Hedge Magazine, 2013. Original article (p27-29).
Francois Buclez, founder and CEO of Cube Capital
“Are you sure you don’t want coffee? It’s really good!” Francois Buclez, a Frenchman in London, has made sure there’s a proper coffee machine in the Fitzrovia offices of Cube Capital. Before I leave he will ask about the coffee again, and with an empty cup I will have to tell him he was right. “It’s a good place to work!” says Buclez, proud of how the alternative investment firm likes to look after its people, all the way down to serving great coffee.
Dynamic, curious and independent are the sort of words used to sell the Cube Capital experience, but Chief Executive Officer Buclez has no time for it: “I hate the wording, it’s fluffy, it doesn’t mean anything. I like to focus on real things, as opposed to concepts and words.” The hard facts then: $1.3 billion of assets under management, three investment products starting with a $800m fund of hedge funds, as well as $200m worth of “punchy” hedge funds and about $270m in real asset investments. Fund managers are often reluctant to reveal financial details, but Buclez rattles off the performance figures without prompt. I’m not allowed to repeat them, which is a shame because they look good.
A nimble approach
“Our goal was to create the ultimate investment product,” says Buclez, explaining how he founded Cube Capital in 2003 alongside Oleg Pavlov and Alan Sipols out of a feeling of disillusionment with the industry. “We settled on the fund of funds model, and I think it’s still the top investment product because it’s a one stop shop. With one investment you can reach every region, every asset class and every strategy in the whole world.”
The fund of hedge funds is Cube’s main product: “This is a stay-rich product, a no matter… comme…” Buclez pauses his animated stream of words, casting around for the expression. “Hell or high water! For example, in 2008 the most we ever lost was 12%. Not great but not that threatening, so it’s a reasonably steady product. 10% return is the target, with 5% volatility.” The hedge fund operations, which opened to new investors last year, carries double the volatility and double the return target.
The key to the performance of the fund of funds, emphasises Buclez, is to correct for the model’s potential shortcomings. Cube has identified four key issues which have contributed to bad press for the industry, starting with traditionally long redemption periods for hedge assets. “We have implemented a strategy of overlays, which means we can react very quickly if something is happening in the market, without having to change the underlying manager.” A second issue is fees: “We have implemented a programme of direct investment, so for between 15-20% of the book we keep the exposure very simple, just long or short. This helps us keep fees manageable.” A top-down driven investment strategy and no allocation quotas means Cube can move resources around freely, to where the best potential is seen. And lastly, they like to keep it small, avoiding crowded assets or funds whose size Buclez believes will get in the way of the best returns: “We tend to focus on smaller managers, the guys who are a bit more hungry, a bit more nimble.”
Before Cube, Buclez spent 13 years at Credit Agricole and then Credit Suisse. “I was starting to see the drawback of working for a big organisation. I thought maybe we could do something better, or at least in a better environment. Maybe make people a bit happier.” Buclez pauses. It turns out he’s talking not about his investors, but his staff: “It’s quite collegiate here. We do lots together, there’s basketball twice a week, 15 of us just went away for a ski weekend. People tend to stick with us.” Unlike the world of investment banking, which Buclez perceives as “unnecessarily aggressive”. “And in a bank, you never quite know good you are. I always had the protection of mama Credit Suisse.” This was also part of his motivation for wanting to go it alone: “Obviously I had some success at Credit Suisse but I still wondered, without that umbrella, would I manage? Would I be able to get something going?”
As Cube marks its 10th anniversary this year, Buclez thinks the hedge fund industry has improved since the downturn. Still, he reckons the perception of the public and the media has yet to catch on to this fact, as not all fund of funds are the same. “There seems to be a separation happening now,” he asserts; more passive funds with lower return expectations are being priced more appropriately, and the higher fees are reserved for actively managed funds which provide added value. On that note, Cube Capital created headlines last year as it became one of the first of its kind to enter Myanmar, as the country formerly known as Burma opened up to foreign investors.
“On the real asset investment side we are a bit more opportunistic. We look for unloved themes and put a product around those,” says Buclez. “There was plenty of opportunity in Myanmar in terms of globalisation, the opening up as a boost for GDP, the growing middle classes, et cetera. We have done two deals there, another is in the pipeline and maybe we’ll do a couple more. But in two or three years it’s going to become crowded. We saw that in China and Vietnam, and in the US where we filled our boots with distressed hospitality assets at rock-bottom prices in 2008.”
The next big macro theme for Cube is the opening up of the Chinese hedge fund industry: the government is in the process of opening up for domestic investors to buy dollar-denominated offshore products. Having been active in China for four years, Cube wants to leverage its existing relationships to take a slice of this market as it grows: “We started this six months ago and it’s still early in the process, but it could be pretty big.”
Mind at work
While he takes weekends off, Buclez never really stops working. The issues of the business churn around in his mind whether he’s at home, in the office or on holiday. He rides a motorbike to work every day from the home he shares with his wife and four children, aged 6 to 14. He travels a fair bit: “Every country is interesting, in different ways. I’ve made three trips to different regions of Africa over the past year, and it’s a big investment theme for us. We think Africa could be compared, in certain aspects, to Asia when it was starting to rise in 2004,” he says, explaining how conditions for business have changed drastically over the past decade, and signs are now pointing to an opportunity opening up.
Buclez freely admits he’s the kind of holidaymaker who will survey any destination with a mind for business. I realise this following numerous failed attempts to steer the Africa conversation towards a more touristy tone, but what Buclez wants to talk about is the increasingly sophisticated mobile banking networks; operators in Zimbabwe and Kenya have created innovative payment systems with important social benefits for the low income population. “People the world over react to the same motivations, the make the same mistakes. They want to feed their families and for their kids to succeed, and that drives every country in the world. So when you go on trips to foreign countries, it’s all about recognising where they are in the cycle.”
In order to follow these opportunities as they appear around the world, Cube will partner with local players to tap into their detail knowledge. “Our real expertise is to spot the opportunity, find the right partner, and then control and manage,” says Buclez. Cube may not be experts going in, but they become so by the time they exit. “The market is always changing, and I love that I’m still learning after 24 years. It’s never dull. And there are several layers to it: I like taking the young kid and helping him blossom.” While Cube is small, what Buclez and his five partners want to do now is to build a multi-generational company. Getting a handful of good years under your belt is easy, he asserts, but the real test is to keep up the good performances over time: “The ambition is to last. It doesn’t sound very glamourous, but it’s the biggest challenge.”