EUROHEDGE MEETS… PHILIPPE JABRE by WILL WAINEWRIGHT Capital Opportunities,” Says Jabre

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EUROHEDGE MEETS… PHILIPPE JABRE BY WILL WAINEWRIGHT capital opportunities,” says Jabre. “We are taking a long-term view, looking The founder of Jabre Capital Partners reveals a new bet on forward to bringing a seasoned ap- blockchain and gives his thoughts on the industry return of proach to investing in this relatively new field.” former recruit Greg Coffey Jabre is far from the only hedge fund veteran eyeing the impact of the new am midway through my alert for the next big trade, the Fran- technology. Brevan Howard co-found- interview with Philippe co-Lebanese manager has set his gaze er Alan Howard has made personal I Jabre when one of his in- firmly on blockchain technology and investments in cryptocurrencies and vestment staff knocks ur- its potential to disrupt established in- related businesses, while Adam Fish- gently on the door. An investment has dustries. er, a macro manager at Soros Fund hit the target share price set by Jabre “Blockchain is quite revolutionary,” Management, has internal approval to and the employee asks for advice. Ja- he says. “The market cap of all these make cryptocurrency trades, according bre – or “PJ” as he is known in the office tokens three years ago was around to Bloomberg. – flicks from interview to trading mode $5bn. It reached a high of $800bn ear- US manager Morgan Creek Capital in an instant and gives instructions. lier this year, which was extraordinary. Management bought Full Tilt, a North The moment is a brief insight into That said, I don’t think the value of the Carolina-based firm seeding crypto- Jabre’s passion for markets, which tokens is important – more the tech- currency businesses, earlier this year. remains undimmed after more than nology behind it.” “The disruptive power of the applica- three decades at the frontline. He tion of blockchain technology across was rarely out of the headlines in the all asset classes will create enormous pre-crisis years, making his name by Blockchain is quite investment opportunities,” Mark posting exceptional returns for GLG revolutionary. The market cap of Yusko, Morgan Creek’s founder and Partners before leaving London in the chief investment officer, said when -an wake of a market abuse fine to start all these tokens three years ago nouncing the deal. Jabre Capital Partners in Geneva. was around $5bn. It reached a Altana Wealth’s Lee Robinson, who The Swiss canton has been his trad- managed billions with Trafalgar Asset ing base since 2007. Jabre’s subse- high of $800bn earlier this year, Managers in the hedge fund industry’s quent career has made fewer headlines which was extraordinary. That pre-crisis heyday, putting him on a par but, in an industry where lifespans with Jabre, shares his enthusiasm. can be short, the longevity of his ca- said, I don’t think the value of the “Blockchain is the second or third reer stands out. “At his core, he loves tokens is important – more the most impressive disruptive creation markets and over time has become a of the last 40 years,” he says, behind trusted hand in the industry,” says Jim technology behind it only the microprocessor and possibly Neumann, partner at consulting firm PHILIPPE JABRE the internet. “Dotcom companies were Sussex Partners, who knew Jabre from worth close to $10trn in 2000 in pres- his GLG days when he worked on man- ent money terms, and more today, yet ager selection for Ramius Capital. Jabre believes the companies which crypto ventures barely add up to a few “When I look back over the past 11 successfully use blockchain to over- billion dollars. years, there have been extraordinary take competitors will have an impact “Clearly there is materially more events in the market and our firm has similar in scale to the internet. “You upside than downside of the order of been able do well,” says Jabre. “Most had an enormous number of com- 1000:1,” adds the Monaco-based man- of our funds are at their high-water panies trying to use the internet to ager. “All investors should be looking mark.” Firm-wide assets stand at disrupt established working practices, at a small allocation given the attrac- $1.5bn, mostly in three main strate- 95% of which did not survive,” he says. tive risk reward ratio.” gies: Global Balanced, which makes big “But the 5% of survivors are Amazon, Investor views are mixed. One fund stock and macro calls; Global Convert- Google, Facebook etc. The same thing of hedge funds investor – not invested ible, which uses bonds to make similar will happen with blockchain. If you can with Jabre – expressed scepticism that PHILIPPE plays, resulting in a more restrained invest at the start in the future survi- returns profile; and Multi Strategy. vors, the gains could be huge.” FIRM FACTS Smaller offerings in long/short cred- That is the rationale behind a unit JABRE CAPITAL PARTNERS it and emerging markets make up the Jabre is developing to give investors Founded in 2006 rest – for now. “Asset management is exposure to these potential gains. “We Offices in Geneva, London and Dubai JABRE a disciplined science but you have to are looking to expand our investment 36 employees adapt to the particular moment you strategy in this area with a first offer- $1.2bn under management find yourself,” he says. Ever on the ing focusing on early stage venture

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JABRE’S OFFICE BUILDING IS OPPOSITE A CLOCK TOWER ON THE PONT DE L’ILE, A HISTORIC CROSSING POINT BETWEEN NORTH AND SOUTH EUROPE PHILIPPE JABRE: LIFE AND TIMES

MAY 1960 Philippe Jabre born in Lebanon

1978 As civil war intensifies, moves to Canada to study economics degree at Concordia University in Montreal

1982 Obtains MBA from Columbia Business School in New York. Moves to France and joins BAII, a subsidiary of Banque Nationale de Paris

1983 Begins managing money for BAII

1997 Hired by GLG Partners, a unit of Lehman Brothers, as the fourth partner, joining founders Noam Gottesman, Pierre Lagrange and Jonathan Green

2000 After strong returns, GLG Partners spins out from Lehman Brothers, which retains a 20% stake such a vehicle could generate high investors are better served investing in returns, with a lot of the excitement companies trying to benefit from the 2006 around blockchain’s potential already spread of blockchain and fintech more Jabre fined by UK regulator the FSA for market abuse. Moves from London to Geneva priced into valuations. But there is broadly.” interest, with 6% of respondents to Credit Suisse’s 2018 global hedge fund Return to form 2007 survey expressing appetite for block- Last year brought an important recov- Jabre Capital Partners starts trading three separate strategies chain or cryptocurrency investments. ery for Jabre, whose flagship Global The category wasn’t even offered as an Balanced and Global Convertible funds option the previous year. both posted double-digit gains after 2008 “All blockchain-related investments an uncharacteristic three-year stretch Firm starts trading an emerging markets strategy are subject to a high degree of risk as of losses and low single-digit gains the technology is still in its early days,” between 2014 and 2016. He dates the said Aaron Costello, a managing direc- turnaround to July 2016. 2011 tor on with consulting firm Cambridge “The first six months of 2016 were Makes $300m loss buying and selling stocks at the wrong time in the wake of the Tōhoku Associates, in a report in November. quite difficult because there was a big earthquake in Japan However, he believes focusing on com- contraction in oil, in China growth, and panies using blockchain – rather than people were uncertain of growth and

2013 the digital currencies underpinned by deflation. We were long the market Jabre Capital Partners wins Management Firm the distributed ledger technology – and suffered,” he says. Then the picture of the Year at EuroHedge awards could yield benefits. changed. “The risk/return profile for cryp- “There was a sharp reversal that

2016 tocurrencies seems binary given the started in summer 2016 when the ma- Firm launches its first pure credit fund with a lack of an economic source of return, jor intervention by central banks start- team hired from RAB Capital meaning investors must be able to tol- ed to have its effect. Japan and China erate massive volatility and potential took very heavy measures to spend

2017 for permanent loss. Instead, we think more on their economies, through Return to form in main strategies with 27.5% gain in Global Balanced We think investors are better served investing in companies trying to benefit from the spread of 2018 Begins building blockchain investing unit blockchain and fintech more broadly

PHILIPPE JABRE Sources: Companies House, Financial Times, Wall Street Journal, Association Philippe Jabre, Pageant Media and Jabre Capital Partners JABRE’S OFFICE BUILDING IS OPPOSITE A CLOCK TOWER ON THE PONT DE L’ILE, A HISTORIC CROSSING POINT BETWEEN NORTH AND SOUTH EUROPE KEY DATA will be positive. “The rate of growth of the S&P 500 had been quite steady until this year,” he says. “The slope changed in January – equities began 69.6% to race upwards, due to money being THE GLOBAL CONVERTIBLE FUND’S thrown at the market after the US tax RECORD GAIN IN 2009 reforms late last year. This volatility correction triggered a market correction, which was violent but healthy.” He accepts the widespread view % that structural funds betting on low 47.8 THE GLOBAL BALANCED FUND’S volatility as a strategy had reinforced RECORD GAIN IN 2013 the low vol levels. “Those investors (NARROWLY AHEAD OF ITS 45% have suffered and that strategy will be ADVANCE IN 2009) less of a factor going forward,” he says. “Instead we will have a better market based on strong earnings data.” The current market reminds him of the mid-nineties. “Between 1995 and 27.3% 1998, we had a period where bank bal- THE GLOBAL BALANCED FUND’S ance sheets were similar to now and RECORD LOSS IN 2011 (ITS THIRD LOSS IN 11 CALENDAR we had low inflation and tax reforms in YEARS OF TRADING) the US,” he says. In that sense, the market rout helped. “The decline was so fiscal and monetary policies. The EU violent but there were no fundamental went on a new bond-buying spree and reasons – just technical – so people like the US was still quite active. The two us, on the long side, stayed invested. £750K US presidential candidates both said We knew stocks would recover as the PHILIPPE JABRE’S FINE FOR MARKET America needed to spend more money. fundamentals had not changed so we ABUSE LEVIED BY THE BRITISH It was a turning point.” held our breath.” FINANCIAL SERVICES AUTHORITY Jabre pounced to reinforce the Inflation is a possible risk on the IN 2006 longs that had previously cost him. The horizon. “High inflation would cause shock US presidential result helped. a problem in the market if it scares He carved out a non-equity niche “When Donald Trump became pres- central banks into taking action which ident we moved our exposure into could induce a recession,” he says, for himself at GLG. I see him as a more growth-oriented calls, hoping but does not believe it is an imminent value guy – he goes where there his measures would pass. He was talk- threat. ing about developing infrastructure, has been disruption or an inflec- cutting tax and spending more, and Beirut roots tion point exists in the markets we identified growth and interest rates Born in the Lebanese capital at the be- could increase.” ginning of the 1960s, Jabre’s life away JIM NEUMANN A 27.5% gain for Global Balanced from trading has been no less event- and 12.7% gain for Global Convertible ful. In 1978, with his homeland in the credit strategy and emerging markets. followed last year, which Jabre thinks throes of civil war, he moved to Can- (Equities were split between Gottes- would have been higher without an ada to study economics at Concordia man in the US and Lagrange in Europe). incorrect call on the US dollar. “We University in Montreal, before earning It proved a highly effective quartet thought the dollar could be stronger, an MBA at Columbia Business School as high returns rolled in and the unit, which hasn’t played out,” he says. “It in New York. He learned his trade in which span out from Lehman in 2000, might now. It would be good for fi- convertible bonds, then an obscure proved an example of the developing nancials and cyclicals if it did.” Jabre area, at Banque Nationale de Paris in hedge fund industry’s huge mon- attributes the bulk of last year’s gains London. ey-making potential. “He carved out a to Europe and Asia, “the main benefi- Jabre joined GLG Partners in 1997, non-equity niche for himself at GLG,” ciaries of central bank moves”. two years after it was formed by Noam says Neumann. “I see him as a value February’s market rout and volatility Gottesman, Pierre Lagrange and Jona- guy – he goes where there has been spike was “quite extraordinary” even to than Green as a unit of Lehman Broth- disruption or an inflection point exists Jabre, who has traded through several ers. He was the fourth partner, given in the markets.” market cycles – but he thinks its legacy responsibility for convertible bonds, Jabre’s fortunes changed when, in

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PERFORMANCE: JABCAP GLOBAL BALANCED FUND Jabre started trading Global Bal- 200% anced, Global Convertible and Multi Jabcap Global Balanced Fund Class D1 Strategy with his new firm in Geneva EuroHedge Global Equity USD Index in 2007. His decision to pile into eq- 150% uities in the wake of the 2008 crash led to huge gains the following year: Global Convertible rose a record 100% 69.6% while Global Balanced was up 45%. “I just realised the world was not going to end,” he told the New York Times midway through 2009, after 50% reversing his portfolio split of 80% bonds and 20% equities. “His Global Balanced fund is not for 0% the faint of heart – he runs higher net and gross exposures,” says Neumann. A well-publicised $300m loss in the -50% wake of the 2011 Japan earthquake, Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 when Jabre made a series of bad- ly-timed trades, shows his approach PERFORMANCE: JABCAP MULTI STRATEGY FUND carries risks. 100% The potential volatility of returns Jabcap Multi Strategy Fund - Class D1 was demonstrated again in March as EuroHedge Mixed Arbitrage & Multi-Strategy USD Index 80% Global Balanced slipped 13.8%, send- ing returns for the first quarter into the red by 11.5%. The monthly fall was far 60% in excess of the 3.8% decline incurred during February’s volatility spike and

40% market rout, an unpredictability of return potentially off-putting to some

20% investors. “However, on the whole it has deliv- ered over several investment cycles,” 0% adds Neumann. Firm-wide assets now stand at a fifth of their $6bn peak, but

-20% returns have been strong aside from a below-par three-year period before last year. -40% Jabre hopes that last year’s return Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 to form could draw new interest. “In general investors were very concerned 2006, he was fined £750,000 by British thority for what it described as a “very about equities and 2017 was the regulator the Financial Services Au- serious” market abuse breach. “The first year for a while they performed regulatory thing in London was an strongly and continue to do so, with The landscape has totally unfortunate case where I should have better growth and earnings outlook,” been more cautious,” says Jabre, look- he says. “We are meeting a lot of inves- changed. A lot of my competitors ing back. “The rules were not as clearly tors who don’t have enough in equities have retired, the industry has defined and understood by everybody and want to be more invested. Certain- as they are now.” ly, better returns bring more interest.” shrunk. Yes, alternative assets are Neumann sees the case as a key mo- The asset allocation market has higher than ever, but a lot of new ment not just for Jabre, but the wider changed considerably. “There used industry. “It was a wake-up call for a to be a lot of FoHFs in Europe, most money has come into systematic lot of managers and compliance staff of which don’t exist now. A lot of in- funds. In active management in Europe,” he says. “He happened to surance money too which no longer be the poster boy for it at the time exists,” he says. “The landscape has to- there has been a sharp reduction and was able to fortify controls and tally changed. A lot of my competitors

PHILIPPE JABRE move on.” have retired, the industry has shrunk. PERFORMANCE: JABCAP GLOBAL CONVERTIBLE FUND Yes, alternative assets are higher 150% than ever, but a lot of new money has Jabcap Global Convertible Fund Class D1 come into systematic funds. In active EuroHedge Convertible & Equity Arbitrage USD Index management there has been a sharp 120% reduction.” Smaller, more recent offerings com- plement the trio of funds Jabre Capital 90% Partners has managed since inception, including a long/short credit fund managed by a team in London. “It is an 60% interesting area where there is always demand, especially with low infla- 30% tion and a very stable political back- ground,” says Jabre.

The firm also has a Middle-East pres- 0% ence. “We have established an office in Dubai which will be an important resource for Carl Tohme’s [emerging -30% markets-focused] team,” says Jabre. Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 “They have done extremely well during a very difficult period and now Jabre finds Geneva convenient in terms things are improving in these regions, of the day-to-day work of a hedge fund Everyone is interested to see how the next few years could be very good manager. “Colleagues go to conferenc- Greg Coffey gets on. Raising for them.” es in bigger capitals, New York, Tokyo, Paris, Hong Kong, London etc,” he assets is hard and the market has GLG to Geneva says. “But a lot of European and Asian changed so it will not be easy, but It is more than a decade since Jabre left companies come to see us here, access GLG, and 21 years since he joined the is good because there are enough big it should be interesting company. “I am probably the only one investors to make the trip worthwhile PHILIPPE JABRE still involved in the hedge fund busi- but not too many to restrict access.” ness every day,” he reflects. Gottesman Switzerland lies outside the Euro- the US is going to outperform against and Green are no longer in the indus- pean Union, as Britain soon will, but Europe? Maybe he is long emerging try, while Pierre Lagrange stepped Jabre is supportive of the eurozone markets and short Europe? I think it is a back from day-to-day oversight to take economy. He finds the current eco- stock-specific trade rather than a mac- on an advisory role at GLG, now a unit nomic situation in Europe, with the ro trade. We view Europe favourably.” of Man Group, in 2016. eurozone outpacing British growth, I am keeping Jabre from his col- Greg Coffey, another GLG connec- ironic in light of the last few years. leagues and trading screens. “It is a tion who Jabre originally recruited “When Europe had its problems fascinating industry,” he concludes, to the firm, has been in the headlines with Greece, during the 2011 debt adding that he is as passionate as as he prepares his comeback to the crisis, the press in England was always ever. After more than three decades hedge fund industry. “I wish him the very negative, there was no concil- in hedge funds, and with a big bet on best,” he says. “Everyone is interested iatory tone,” he says. “The talk was blockchain building, Jabre is exactly to see how he gets on. Raising assets always about Europe collapsing. Brex- where he wants to be. is hard and the market has changed it in 2016 was a culmination of the so it will not be easy, but it should be previous five years – many voters had THE TECH REVOLUTION interesting.” read the press and thought it would Jabre’s assertion that today’s market outlook feels like the 1990s is underpinned by how he assesses US equities – with the main internet Geneva has proved a comfortable be better to split from Europe and its technology names stripped out. “S&P 500 Index names are currently av- base for Jabre for this latest chapter of problems. But now the eurozone is eraging at about 17-times price-to-earnings,” he explains, but tech stocks his career. “We like it here very much growing well, employment statistics are trading on far higher PE ratios. “Because of their strong gross profit, and there are no plans to return to have improved, the political situation the tech names have contributed about 50% of the growth of the S&P London,” he says. “Being based in Swit- has stabilised. The eurozone economy 500, even though they only represent 30%... So when people say the S&P 500 is expensive, it is fact the tech stocks that are expensive. Aside from zerland has brought a lot of stability is doing well.” tech the market looks like the 1990s.” His firm still holds tech companies. in terms of being a bit away from the That verdict means he is confused “Our analyst on tech names keeps showing us how Amazon and peers mainstream noise and allowing us to do by Ray Dalio’s much-publicised bet have revenues and profit margins 10 times higher than 10 years ago,” he our work in a very disciplined manner.” against European stocks earlier this says. “The revolution is extraordinary, which means we need to hold these Aside from the excellent skiing oppor- year. “I do not understand the long side names, whether we like them or not. For years people said Amazon was a short, but look at its recent progress. Is anyone saying that anymore?” tunities on surrounding mountainsides, of his trade,” says Jabre. “Does he think

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