Investors should target fund managers overseeing products before they reach EUR 1 billion, argues Tancredi Cordero, founder of investment advisory and management company, Kuros Associates.
Speaking to Fundeye Mr Cordero outlines that when it comes to portfolio management, big isn’t always better.
Instead, he categorises funds into three phases – the start-up phase, the growth phase and the maturity phase, and suggests that promising strategies operating within the growth phase is what investors should focus on.
In his view, the start-up phase of a fund, which he typically defines as between zero and EUR 100 million is rife with complications due to the limited size of the strategy. Meanwhile, the maturity phase, reflecting funds worth over EUR 1 billion, can lead to fund managers running a business rather than a fund. It discourages innovation, and results in fund managers prioritising management fees for income, which Mr Cordero summarises as “Don't screw up, just, tick along.”
By contrast, he believes that considered the growth phase be the “sweet spot” and a crucial selection stage, where fund managers were really engaged with the product.
He explains: “A lot of these managers are really incentivized to perform, because effectively that's the best way for them to attract money and to make money for themselves as well grow organically or grow by raising capital."
While he is certain the growth stage is a crucial investment juncture, he is flexible to suggestion that some strategies can be appealing at larger sizes provided they maintain strong liquidity.
Mr Cordero says: “We have advised clients against allocating funds that exceed EUR 1 billion, but there are some strategies that can get comfortably to five to eight billion in assets. Obviously these must be very liquid, quite diversified and investing in, if it’s an equity fund, mega cap or large cap stocks where you have a lot of liquidity.”.
In order to unearth promising products, the founder emphasises the importance of research as the majority of opportunities at this scale were not easily viewable on five-star fund lists. Instead, he encourages networking, and has personally sought to make the most of specialised allocators in the wealth management space.
He adds: "They’re not on the main Morningstar portals or if they're there they don't have the five stars. So, it’s like finding diamonds in the rough.”
In keeping with Mr Cordero’s encouragement towards growth, Kuros Associates appears to also be in the key middle stage of development. Currently, the firm oversees approximately EUR 100 million in assets, right in the ballpark for the growth stage he advocates.
This is a fast transition for a firm initially founded by Mr Cordero in 2017.
Kuros Associates prioritises off-the beaten-path investments, whether in fund form or private deals, and serves a client base of professional investors within the wealth management space. A majority of its clients are family offices, private banks, and other asset managers.
Since beginning operations, it has additionally opened a wealth advisory practice, an outsourced CIO that serves single family offices that don't have the scale yet to hire talent in-house, but have a sizable pool of liquid wealth. This has made boutique firms such as his own more appealing than large scale investment managers.
Summarising this approach, Mr Cordero says: “They might not like to work with big shops and so we come on board and and help them with navigating the investment management space and allocating their cash.”
Alongside its boutique outlook and fast growth, the 30-year-old Mr Cordero notes that the firm is chiefly run by young people, which provides a distinct perspective. He describes it as a young firm with a young outlook.
Elaborating this perspective, he outlines that Kuros Associates is dialled into the new economy. He believes it has a greater understanding of new trends that are driving the economy, such as digitalisation and ESG than older more experienced firms, which has been key to its success.
He concludes: “These are the main reasons why I think we have managed to grow in the past two to three years from a one man band operation, which it really was when I started, to where we are now.”