Hedge Magazine, 2015. Original article p48-50.
The Man with the Plan
Jean-François Comte is in full London exploration mode still, having moved here a year ago when Lutetia Capital opened its UK office. It takes a while to crack the nut that is London – the city is amazing, sure, but not necessarily the most welcoming – although it helps if you’re a global citizen like Comte. The co-founder and managing partner of Lutetia Capital spent 12 years in New York before going back to Paris to establish his company, whose success in merger arbitrage has quickly ensured its position as a rising star in the hedge industry.
We’re meeting in Lutetia’s Mayfair office, a classic townhouse filled with modern art, where Comte is equally stylish in blue (suit: navy; shirt: powder) and a knitted black tie. It doesn’t take long to realise just how serious Comte is about his work, but his confidence translates into a friendly openness about the state of the business. “We’re now establishing a stronger presence in London. It’s a question for the future, whether we move the gravity centre here from Paris,” says Comte in his crisp French accent. “In the alternative space, you get more visibility in London.”
Things have been progressing nicely this autumn for Comte and his co-founder Fabrice Seiman. M&A activity is now at its highest level since the all-time high of 2007, according to Citi. The Lyxor Lutetia Merger Arbitrage (UCITS) fund has just taken in another $25 million, bringing the total assets to a cool $225 million in just four months since the launch. And Lutetia keeps getting nominated for, and winning, industry awards. What’s the secret?
“What is specific to us, but not unique,” Comte says, careful to be exact, “is that we have a very strong qualitative approach because of where we come from. We come from M&A. … We have the experience to examine the detail of every single deal, and understand the environment, the regulation, the contracts – because we negotiated those contracts when we were on the other side.” There are lots of practical elements that go into it, says Comte, as he tackles the question in a most pragmatic manner – because to run a successful business you have to thoroughly understand distribution too, and not just focus on the part most managers like best: investments.
Lutetia’s M&A arbitrage positions usually work out as anticipated, says Comte, but sometimes the situation blows up – that’s what happened last year with the AbbVie-Shire deal. “We had a relatively small position,” says Comte, explaining that the outcome took a lot of managers by surprise. It was a known risk that the US Treasury was moving to limit the benefits of so-called tax inversion deals, so the reason investors tripped up had more to do with the way the acquiring party handled the situation. “The language and behaviour around the deal had been very positive, until the AbbVie board changed its recommendation.” Usually, says Comte, a manager can tell if there’s an issue by looking at these kinds of things; the business rationale and regulation may be in flux, but the wording and body language can tell you a lot.
M&A can be pretty stressful, says Comte, with things moving quickly and sometimes unpredictably. “That’s when you have to keep calm, analyse the facts, and see what makes sense.” This has been the case with the FedEx-TNT deal, which has been overshadowed by the fact the European Commission had blocked UPS from buying TNT two years ago. “Because of that, a lot of people had smaller positions than they would normally have. Many US managers have become more careful about European regulators over the past few years.” Lutetia decided to keep its position in the FedEx-TNT deal following an in-depth analysis of the rationale behind the regulator’s decision, concluding this deal should reasonably clear. “Sometimes you need to relax – look at the facts and keep your cool – in order to make money.”
Before Lutetia, Comte spent nine years in the M&A trenches at Lazard Frères in New York, while Seiman earned his stripes at PAI Partners. “This has been my life for the past 15 years! I went straight into M&A after law school. I must say, I didn’t see those last ten years go by – looking back it seems like a couple of years,” says Comte. So why did he decide to make the move to the investment side? He thinks about it for a moment. “Some people are meant to be advisors. It can be extremely interesting. Lazard in New York is one of the best possible places to do M&A in the world: you work with extremely smart people, there’s no inefficiencies – you say something once and it gets done!” This may explain why Comte is so methodical when talking about how Lutetia gets its edge: “People can come out of that environment with something of a military thinking – there’s this discipline. In M&A, at that level, there’s no margin for error. One of our staffers used to say to new recruits: ‘The difference between this and war, is that you get to go home’.”
So when Comte went to establish his own company at 35 (he’s now 41), it was because it felt like the right time to try something new – coupled with a careful consideration of the practicalities, of course. “Some people thought I was crazy at the time, leaving my position,” Comte laughs. “But the desire to go to the investment side was stronger. … I truly believe [it’s important to] love what you do, and have fun with it.” Not to mention how this is part of a tradition: Comte comes from a family of entrepreneurs. “It means you have the inspiration to build something, and grow it not only for yourself, but also for bringing people onboard and giving them opportunities.” That’s another reason why establishing Lutetia isn’t just about investments, but also about good corporate culture: “You don’t re-invent the wheel. We consider ourselves to have been in some of the best possible working environments in terms of discipline, corporate culture, and excellence. We have the opportunity to replicate that culture, so that’s what we’ve been doing.”
There must be quite the contrast though, I ask, in essentially running a startup after such a structured environment? Comte has never actually worked anywhere other than Lazard, making for an unusually streamlined career. “Thank you,” says Comte, pleased with this characterisation. “I don’t think it’s good when people jump from one thing to the other every two years. That says something about their thinking process. I’m proud of the fact I was with the same firm almost ten years.” Having said that, Comte also has plenty of observations about the transition to running his own shop:
“I don’t like it when people stop being producers because they’re used to being assisted – when you just give directions and have other people do the work. … It’s critical for senior managers to stay involved in everything, including understanding systems and risk control, because if you get too removed you actually create risk.” That’s why Comte is happy to dig into an Excel sheet once in a while, and change his own office light bulb: “It’s about entrepreneur culture. A lot of people had the idea for social networks, but there’s only one Mark Zuckerberg. He won the execution battle. The idea alone is worthless! We knew going in, leaving our beautiful offices, great assistants and smart analysts, that it wouldn’t be the same. That’s why you have to have fun in the process and be excited about it, otherwise you’re going to suffer!”
So that’s what Comte is doing now: having fun building the London office, while also enjoying living in a new city. He’s more reserved when talk veers away from work, but it’s good to be back in a more Anglo-Saxon culture, he says, having spent time in Paris after leaving New York, which he loves. “I never lived in London before, so it’s exciting. Exploring the culture, finding great places to play tennis, and ride horses – we’re looking to move our horses to England now.” The horses are in France still, and they have jobs: they’re sports horses. Comte isn’t the one to jump them in competitions, he’s quick to add, preferring to ride them at a more leisurely pace. “No, that would be … “ He laughs. “Asset management is a lot about risk management. Horses are quite special, but you have to admit, jumping can be risky.”