Manager Spotlight July 2015

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  • 30. July 2015

Pedro de NoronhaPedro de Noronha
Founder & Portfolio Manager,
Noster Capital

AuM: USD 47 million
Strategy: Global Value

Sport: Surfing
City: Lisbon
Restaurant: Oliveto (London)
Book: The surrender experiment (M. A. Singer)
Artist: Elijah Bossenbroek

If you could time travel back to day one of your fund and have 15min with your former self to communicate any lessons you’ve acquired with the intention of saving yourself headaches, what would you tell yourself?
Continuously improve your processes, even (especially) when things are going your way. There is always something that you could be doing better.

How do you manage your portfolio?
Our portfolio is very plain vanilla. On the long side we have a concentrated 12-15 value investments (mostly equities), which we hedge (depending on our assessment of market risk) using a mix of futures, options, single-stock shorts and credit default swaps. Wherever we see the risk/reward as more asymmetric.

What is the difference between you and all the other Hedge Fund managers out there?
We are extremely fundamentally driven (we are ex M&A bankers) and we invest in companies for much longer term than the average hedge fund, which means we actually wait for the fundamentals to play a role, being generally less speculative. Also, the fact that we hedge the fund with credit default swaps rather than the more traditional long/short is another differentiating factor. This served us well in 2008 and again in 2011. We also have a unique culture that consists of relentless self-improvement as investors and we take an extremely scientific approach to continuously improve our systems and processes that I just haven’t seen anywhere else. Lastly, over 50% of our AUM belongs to the partners of the fund, which means our interests are very well aligned with our investors.

What are you looking for in investments?
We are value investors at heart. We are looking for companies with durable competitive advantages and ability to keep reinvesting their cash flows at high returns on invested capital for many years to come. We also try to couple that with significant management ownership in the business as alignment of interests is very important to us.

You had a pretty solid track record until last year. It seems that 2014 was kind of like a Black Swan event on your track record. How has that impacted your business and its future prospects?
Yes, we had an extremely humbling 2014, it was by far the worst year in my career, which until then only had 2 small losing years since 2003, but these things happen in investing and we have to take every opportunity to learn and grow from it. Despite this, I think the payback from the lessons learned in 2014 will be enormous in the near future as we further upgraded our internal processes. Furthermore, the 2014 problems were mainly a mark-to-market issue, we expect to recover the losses over the next 6/12 months. We have already recovered almost 50% of the loss in 2015.

Have you found that the results of 2014 impacted your ability to raise capital in the short term?
It absolutely did, I think a lot of the investors in hedge funds follow performance trends, and we have yet to see investors who decide to do the homework (and pull the trigger) when your fund offers incredible value, this is of course if they are comfortable that the bad performance was a one off. Hopefully this interview will uncover some of those value investors.