Greg Konieczny: The frontier man

Hedge Magazine, September 2015. Original article p50-52.

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Grzegorz ‘Greg’ Konieczny, Portfolio Manager of Fondul Proprietatea and Director of Eastern Europe / Russia Strategy at Franklin Templeton Investments.

Grzegorz Konieczny is in London this morning, tending to Fondul Proprietatea and its new life on the London Stock Exchange. The Romanian fund has done a fair bit of shaping up over the past five years, which is how long Greg (as becomes of Grzegorz in London) and Franklin Templeton Investments have been in charge. Although things may have changed a lot over the years, Fondul isn’t quite like the other funds: this investment vehicle was originally established to compensate Romanians whose properties were confiscated by the former communist government.

That meant a fair bit upheaval during the early days for the Templeton mandate – even a few scandals. One wonders if Konieczny got more than he bargained for when he took on Fondul? Take what happened with Hidroelectrica back in 2012, the Romanian electricity generation company where Fondul has a 20% stake. “They should have been printing money, but they were hardly profitable. When we got the company reports it became clear that there were a few, say, long-term bilateral contracts,” says Konieczny, always diplomatic in his choice of words, “to sell electricity at prices fixed at half the market rates. So these private traders, they were making some €300 million each year, just for re-invoicing!” The Hidroelectrica managers didn’t want to intervene, and neither did the politicians, so Konieczny and his team saw no other choice but to alert the media: “It was in the headlines for three months. A lot of people started asking us how many bodyguards we had.”

Screen Shot 2015-09-25 at 14.15.03Hiring security never became necessary for the Fondul managers, and Konieczny says he didn’t actually fear for his safety during the Hidroelectrica ordeal. “But we’re not shy. We prefer to discuss privately with companies first, but when we can’t come to an agreement we’ll go the public, or take the legal route. A lot of people don’t like us! But our goal is to unlock value for the shareholders.”

Konieczny’s record proves this assertion, but there’s nothing thuggish about the fund manager sitting across the table from me. In fact, Konieczny comes across as the kind of agreeable person who’ll probably be able to sort things out during the talking stage – at least now that he’s demonstrated what will happen if he doesn’t get his way. But today he’s smiling while telling stories, his almost-perfect English underscored by a Polish accent. He’s wearing a very proper suit and tie, contrasted by a bold sports watch in orange and turquoise. The overall impression is one of a man who enjoys his work very much, maybe even having some fun – this is the frontier of investing! “Yes, Romania is part of the frontier market. But it’s unique to have such a big fund with focus on just one country. The fund is €3 billion – that’s more than 2% of Romania’s GDP.”

At first, the reputation of the Romanian market counted against Fondul as it sought a broader investment base: “The negative perception was: corruption, gypsies, stray dogs!” Konieczny can laugh about it now, as investor education has come a long way over the past five years. Not to mention how Romania has seen improvements in terms of anti-corruption efforts generally, and improved governance within Fondul’s holding companies. “Romania really is one of the fastest-growing economies now, and the potential is huge.” And the rest of the country isn’t a bad place to visit either: “Bucharest was partially destroyed during an earthquake in 1977, and then Ceaușescu continued with the destruction. But it’s a beautiful country. You have the mountains, you have the Dracula story.”

Speaking of Romania’s former life under communism, Fondul Proprietatea still has some ties to its unique past as a restitution fund. The fund is fully private now though, with around 20% of the shareholders being Romanian private individuals. While Konieczny has the same profit agenda as he would with any other fund, the heritage of the original restitution mandate continues to create a slightly different atmosphere. “When we won this mandate, we had no idea how bad the situation was in terms of corporate governance. There was a shock at first,” says Konieczny, who quickly realised this wasn’t one of those mandates where you could just call up brokers to buy and sell:

“We had to be very much a hands-on manager, practically an activist, in terms of engaging with these portfolio companies and the government,” says Konieczny. “The only way to really create value was to be very deeply involved in the portfolio companies. So we sit on boards, we take the legal route when needed, and we lobby for change in market regulation, such as the liberalisation of electricity and gas prices. We also push for more IPOs for companies from our portfolio – all that requires a hands-on approach. […] The aim is to move Romania from the frontier to the emerging market category. It’s been good progress, but it may still take another two-three years.”

Konieczny (44) grew up in Poland, and his family resides in Gdańsk, “on the seaside”. For him to live in Bucharest for work is tough on family life, he admits, although his wife and kids travel together a fair bit together, most recently to London, and before that, to Mexico. His son is in IT and his daughter plans to study fashion, says Konieczny, whose own university years were very different than those of his children, as they coincided with a unique time in Polish history:

“I went to university in 1988, during a time of change of power in Poland – communism was falling. I studied foreign trade and economics, and I remember, in the first semester, they taught Economy of Socialism. Then in the second semester, they taught Economy of Capitalism. That was the change that was happening – so quickly!” The Polish stock exchange was established during Konieczny’s second year at university. Keen to dive in, he started working for a Polish bank and got himself a broker licence. During his third year, he was hired by a bank in his hometown, and worked there for just three years before being hired by Mark Mobius at Franklin Templeton.

Having entered the world of business just at the moment when the Polish market was opening up meant Konieczny found himself in a fortunate position. “It was a huge change. Almost a revolution! Put simply, there were no one with experience in capital markets or market economy. So whatever you gained in one year or two years of studies, or whatever books you read, you really were ahead of the others.” Konieczny admits it wasn’t all plain sailing: “I was very young at the time. But so were the other people who worked for the different campaigns or brokerage houses. Everything was new to everyone, and everyone was trying to make money, but at the same time, we were learning how this industry works.”

Having had this experience in Poland now means Konieczny can bring a lot of experience to the table in Romania. “I was there for the first IPOs in Poland, and then later I was looking at other markets in the region, like Hungary, Czech Republic, Russia. So I’ve seen a lot!” But the challenging part about a country undergoing this kind of major change isn’t so much the regulation, says Konieczny: “The most difficult part, both in Poland and Romania, has been changing the mentality. That takes longer. You can decide to open a stock exchange very quickly. But then for people to really understand how it works, and then to change the way they behave, that takes much longer.”

The sheer size of Fondul Proprietatea means that any change the Templeton team creates in terms of corporate governance often has repercussion for Romania as a whole. But Konieczny doesn’t think about his work in terms of having a change mandate: “I don’t look at it from that perspective. I consider the feedback we get, but to change the country is not my intention. It’s just sometimes a consequence of what we’re doing! We want to run the fund, make money for the shareholders and ourselves, and at the same time be proud and happy with what we do.”

Konieczny certainly seems happy with what he does, at least as long as there’s time left over to play some football at weekends. Asked about his motivations, he recalls an interview with a Polish businessman who was asked the same question: “He said, ‘Every real man should leave home in the morning!’” Konieczny laughs. “I don’t necessarily have to leave home every day, but I need to do something in life. And of course, earn a living at the same time! So this is not bad.”

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Simon Ruddick: The village mentality

Hedge Magazine, 2014. Original article (p36-38).

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Interview with Simon Ruddick, co-founder and Managing Director of Albourne Partners

There are bales of hay inside the offices of Albourne Partners, providing a surprisingly folksy feel for a global hedge fund advisory firm. The village environment is a heritage from the company’s roots in Albourne, Sussex, where it all started 20 years ago. But in spite of the decorative apples and cows it’s clear we are in Westminster now, and Simon Ruddick has his eye on the world. In the most literal sense, this is: Ruddick is one of the key architects behind the Opera initiative, a global effort to standardise how hedge funds monitor risk.

“I think that’s possibly the most fun part of my job,” says Ruddick, who has frequent meetings with regulators about the Open Protocol Enabling Risk Aggregation, Opera for short. The co-founder and Managing Director comes across as surprisingly casual despite his striped tie and grey trousers, of the kind that seem likely to have a matching jacket left on the back of a chair somewhere. He is personable and cheerful, as his speech turns into a rapid fire when on the topic of his enthusiasms. Because that’s what work is for Ruddick: an enthusiasm. And why yes, he certainly wants Opera to become the golden standard for the global hedge fund industry.

Opera: A date with destiny

“I think it’s not only possible, I am bold enough to think it’s probable: the Open Protocol has a potential to be a unifying language of risk across all forms of regulatory reporting. That would be a huge win-win-win,” says Ruddick. The three winners here are the investors, the fund managers and the regulators – all standing to benefit from a system for streamlining risk information: “You need a word beyond irony if you’re looking for systemic risk, but you don’t ask questions in a systematic way. Regulators have absolutely awoken to this need.”

APRA, the Australian pensions regulator, explicitly references Opera in its proposed regulation. “That was a real breakthrough for us,” says Ruddick, explaining how even though the Open Protocol has no commercial agenda, it’s still unusual for regulators to reference something with roots in the private sector. “But the regulators have a date with destiny. They’re under huge pressure to show they have cracked the challenge of market risk reporting.”

The Opera refuseniks are few and far between among hedge fund managers, with the main split occurring between those eager to adopt Opera, and what Ruddick calls the ‘slow yes’ group. “There’s a marked difference between the enthusiasts and the ‘slow yes’ group,” says Ruddick, who was fascinated to try and find the defining factor whether a company would embrace risk reporting or not. “Was it a question of how big they were? How long ago they were set up? How much in assets? Geographical location? Strategy? But none of those were simple explanatory factors of whether they were early or reluctant adopters. We realised the bifurcation is its own definition: old school and new school.”

New school funds were not only more enthusiastic about Opera, Ruddick found, but they were also lighter in protocol and more likely to produce administrator transparency reports. The punchline: “And they’re more likely to have institutional money!” So if Ruddick’s assessment is correct, the willingness to accept risk protocols could actually be an indicator for how likely a hedge fund will be to attract money from institutional investors. “I think it’s quite a schism, and what’s at stake is secure capital from institutional investors. … What I hope the ‘slow yes’ group will bear in mind is that the institutions will always know who was an enthusiastic adopter, and who was not.”

In the Village: A life of constancy

One place where these sorts of whispers may be shared is the Albourne Village; not the real one in Sussex, but Albourne Partners’ online hedge fund community which now boasts over 80,000 active residents. Asked why the Village is so popular, Ruddick laughs: “It’s free!” It’s interesting to note how the Village’s 2001 launch means it pre-dates the social networks, which have certainly found ways to commercialise spaces where people get together to discuss the things they have in common.

“The reason we launched the Village in first place was that we wanted to collect information that was in the public domain. If we became a portal, people would bring information to us, says Ruddick. “But we haven’t invested hugely in the commercial aspect of it … maybe in the future.” But in that case, any profits from the Village would go to charity: “We will never monetise it for our own gain, because we are very straight: we will make money in just one way, which is providing research advice to investors on alternatives.”

As the topic moves to the strategy of Albourne Partners, Ruddick’s chattiness is replaced by a clear, determined voice. Virtual village pubs aside, Albourne provides advice to over 270 hedge funds, private equity and real asset clients, whose combined investments top $350 billion. And proving that transparency isn’t just for for their clients, the cost of Albourne’s service is actually right there on the website, displayed for anyone to see. “We’re very passionate about this: transparency in all things. We also get a little excited about the simplicity of our model in that it’s a fixed price in dollars, not basis points or percentage of performance.” This is where it goes above and beyond, because Albourne has actually never increased its prices. Not even by inflation? “No! In fact, the amount we deliver against the price is constantly increasing, because as the firm grows we hire more analysts who write more research, and the clients get the benefit from our increased scale.”

His colleagues tease him about this, says Ruddick, but he can’t help it: “I’m a huge fan of what we call constancy as opposed to consistency. Consistency is when two things are different but you try to make them similar. Constancy is when you actually try and keep things the same.” The pricing is one example of this, and a low churn of people is another: “We hope this is a comfort to clients and prospects, that they know us as people and they know our price. The best of all is worlds is when they like our service and want to make it part of their long term plans.”

Make Money Not War

As Albourne Partners celebrates its 20th year, Ruddick has maintained the village roots as an inspiration for more than just the decoration: “We’re a bit of hippie commune!” He says this jokingly after telling me about Hedge Stock, a company event a few years back where The Who provided the entertainment. The motto was ‘Make Money Not War’. On a more serious note, Ruddick nods to the company’s “village creed” not just in terms of the transparent pricing, but also the clear rules on how profit is distributed: 50% goes to base cost, 25% to bonuses, 25% to the firm.

The company also equity available to partners every year, and makes a point of avoiding outside stakeholders or debt. Holding around 40%, Ruddick remains the largest shareholder: “I feel intensely wedded to what I describe as the fierce independence of Albourne. I’d much rather my equity pass on to my colleagues; I absolutely prefer to earn less and keep the company fully independent, because I think that in the long term, and in the super-long term, that’s the better business proposition.” The rapid fire speech has gone completely now, as Ruddick stresses that there will be no outside partners: “We feel comfortable, possibly to the point of smugness, with our independence.”

Ruddick’s love for his company is clear to see. He explains at length and in detail how he has gone to great trouble to establish Albourne as a well-oiled machine, one that’s a good place to work while also providing great service to clients. But then there’s that self-confessed “obsession” with industry initiatives again: “I can’t describe completely why it matters so much to me, I just know it does!” He laughs. “I’d love to feel I can do something useful, but when you’ve done Politics, Philosophy and Economics you can’t save a life. Any good I can do can only be indirectly, so if I can make the industry a better place, that’s my personal motivation.”

Does that mean he may one day go and join the regulatory machine? Ruddick answers carefully: “I feel hugely confident that if I step away from Albourne, I know Albourne won’t miss a beat. That’s by design.” But is that the plan? “I’d be really surprised if any regulator wanted someone as opinionated as me!” He laughs. And then: “We’re lucky to have a business model that brings us to contact with a wide range of investors and funds. … There’s a lot of things we can’t do, but the things we can do is try and nudge along various industry initiatives.”

He pauses. “I’m never quite sure, and my wife says the same, whether I work for Albourne or I support Albourne the same way you support a soccer team. … Even if I was less active day to day, I couldn’t detach myself from that emotional investment.” The way he says this makes me think he’s not trying to avoid the question – maybe he genuinely doesn’t know if he can bear to leave Albourne. “I absolutely love it here. I can’t think why would I ever retire when I am having this much fun.”

Not that Ruddick (53) doesn’t have a life outside of work, far from it. Ballroom latin dancing is where it’s at, as Ruddick and his wife both dance socially and take weekly lessons. And sometimes they will put on headphones and dance in railway stations and shopping centres, to the dread of their three children. “We’re mad keen on dancing. And some of the most fun in life is embarrassing your children!” Ruddick laughs. He tells the story of how his wife always loved dancing and he was terrified of it, but ended up learning for her sake and now he may be the one who’s more hooked. Ballroom is the main addiction but the couple also dabbles in salsa, tango and cha-cha, and recently there’s even been a few lessons in Angolan Kizomba. “Later in life you lose your fear of looking ridiculous. Now I don’t have enough fear of looking ridiculous!”

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A real alternative

In Shares Magazine, November 2013. Original article.

Screen Shot 2014-03-01 at 16.03.08A real alternative
Wine, stamps, gold bars and other real assets have historically kept their value well amidst economic turbulence and inflation. And they have never been easier for private investors to trade.

At first glance, it seems a Picasso would have been a better investment than the FTSE100 over the past decade. Art as an asset class grew by 183%, compared to a 55% rise in the market in the ten years to July 2013, according to the Knight Frank Luxury Investment Index. In fact, most so-called real assets such as wine, stamps, vintage cars, jewellery and physical gold, all beat the market in this period, providing a decent hedge against economic instability and inflation.

Once the purview of specialists only, alternative assets are becoming increasingly accessible to retail investors. Custom trading platforms are making the process more transparent and streamlined: GoldMadeSimple and BullionVault are online investment services where investors can buy and sell gold bars that never moves from a secure storage location as ownership changes. Liv-Ex and Wine Owners provide similar services for fine wine, while Stanley Gibbons enables investors to build and trade portfolios of stamps.

The passion investment
But just because stamps as an asset class grew by 255% in the past decade, that does not guarantee all stamp collectors saw a positive return. Real assets are high risk, with the lack of regulation, poor liquidity and high commissions. And then there’s the specialist knowledge: knowing the difference between a Bordeaux and a Shiraz is no longer just about complementing dinner, but knowing which will be the moneymaker in the cellar.

“It is not as simple as the FTSE100, where anyone can buy in and pay a moderate fee. Wine, stamps, and collectibles are investments of passion, so if you are not going to enjoy them, do not buy them,” says Andrew Shirley, head of rural research at Knight Frank, the property consultancy. Shirley compiles the Luxury Investment Index for the annual Wealth Report.

Motivations tend to be mixed, however: while coins and stamps come with the pleasure of ownership, they are also an investment. “There has been a lot of interest in some of these assets in recent years from emerging markets, in countries which have seen a lot of wealth creation. Asian investors have been spending a lot of money in the art world, and especially Hong Kong and Chinese investors have been buying a lot of expensive wine. It has all had an effect on pricing,” says Shirley.

A liquid trade
Most wine investors will at least start from a point of view of personal interest, says Nick Martin, founder and executive director of Wine Owners, the portfolio management and trading exchange. “The wine market is a steady, relatively old fashioned, market. It is full of people whose motivations are mixed between interest and investment. Perhaps three-quarters of them have a pure investment outlook.”

Established in 2011, Wine Owners aims to make it easier for private investors to trade wine by providing price charts and research, as well as the ability to trade online while the wine is safely stored in specialist warehouses. “This is something that has not really existed for private investors before,” says Martin, explaining how wine trading has traditionally been reserved for wealthy investors. Maybe they got around to looking at their portfolio once or twice a year, by making some calls to contacts to see which vintages were worth selling and keeping. “But now we have more information available, meaning it is not a major event to review the portfolio. This is bringing new liquidity to the market.”

The Wine Passport is Wine Owners’ push to improve transparency in this market, by attaching complete records of source, movement, inspections and other details relevant to each bottle. This is reassuring for an asset where one dodgy transport could see the product ruined by being left in the sun too long. “Top wines have a pretty long shelf life, and will keep from 20 to 70-plus years. But they are a living product and will hit a plateau of maturity,” says Martin. HRMC classifies wine as wasting chattel, meaning private investors are exempt from capital gains tax.

The value of wine as an asset rose by 182% over the past decade, according to Knight Frank, however Martin stresses that wine is a volatile asset: “It is a market prone to small but fairly significant bubbles.” Often performance is tied to economic events: the wine market dipped in 1997 after the Asian crisis, and again around 2000 during the dot-com bubble. Most recently, prices spiked due to demand from Asia: “A handful of top Bordeaux wines went from around £1800 a case to £15,000 in about 2.5 years. That came down again in 2011. Clearly that was a bubble, caused by a new and relatively immature market opening up.”

Rarity is king
Having gained 430% in value over the past decade, vintage cars owners were the winners in Knight Frank’s index. But more obscure assets can also be surprisingly profitable: for instance, the 40 most sought-after autographs have gained an average of 13.6% per year since 2000, according to the PFC40 Autograph Index from Paul Fraser Collectibles, the specialist trader of investment-grade collectibles including stamps, wine and coins.

“The traditional staples of stamps, coins, autographs, classic cars and art are always popular,” says Daniel Wade, news service editor at Paul Fraser Collectibles. “But it is important to remember it is only the rarest, most desirable collectible items that have true investment potential. These are the pieces that collectors fight over, pushing prices higher. It is far better to buy one stamp worth £10,000, than ten worth £1,000.”

With that in mind, Wade believes the market need not necessarily be all that risky. “If you are trying to get ahead of market trends, say by buying an emerging artist, then there is large risk attached. Yet the prices of many collectibles sectors are underpinned by a large and knowledgeable collector base. There are 50 million stamp collectors worldwide, preventing major fluctuations in price.”

Wade warns potential investors to watch out for fakes, and not to be impressed simply by certificates of authenticity. “Buy from a dealer who offers a lifetime money-back guarantee of authenticity. This will give the assurance that what you are buying is the genuine article.” And do not be afraid to ask lots of questions, concludes Wade; after all, wine buffs and stamp geeks love to talk about their favourite investments.

Golden attractions
As the world’s largest investment service for physical gold, BullionVault now services 50,000 people globally who own more than 32 tonnes of metal between them. Trading takes place 24 hours a day. “We plug you into the wholesale market. That means whole bars, so think ‘The Italian Job’, think ‘Goldfinger’,” says Adrian Ash, head of research at BullionVault.

Investors will unfortunately not be handling their bars like a Bond villain, as their metal is kept in specialist vaults in Zurich, London, New York, Toronto or Singapore. “The choice of location is important. If the economic situation deteriorates, or a government tries to bring down the shutters on capital flow, this is one way of keeping some of your wealth outside of that,” says Ash.

While the appeal of the yellow metal as a hedge against turmoil and inflation is well-documented, companies like BullionVault have made it much easier for private investors to tap into these benefits directly. “Gold is an incredibly deep, liquid market in a way that fine wine is not. Gold is gold, it is a chemical element that does not even rust. It requires very little care,” says Ash.

Investors who joined the party earlier this year, encouraged by a decade of price increases, will know there are price risks to this steady asset. However Ash believes physical gold is becoming increasingly natural for many investors to have as part of their portfolio: “People tend to buy gold for insurance.”

Traditionally, those hoarding gold bars may have been of the more anxious persuasion, with gold funds being the mainstream choice. “But we may be wrong to assume we are smarter and cleverer than our predecessors, or that the world is a safer and easier place where people do not need to resort to metal,” says Ash, pointing to the events of the past few years. “They call gold ‘the barbarous relic’ and that still applies, because the world can be a barbarous place. We have not refined our systems to perfection. People will turn to what is a very simple, very transparent investment.”