Institutional Investor's Alpha Magazine - July/August 2008 - (Page 28)

Atlantic Investment Management Hedge Fund Master and Commander edge fund manager Alexander Roepers spent 13 years crewing for friends until one day in 2003, when he asked one of them if he could take the helm. “Get your own boat,” the friend replied. Four years later, after buying a sleek, Finnish-built racing yacht called a Swan 45 and assembling a crack crew of young sailors, Roepers beat 21 other boats in the 2007 Swan 45 World Championship held last July off the coast of Southampton, England. In June 2008, Roepers completed his third Newport Bermuda Race, ﬁnishing a disappointing 74th out of 128 boats in the 635-nautical-mile event; in September he will defend his Swan 45 World Championship title off the coast of Sardinia. For Roepers yacht racing and managing a $4.2 billion hedge fund ﬁrm have a lot in common. No matter how tight the rigging or how fast the boat, a skipper can’t control nature any more than a hedge fund manager can control the stock market. “What I like about this sport,” he says, “is that there are so many lessons for life and business — the team aspect, pulling together the right people, the right skill levels, the right attitude to perform really well under all conditions.” H Roepers grew up in the Netherlands sailing and began racing competitively in 1990 on the boats of some of his Harvard Business School buddies. Swan 45s — Roepers named his Plenty after Plenty O’Toole, the Bond girl in the movie Diamonds Are Forever — are designed pionship won him kudos because, unlike with some classes of racing yachts, it’s hard to buy your way to victory sailing a Swan 45. The rules require that boats be owner-skippered and also limit the number of professional sailors on board. It’s true that Roepers had the help of a top tactician — Annapolis, Maryland–based Chris Larson — but presumably, so did the other Roepers competitors, who included Massimo Fer(second from ragamo, scion of the family-owned Italian right) and fashion company that owns part of Nautor, the crew of the Finnish boatbuilder that has been makPlenty. ing Swans since 1966. “Alex is very disciplined, very determined,” says Tom Stark, a veteran Swan 45 sailor from Connecticut who has raced against Roepers. After the Swan 45 championship in Sardinia, Roepers will focus on racing his new Farr 40, a class of sailboat that retails for $ 380,200 (sails and electronics included) and serves as a training vessel for America’s Cup sailors in off years. More than 137 Farr 40s will compete in races around the world this year. Roepers hopes to be comfortable enough for weekend cruising to be ranked in the top ten by next June. “Maybe that’s too ambitious, but we’ll ﬁ nd yet fast enough for racing. Roepers’s victory in last summer’s cham- out,” he says. — J.S. management of companies in the U.S. and around the world. Among tens of thousands of publicly traded companies, Roepers has eliminated from consideration as potential longs all but 545 in the U.S. and 730 in Europe and Asia. He considers companies with market capitalizations of less than $1 billion as too illiquid and those with more than $20 billion as too big for his ﬁrm to have any sway with management. Roepers is leery of leverage — both for Atlantic Investment and for the companies in which it invests — which makes him something of a heretic among hedge fund managers. Businesses that carry certain risks are out. Roepers avoids utilities and cable television companies because of the chance of government intervention. He shuns tobacco companies, drugmakers and home builders because they carry product liability risks. Banks, brokerage ﬁrms and insurance companies are verboten because of their lack of transparency. He also steers clear of software and other high-tech businesses, which can be victims of technological obsolescence. Atlantic Investment analysts often spend as much as half their week covering a single company. Kenichiro Yamada, who heads the Asian analyst team out of the New York ofﬁce, puts in a call to Dai Nippon Printing Co. almost every evening, as the Tokyo business day is beginning. Atlantic Investment owns 3.4 percent of Dai Nippon, a diversiﬁed printing company with $16 billion in annual revenue. 28 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008 Michael Meek, who has been at the ﬁrm since 2000 and was the ﬁrst analyst hired by Roepers, covers Joy Global, a Milwaukee, Wisconsin–based coal-mining equipment manufacturing and servicing company whose Godzilla-like electric shovels claw the earth’s crust for coal in places like central Appalachia and the Powder River Basin in Wyoming. Joy Global has been a typical core holding for Roepers, thanks in part to the predictability of its revenue (simply servicing the $20 million shovels accounts for nearly two thirds of the company’s revenue). This spring, after the stock took off on a huge energy- and commodities-inspired run that lifted it smartly to Atlantic Investment’s target price of $73 a share, Roepers sold. Parting with Joy was a bit of sweet sorrow for him — “I love the story, and I love the guys,” he says — but he found more than a little solace in the 80 percent appreciation the shares racked up in the 18 months he owned them. For Roepers, being willing to leave something on the table is a necessary part of strictly adhering to buy-and-sell price targets. And chasing a stock already in ﬂight is anathema to him. Says analyst Peter Hanford, who covers several core holdings, including Del Monte Foods and aerospace parts supplier Goodrich Corp., “If we had a nickel for every time we got close to a name we liked only to see it get away, we’d all be far wealthier.” To make the critical decision on whether a price is right, Roepers puts his faith in a yardstick that more and BEKEN OF COWES, LTD.

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - July/August 2008

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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