He then became

chief executive of AllianceBernstein

and was paid a $6m bonus plus 2.7m

shares for stabilising the US asset

manager at the height of the tumult.

But 12 years on, Mr Kraus is watch-

ing the coronavirus-induced crisis

from a very different position. A far

cry from the excesses of his past, the

veteran investor receives no base sal-

ary for leading disruptive boutique

Aperture Investors, which manages

$2bn in assets.

Mr Kraus founded Aperture, which

he co-owns with Italian insurer Gen-

erali, after being ousted by AB three

years ago in a move that completed

his transition from industry insider to

outsider.

The 67-year-old, who made his

name on Wall Street when he served

as co-head of Goldman Sachs’ asset

management business, centred the

business around his belief that active

management in its current form is

broken and needs to be reinvented.

“The revenue model in asset man-

agement is built for scale, not for per-

formance,” says Mr Kraus over a

video call from his locked-down New

York home.

Struggling to make his voice heard

above the bark of his excitable Dandie

Dinmont terrier in the background,

he explains that the industry practice

of charging fees that increase as assets

rise has made active managers com-

placent about performance.

The last decade of equity market

gains exacerbated this problem, he

argues, swelling fund managers’

assets and disguising the impact of

lacklustre returns and a lack of

growth as investors flocked to

cheaper passive funds. “Last year

managers may not have performed

but their assets still went up, so they

were paid more. That’s ridiculous for

the investor,” says the straight-talk-

ing Mr Kraus, who wears a pressed

shirt and tie despite working from

home.

He predicts that the end of the

11-year bull run will prompt a day of

reckoning for underperforming asset

managers, who will see assets fall at a

quicker rate than they are able to cut

costs. “[The crisis] is going to shake

up the traditional industry and force

management to make decisions they

haven’t had to make before.”

The Philadelphia native speaks

from experience, having guided AB

back from the brink in 2009-10.

“[AB’s] weakness was that its funds

were underperforming at the bottom

of the market, so it lost assets in addi-

tion to assets being depressed.”

His response was to move AB into

higher alpha areas, such as alterna-

tives and real estate, and pioneer a

pricing model where portfolio man-

agers are paid based on performance

rather than the amount of assets they

raise. The aim of the new fee struc-

ture was to win back the trust of

investors disillusioned with active

management. “That didn’t mean cut-

ting fees,” says Mr Kraus. “It meant

changing the value proposition

from ‘pay me whether I perform or

not’ to ‘pay me if I perform’.”

Although uptake of variable-fee

funds has been slow among retail

investors — as well as price-conscious

institutions that are wary of perform-

ance fees — Mr Kraus says attitudes

are changing. This is thanks in part to

the decision of Japan’s Government

Pension Investment Fund, the world’s

largest retirement scheme, to adopt

the structure in 2018.

Variable fees are at the heart of

Aperture’s business model. Half of its

portfolio managers’ pay is deferred

and vests depending on whether they

meet their performance targets. If

they do not, it is paid back to clients.

Mr Kraus believes that most active

managers underperform because

they manage too many assets, which

limits their scope for taking high-con-

viction, active bets and pushes their

portfolio closer to the composition of

an index.

Aperture asks its portfolio manag-

ers to stop accepting capital when

they reach a point beyond which they

feel they will no longer be able to per-

form. Their pay structure incentiv-

ises them to adhere to this, says Mr

Kraus. He recalls having debates with

managers at AB about their funds’

capacity. “I would say $5bn and they

would disagree. They would be calcu-

lating $5bn multiplied by 40 basis

points and thinking ‘I can make more

money than that’. That was the math

going on in their head; there was no

consideration about whether they

could perform. I hated that conversa-

tion, it just drove me nuts.”

Mr Kraus admits this realisation

was a gradual process for him too. “I

grew up in this industry, so I just

believed that this was the right way to

structure things.”

The march of passive funds follow-

ing the 2008 crisis prompted him to

sit up and take notice. However, he

resisted the urge to turn AB into a

passive provider, as it would have

been tantamount to “saying that

active management doesn’t work”.

He adds: “I actually thought active

management did work, but I felt the

way we executed it had to change.”

Aperture, which was helped to get

off the ground thanks to the promise

of $4bn of “strategic investment capi-

tal” from Generali, is not aiming to

rival the juggernauts of the asset

management industry. “Aperture

doesn’t need $30tn; it doesn’t even

need $100bn. We’d be very successful

at $40bn or $50bn over 10 years.”

Mr Kraus’s personal wealth — he

pocketed $99m after offloading

shares in AB following his exit in 2017

— gives him the luxury of being able

to play the long game.

It has also funded his hobby for art

collecting — his apartment is dotted

with contemporary artworks that he

and his wife have picked up on their

travels — as well as his philanthropic

efforts.

Last year he launched a project in

conjunction with the Union for

Reform Judaism aimed at supporting

immigrants and refugees in the US.

The initiative takes the name of his

grandparents, Gilbert and Eleanor

Kraus, who travelled to Germany in

the 1930s and brought back 50 Jewish

children, saving them from persecu-

tion at the hands of the Nazis.

“Like in the 1930s, there is a rise of

anti-immigration sentiment today,”

he says in a sombre tone. “The condi-

tions on the southern border of the

US and the attitudes of part of the

population are similar to the atti-

tudes back then. On the whole I

believe the ethos of the country is one

that accepts people from other back-

grounds.”

Why fund

manager

model is

broken

INTERVIEW

Former AllianceBernstein

chief says performance, not

scale, must be the focus

Born 1952 Philadelphia

Total payno base salary, holds

shares in company

Education

1970-74BA in economics, Trinity

College, Hartford

1974-75MBA, NYU Stern School

of Business

Career

1986-08various roles, including

co-head of investment

management, Goldman Sachs

2008 head of global strategy,

Merrill Lynch

2008-17chairman and chief

executive, AllianceBernstein

2018-presentchairman and chief

executive, Aperture Investors

Aperture Investors

Established 2018

Assets$2bn

Employees 41

HeadquartersNew York

OwnershipPeter Kraus; Generali

Tony Healey/FT

FINANCIAL TIMESMonday 6 April 2020 FTfm| 9

F Tf m

Fund Bid Offer D+/- Yield

Aberdeen Standard Capital (JER)

PO Box 189, St Helier, Jersey, JE4 9RU 01534 709130

FCA Recognised

Aberdeen Standard Capital Offshore Strategy Fund Limited

Bridge Fund £1.7942 - 0.02502.22

Global Equity Fund £2.4066 - 0.06561.38

Global Fixed Interest Fund £0.8539 - 0.00035.18

Income Fund £0.5292 - 0.00243.16

Sterling Fixed Interest Fund £0.8420 - 0.00183.19

UK Equity Fund £1.5056 - -0.02715.05

Algebris Investments (IRL)

Regulated

Algebris Core Italy I EUR Acc € 84.48 - -0.50 -

Algebris Allocation Fund - Class I EUR€ 84.35 - 0.44 0.00

Algebris Core Italy Fund - Class R EUR€ 79.34 - -0.48 0.00

Algebris Financial Credit Fund - Class I EUR€152.55 - -1.20 0.00

Algebris Financial Credit Fund - Class R EUR€133.30 - -1.05 0.00

Algebris Financial Credit Fund - Class Rd EUR€ 93.28 - -0.73 5.62

Algebris Financial Income Fund - Class I EUR€107.69 - -4.34 0.00

Algebris Financial Income Fund - Class R EUR€100.38 - -4.05 0.00

Algebris Financial Income Fund - Class Rd EUR€ 68.48 - -2.76 6.21

Algebris Financial Equity Fund - Class B EUR€ 70.22 - -4.91 0.00

Algebris Macro Credit Fund - Class I EUR€104.35 - -1.34 0.00

Algebris Macro Credit Fund - Class R EUR€102.71 - -1.31 0.00

Algebris Macro Credit Fund - Class Rd EUR€102.71 - -1.31 0.00

Algebris IG Financial Credit R EUR Acc€ 94.39 - 1.25 -

Algebris IG Financial Credit B EUR Acc€ 94.69 - 1.26 -

Fund Bid Offer D+/- Yield

The Antares European Fund Limited

Other International

AEF Ltd Usd (Est) $578.35 - 24.29 -

AEF Ltd Eur (Est) €542.27 - 22.780.00

Arisaig Partners

Other International Funds

Arisaig Asia Consumer Fund Class A (Ex-Alcohol) shares$ 81.00 - 0.05 -

Arisaig Asia Consumer Fund Limited$ 79.03 - 0.04 0.00

Arisaig Global Emerging Markets Consumer Fund$ 9.54 - 0.06 0.00

Arisaig Global Emerging Markets Consumer UCITS€ 12.85 - -0.01 0.00

Arisaig Global Emerging Markets Consumer UCITS STG£ 14.50 - -0.10 0.00

Arisaig Latin America Consumer Fund$ 17.40 - 0.22 0.00

Artemis Fund Managers Ltd (1200)F (UK)

57 St. James's Street, London SW1A 1LD 0800 092 2051

Authorised Inv Funds

Artemis Corporate Bond I Acc £ 0.97 - 0.01 -

Artemis Target Return Bond I Acc£ 0.98 - -0.01 -

Ashmore Investment Management Limited(LUX)

2 rue Albert Borschette L-1246 Luxembourg

FCA Recognised

Ashmore SICAV Emerging Market Debt Fund$ 71.93 - 0.18 7.91

Ashmore SICAV Emerging Market Frontier Equity Fund$120.66 - -1.39 1.90

Ashmore SICAV Emerging Market Total Return Fund$ 64.55 - 0.13 6.63

Ashmore SICAV Global Small Cap Equity Fund$105.03 - 1.90 0.04

EM Active Equity Fund Acc USD $104.70 - 3.09 0.00

EM Equity Fund Acc USD $ 83.77 - 2.21 0.00

EM Mkts Corp.Debt USD F $ 73.44 - 0.37 8.30

EM Mkts Loc.Ccy Bd USD F $ 65.52 - -0.14 6.13

EM Short Duration Fund Acc USD$ 91.27 - 1.04 0.00

Fund Bid Offer D+/- Yield

Atlantas Sicav (LUX)

Regulated

American Dynamic $4351.134351.13640.390.00

American One $4258.234258.23614.160.00

Bond Global €1470.221470.223.45 0.00

Eurocroissance €959.41959.4194.460.00

Far East $816.63 - 59.130.00

Barclays Investment Funds (CI) Ltd (JER)

39/41 Broad Street, St Helier, Jersey, JE2 3RR Channel Islands 01534 812800

FCA Recognised

Bond Funds

Sterling Bond F £ 0.48 - 0.00 1.84

Brown Advisory Funds plc (IRL)

http://www.brownadvisory.com Tel: 020 3301 8130

FCA Recognised

Global Ldrs Sst C USD Acc $ 8.22 - 0.12 -

Brown Advisory US Equity Growth Fund USD B$ 35.76 - 0.89 0.00

Brown Advisory American Fund USD B$ 18.96 - 0.30 0.21

Brown Advisory US Smaller Companies Fund USD B$ 21.09 - 0.13 0.00

Brown Advisory US Small Cap Blend Fund USD B$ 12.21 - 0.08 0.00

Brown Advisory US Flexible Equity Fund USD B$ 14.29 - 0.26 0.00

Brown Advisory Global Leaders Fund USD C$ 13.53 - 0.18 0.00

Brown Advisory Latin American Fund USD B$ 7.79 - 0.08 0.86

Brown Advisory US Sustainable Growth Fund USD C$ 14.81 - 0.32 0.00

Brown Advisory US Mid-Cap Growth Fund USD C$ 11.67 - 0.19 0.00

CCLA Investment Management Ltd (UK)

Senator House 85 Queen Victoria Street London EC4V 4ET

Authorised Inv Funds

Diversified Income 1 Units GBP Inc£ 1.40 1.40 0.00 1.07

Diversified Income 2 Units GBP Inc£ 1.35 1.35 0.00 1.09

Fund Bid Offer D+/- Yield

Diversified Income 3 Units GBP Inc£ 1.36 1.36 0.00 1.08

CG Asset Management Limited (IRL)

25 Moorgate, London, EC2R 6AY

Dealing: Tel. +353 1434 5098 Fax. +353 1542 2859

FCA Recognised

CG Portfolio Fund Plc

Absolute Return Cls M Inc £119.39119.390.20 1.49

Capital Gearing Portfolio GBP P £32420.0532420.05-4.13 1.49

Capital Gearing Portfolio GBP V £157.66157.66-0.02 0.60

Dollar Fund Cls D Inc £174.74174.742.09 1.84

Dollar Hedged GBP Inc £101.26101.260.81 1.86

Real Return Cls A Inc £209.19209.191.85 2.13

Candriam Investors Group (LUX)

FCA Recognised

Candriam Eqts L Australia Cap A$1077.34 - -16.230.00

Candriam Qt-Eqts Europe Cap €2091.71 - 16.060.00

Candriam Qt-Eqts USA Cap $2670.10 - 54.220.00

Candriam Investors Group

Other International Funds

Candriam Eqts L Emerging Mkts Cap€712.22 - 6.68 0.00

Candriam Bonds Credit Opportunities€194.85 - 0.24 0.00

Candriam Bds Euro High Yield Cap€1097.01 - 0.38 0.00

Candriam Bds Euro Sh.Term Cap €2042.96 - 0.44 0.00

Chartered Asset Management Pte Ltd

Other International Funds

CAM-GTF Limited $251541.69251541.694690.190.00

CAM GTi Limited $697.51 - -26.300.00

Raffles-Asia Investment Company$ 1.38 1.38 -0.02 2.17

Fund Bid Offer D+/- Yield

Cheyne Capital Management (UK) LLP

Other International Funds

Cheyne European Event Driven Fund (M)€144.16 - -0.70 -

price updated (D) daily, (W) weekly, (M) monthly

CP Global Asset Management Pte. Ltd.

http://www.cpglobal.com.sg, Tel: +65 6466 6990

International Mutual Funds

CP Multi-Strategy Fund $221.66 - -1.33 -

CP Capital Asset Management Limited

http://www.cpgbl.com, email: [email protected]

International Mutual Funds

CPS Master Private Fund $301.44 - -0.45 -

CP Global Alpha Fund $248.91 - 0.23 -

DWS (LUX)

Tel: +44 (0) 20 7541 8999 http://www.dws.com

FCA Recognised

DWS Invest Top Dividend £119.94119.940.03 3.36

DWS Invest Top Euroland £107.32107.32-1.70 1.90

DWS Invest Multi Opportunities £ 91.38 91.38 -0.09 0.00

DWS Invest Global Bonds £ 98.27 98.27 0.01 0.00

Fund Bid Offer D+/- Yield

Dodge & Cox Worldwide Funds (IRL)

6 Duke Street,St.James,London SW1Y 6BN

http://www.dodgeandcox.worldwide.com 020 3713 7664

FCA Recognised

Dodge & Cox Worldwide Funds plc - Global Bond Fund

EUR Accumulating Class € 13.85 - 0.15 0.00

EUR Accumulating Class (H) € 9.72 - 0.02 0.00

EUR Distributing Class € 11.07 - 0.12 4.28

EUR Distributing Class (H) € 7.74 - 0.02 4.62

GBP Distributing Class £ 11.81 - 0.03 4.05

GBP Distributing Class (H) £ 8.12 - 0.02 4.86

USD Accumulating Class $ 10.84 - 0.02 0.00

Dodge & Cox Worldwide Funds plc-Global Stock Fund

USD Accumulating Share Class $ 15.79 - 0.31 0.00

GBP Accumulating Share Class £ 20.96 - 0.42 0.00

GBP Distributing Share class £ 14.52 - 0.29 1.76

EUR Accumulating Share Class € 21.23 - -0.96 0.00

GBP Distributing Class (H) £ 7.80 - 0.16 1.56

Dodge & Cox Worldwide Funds plc-U.S. Stock Fund

USD Accumulating Share Class $ 19.97 - 0.48 0.00

GBP Accumulating Share Class £ 25.06 - 0.60 0.00

GBP Distributing Share Class £ 15.36 - 0.36 0.97

EUR Accumulating Share Class € 23.09 - -1.07 0.00

GBP Distributing Class (H) £ 8.40 - 0.20 1.13

Dragon Capital Group

1501 Me Linh Point, 2 Ngo Duc Ke, District 1, Ho Chi Minh City, Vietnam

Fund information, dealing and administration: [email protected]

Other International Funds

Vietnam Equity (UCITS) Fund A USD$ 15.22 - 0.46 0.00

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