An investment team sharing the same investment philosophy based on the measurement of EVA and above all, sharing the same responsibilities at the same level. This method is sustainable along time.
Régis Bégué is the Head of the equities research and investment management department at Lazard Frères Gestion. As analyst, he is in charge of healthcare, media, raw materials and utilities sectors. He joined Lazard Frères Gestion in 2005. Prior to that, he worked as specialist on European equities and as head of sales of European equities for British clients at Oddo Securities between 1995 and 2005. He started his career at Nomura Bank (France) as sales of Japanese equities and structured products.
He graduated from HEC Paris and holds a mathematics degree from University of Paris VII.
1. How much AUM does Lazard Frerès Gestion manage?
AUM as of end of 2015: 17bn€, out of which equities represent 10bn€.
2. How does your investment approach compare to the other mutual funds?
Everybody within the team shares the same investment philosophy, based on the measurement of Economic Value Added, on which we rely to build our investment cases. We focus on that more than on any other topic, such as EPS or topline growth, or even evolution of margins. Another characteristic of our organization is that all the analysts and the fund managers share exactly the same responsibilities at the same level. Thus, our performances are the result of a full team work and the method is sustainable along time.
Each of the fund managers has to focus on one investment strategy on the one hand (core, agnostic, small caps, dividends, etc.) and on one or several sectors as an analyst on the other hand.
3. What assets do you have in European Equities? (% and bn)
We have roughly 10bn in equities at LFG, among of which 8,5bn are in European Equities: 2bn are directly owned by private accounts and 6bn in funds.
4. Which are the most favorite European Countries for your Investments?
We do not chose our investments on the criteria of their country base, but rather on the level of profitability we can expect in a foreseeable future. Even though, we have developed in Europe a particular expertise on Scandinavia where we manage 1,1bn in our fund called Norden.
5. Which investment style: value, growth, GARP, and so on, fit better to LFG? Which is your investment approach?
We do not classify ourselves as typical investors specialised in value, garp, growth etc. We define ourselves as “opportunistic” investors, trying to find the highest upsides with the lowest risk, whatever the profile of the company. We do focus very much on valuation but would not think to buy a stock just because it is cheap. We need to be able to write a “story” on the company.
6. Which screens do you use? How do you know if a company fits with your investment style?
We do not use quantitative screenings. We build our own models on the basis of deep financial analysis and meeting with companies. Then we build portfolios trying to diversify enough sectors, risks and company profiles.
7. Which are the key factors that LFG target (management, corporate culture, governance, markets, profitability, ESG, say on pay and so on)?
Key factors that we look at are: 1 Profitability and evolution of profitability (namely through EVA calculation) 2 Corporate governance and financial transparency 3 Valuation. Profitability is important and sometimes neglected by value investors. But valuation is also important and often neglected by growth investors. We try to reconcile the two approaches and pursue the goal to be able to perform in any kind of markets. Not an easy challenge of course and we happen to fail. But at least we try and never complain about the market itself!
8. Do you have a target price when you buy a stock, such as 10 or 20% upside, for example?
Again, our investment process rely on measurement of EVA and valuation. Thus, we do define a target price based on these metrics before investing. Along the life of the portfolios, these target prices can be readjusted on the base of new conditions and assumptions. But whatever the quality of a company is, we will never invest if we think that for any reason it is overvalued.
9. What is your average market cap? And what about your cut-off?
We run different funds, from the very small to the very large. What we are very attached to is to avoid to make performance in the Large caps with choices that belong to the Small caps area and the opposite! We are very sensible to the fact that our clients know what they have with us. Then, there can be no real disappointments.
10. Typically, what size position do you take in your portfolios?
Generally speaking, our portfolios are rather concentrated with 40 to 60 names, depending on the strategy. The size of an individual position ranges from 1% to 5%, with an average at 2,5%.
11. Does a Company have to be profitable, when your Fund invests in this Company?
We do not invest, in any of our strategies, in “capital risk” types of companies, i.e. in companies that, although listed, are at the beginning of their life and do not generate sales, or very benign. But we can invest in turnaround stories as long as we can identify triggers that will allow profitability to recover significantly.
12. Do you use to meet management before buying a stock?
We systematically meet managements before investing. It is a very important part of our process. That allows us to raise strategic questions and obtain concrete answers. That also highlights the general financial transparency.
13. Where do you prefer/like to meet management?
Wherever we can find them!! But ideally in our offices with our computers and models next to us, when it is possible.
14. Are your Funds long-term investors, what is your average holding period?
Our turnovers go from 25% to 100%, depending on the strategies. That means that we hold stocks for one to four years, on average. Once again, what matters is price, not time.
15. Are you an active investor? And does your investment policy consider to have a seat in the BoD of the Companies?
No, we are not active investors, because we always want to stay free to sell. We offer liquidity to our clients. Seating at a board is incompatible with that goal. However, we do vote at AGMs as often as we can. But we are not the kind of investors who push for more leverage, more dividends, spin-offs or whatsoever. We don’t want to push management to increase risk in order to reinforce the short term return at the detriment of the ability to reinvest cashflows in a profitable business. And if a management makes decisions that we perceive as being wrong, or dilutive, or against the interest of the shareholders, we just sell. But that is not so often, precisely
16. Are there any sectors or themes you would not invest in?
There is no sector in which we would decide ex-ante to never invest. But it is true that generally speaking, we like sustainability of returns. In that way, we tend in general to avoid investment that rely on subsidies, which are always subjects to changes of the mind of politics. We are not very fond of so-called renewable energies for example, as long as the business-models are not profitable on their own, without local subsidies.
17. Typically how many European companies do you meet in a year?
All together: close to a thousand! That is a big number when you take care of preparing the meetings.
18. What is your average holding period?
We generally hold stocks for one to four years, on average.
19. Why should a Company target funds such as LFG?
LFG has only one promise: say and explain what we do, and do what have said and explained. That does not look ambitious? In fact, that is already very much.