Institutional Investor's Alpha Magazine - July/August 2008 - (Page 30)

Atlantic Investment Management Kenichiro Yamada joined Atlantic Investment four years ago to head up its Asian analyst team. with Universal Instruments, a subsidiary of Dover Corp., and moved to Binghamton in upstate New York. There he absorbed Dover’s business strategy, which takes a page from General Electric Co.’s well-thumbed playbook — demand that all divisions be ﬁrst or a strong second in their markets, make acquisitions to strengthen those positions and sell underperformers. Arriving at Harvard in 1982, Roepers befriended other foreign students and began building what would become a powerful network of Europe’s top managers and investors. One friend was Alberto Tazartes, who teamed with Roepers in a three-month stock-picking contest sponsored by a Wall Street brokerage ﬁrm. Despite being considered underdogs — unlike many classmates who had experience on Wall Street, Tazartes had worked for Buitoni, the Italian food giant, and Roepers had been at Dover — the pair won. “Alex was already analyzing stocks by asking, ‘Why is this company No. 1 in this product? Why is it increasing market share and making money?’” recalls Tazartes, who now lives in Milan and is a retired partner of European private equity ﬁrm BC Partners. After getting his MBA in 1984, Roepers moved to New York to join Thyssen-Bornemisza, a privately held European conglomerate that owned a smorgasbord of businesses in the glass, plastics, automobile parts, trading and container leasing industries. He spent the next two years visiting subsidiaries, deciding which to sell or shutter. One of his favorite tools: the enterprise multiple. Roepers founded Atlantic Investment in 1988 and launched his ﬁ rst fund, Atlantic, in 1989 with $5 million from individual investors. Although his portfolio was technically a hedge fund, he managed it more like a mutual fund — the portfolio was always 100 percent invested, had no shorts and used no leverage. But the investment climate turned chilly, especially for the type 30 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008 of medium-cap value stocks that Roepers owned, and at the end of 1990, with only $750,000 left, he realized that his fund was unmarketable. “I learned a lot,” he says. “It was like being a soldier and going to war and not having been trained properly. I was lucky the bullets went straight by my head.” Roepers started over, but he decided he needed more flexibility, including the options of moving heavily into cash and shorting stocks. He also needed clients. After he spent a year and a half cold-calling, a family ofﬁce based in Monaco — one that shared his Dutch heritage — gave him $5 million to manage in a private account in October 1992. A few months later, in early 1993, Roepers converted Atlantic into the long-short AJR International. In 1996 he turned the managed account with the Monaco family ofﬁce into the long-only Cambrian Fund. Even though AJR International showed positive returns four years in a row, its short positions dragged down performance and, once again, Roepers turned his analytic powers inward. “You can blame a little on the environment, but at the end of the day, I lacked the experience that I have today,” he notes. “So I analyzed what went wrong. Where were my big losses?” Roepers put new restrictions on his short positions. If the price of a stock he was shorting rose 30 percent, he covered and got out — no debate. Under his new guidelines, Atlantic Investment has made money on the short side in eight of the past 12 years in its U.S. hedge fund. During the past year the ﬁrm has proﬁted handsomely on its shorts, which include companies in many of the highly leveraged or cyclical industries Roepers has long avoided on the long side: automobiles, banking, brokerage, housing, insurance and retail. But there was still one more lesson the market was waiting to teach him, this one about leverage. By 1998, Roepers had begun to attract institutional investors like Permal. James Hodge, who runs Permal’s alternative-asset management business, had heard about Roepers from Soros Fund Management. Hodge gave Roepers $5 million to manage in Cambrian, the long-only fund that is a pure play on Roepers’s six best investment ideas. But in August 1998 the effects of the near-collapse of Long-Term Capital Management panicked the ﬁnancial markets. Atlantic Investment’s portfolio, with about $105 million in assets, was short 60 percent, but it was also leveraged 40 percent. When redemption requests hit, Roepers was forced to sell one of his major positions, the only time in 15 years that a core long lost money. “It was like throwing one of your children overboard,” Roepers says, shaking his head at the memory. “After that I said, ‘No more. I’ve got enough excitement in my life. I can compound at a pretty good rate without this stuff, so let’s not do it.’” AJR International and Cambrian were down 13.5 percent and 10.3 percent, respectively, for 1998, a year that saw the S&P 500 rise 28.6 percent. One client who redeemed was Hodge. “It was Alex’s worst period ever, and

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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