EVP: Investing for the Long Run - Tom Stubbe Olsen and Mark Bole
Turbulence in the world’s financial markets is encouraging investors to go for safer, long-term strategies instead of riskier ones with short-term gains. Tom Stubbe Olsen (top) and Mark Bole, of European Value Partners, believe that focusing on the underlying earning power of the business and not irrational stock price movements is most important in generating solid returns for investors.
Investors around the world have been tempted in recent years by increasingly sophisticated investment products that maximise absolute returns but are often so complex it is not clear what investors’ exposures are. Now, however, with credit markets tight and concerns increasing over economic growth, attitudes to risk are changing.
There is certainly a growing appetite for investments that take a more balanced, long-term approach, as Luxembourg-based investment manager European Value Partners (EVP) is discovering. The people behind EVP have put together what they feel is a unique model offering consistency, transparency and long-term growth.
‘We view ourselves as asset managers, not asset gatherers,’ says founder Tom Stubbe Olsen. ‘There is an alignment of investor interest with our business philosophy. We created EVP to align the interests of our clients to that of our investment and business philosophy. This secures a sound foundation for the successful application of our investment approach.’
Olsen and fellow founder Léon Kirch formed EVP less than a year ago with the sole aim of identifying and investing in undervalued, European-listed businesses. Using a five-year investment horizon, the goal is to achieve aboveaverage returns for both high net worth individuals and institutional investors.
It prides itself on its independence, which is especially important as financial markets come under pressure, investor confidence falls and the world adjusts to the oncoming climate of the credit crunch.
‘We invest money for some large organisations, but we are not part of one. We are an independent firm and we earn the trust of our clients by giving them a clear outlook on the portfolio’s structure and performance. The market is full of products that are very opaque. We want people to know who we are and what we are investing in,’ says Mark Bole, EVP’s CEO. ‘Transparency is what we can change and that is critical at such a difficult time for the markets.’
The value investors
Transparency is a key tenet of Olsen’s investment philosophy, which he devised with Kirch during their time with Nordea.
‘I have a firm belief that if people understand what we do they will hold investments in periods when our investment style is not the focus of the market. If people know how we manage their money it raises their comfort level,’ says Olsen.
It was at Nordea that Olsen and Kirch experienced the importance of focusing on earning power to determine the value of an investment.
Having joined in 1993, Olsen’s first task was to manage an Asian fund when many companies saw earning power rapidly evaporate. This trained him to look for mismatches between earnings, profit and valuation. Subsequently, he applied this approach to the Asian fund in 1996 and then later brought it to bear on the European Value Fund which EVP continues to advise. It was during this time that the principles of the investment philosophy that underpin EVP crystallised. Olsen, along with Kirch who joined in 2002, has spent the past decade refining the execution of this philosophy while generating compounded annual returns in excess of 600 basis points above the European equity market.
A firm platform for the future
The criteria defined by EVP’s philosophy rules out some types of investment, no matter how popular some markets have become recently. For instance, a lot of speculative money has been chasing the bull run in commodities – particularly energy – but EVP does not invest in oil or any other bulk commodity market which has a negative impact on short-term performance.
‘To model the value of commodity or oil companies you must be able to forecast the price of oil, steel or copper, for instance. If we can’t have high levels of accuracy we can’t evaluate those companies properly, so we won’t invest in them,’ says Bole.
Instead, EVP focuses on business segments it understands deeply and in which it can be sure of its means of identifying hidden value. EVP is clear about its investment strategy, how it can add value and the kind of investors it wishes to attract.
'We are very focused. We do one thing, one way,' says Olsen. Although it is early days for a company that targets long-term value, the methodology has established a good track record through bull and bear markets. Its creators believe it will stand the test of time and its investors will grow accustomed to the transparency that shows where their money is invested and how the portfolio is performing.
Now, challenging financial conditions may drive investors towards methodologies like EVP's, but whether or not the bulls or the bears are in the ascendancy, value investing could offer a blend of returns and risk aversion that will be hard to ignore.