Franck Sabbah: «We identify the hidden champions»
Far removed from the big headlines, Berenberg Asset Management has developed into a prominent financial boutique in just five years. The company now wants to further expand its presence in Switzerland, as Franck Sabbah interviewed finews.ch explained.
Mr. Sabbah, Deutsche Bank Berenberg realigned its asset management five years ago. In Germany it is present in Geneva and Zurich. How are you positioned and who are your customers?
Berenberg has a Swiss presence with investment banking and asset management. We parted ways with private banking between 2018 and 2019. This unit mutated into the Bergos company and has been independent of our bank ever since.
In asset management activities, we focus on European equities – from micro to large caps. We have a diverse client base made up of institutional clients such as pension funds and insurance companies, banks of various sizes and independent asset managers.
How has business been so far this year?
After the excellent vintages of 2020 and 2021, both in terms of performance and cash inflows, 2022 is a year of slowdown. We have outflows but at a very reasonable level.
«The stock and bond markets reach historic levels of losses»
In Q3 2022 we were able to resume subscriptions and set up a dedicated mandate, which is a very good sign. We continue to expand our presence in Switzerland, recently hiring an additional portfolio manager in Zurich and another person in French-speaking Switzerland.
Is it particularly difficult to sell financial products at the moment?
In terms of performance, 2022 is one of the worst of the past 25 years. The stock and bond markets reach historical loss levels. Against this background, our customers are logically unwilling to add risks.
However, it is interesting to note that after such a correction, long-term investors begin to question the opportunities again.
Which financial products are in demand now?
We are seeing increased interest in small caps. In general, while not our core business, bonds are becoming more attractive to investors again, with yield levels not seen in years.
How are you reacting to the looming recession, further increases in interest rates and the geopolitical risks?
We have had a growth/quality approach from the start and intend to maintain that. The biggest risk today is changing your investment approach in the short term. Customers trust us because of our First Discipline.
«Small caps are sportier»
The companies in which we invest are typically less leveraged than their competitors. They are therefore less susceptible to rising interest rates. They also have strong pricing power that allows them to maintain their margins in an inflationary environment.
Historically, recessions or economic downturns have often been favorable to quality stocks. Geopolitical risks cannot be foreseen. However, it should be possible to absorb them through a targeted diversification of the portfolio.
Aren’t small and mid caps more prone to losses than blue chips in the current situation?
Yes, small caps are “sportier”, but offer more attractive return opportunities in the long term. In addition, small caps in Europe are the market segment with the best risk/reward profile.
Why?
One of the most important points is that this segment offers an incredible number of possibilities. A total of around 8,000 companies are listed in Europe. That’s about twice as many as in the United States.
«At the level of financial stocks, there are companies with interesting stock market activities»
Most of them are micro or small caps, which are hardly covered by analysts. We have a team that is able to identify the “hidden champions” in this heterogeneous mass.
How do you rate European bank stocks?
They should benefit from rising interest rates. However, this is still a mature and very competitive market. We find only a few companies in this industry that meet our growth criteria.
At the level of financial stocks, companies with stock market activities such as the London Stock Exchange or the German Stock Exchange are interesting.
As interest rates continue to rise, are insurance stocks attractive?
Yes indeed. Take a close look at our teams at the opportunities in this sector right now. In particular, insurers specializing in a specific topic, such as cybersecurity, could differentiate themselves from other titles.
How do you differentiate yourself from your competitors in Switzerland?
We have a long-term vision. We are also able to make long-term investments to support growth. Since 2017 we have hired a team of 10 and a portfolio manager, although we didn’t manage any assets at all when we started. This team is led by Matthias Born and Peter Kraus, who each have more than 20 years of experience in this field.
“I’m always suspicious of big announcements”
After five years, we are already managing the equivalent of 5 billion Swiss francs, and the equities team now consists of 15 managers. This unique structure, which combines a management boutique specializing in growth stocks with a bank that has been in existence for more than 400 years, is one of a kind.
What are your further plans in Switzerland?
We want to continue investing in this country. I am fortunate to have been in the asset management business for more than 20 years and I believe that a local presence is important.
The proximity to our customers and the quality of the exchange allow us to understand the local requirements perfectly. We want to establish ourselves as a recognized player in Switzerland. The success of the first five years encourages us to continue this development.
What goals have you set yourself?
I’m always suspicious of big announcements. We are still a specialty business and 2022 has shown that market conditions can have a major impact on business performance.
Our goal is to double our assets under control. If that scenario happens as early as 2023, that’s good, but we’re also willing to pursue that goal over a period of time.
Frank Sabba is for business development in Wealth management by Berenberg responsible for the whole of Europe (excluding Germany). He leads a team of six sales professionals based in Geneva, Paris and Zurich. He has been with Berenberg since September 2016 and first opened the Geneva office, followed by the Paris office in 2020, and in 2021 he took over activities in German-speaking Switzerland. Before joining Berenberg, he worked for the Edmond de Rothschild Group from 2001 to 2016.
He holds a Masters in Finance from EDHEC Business School in France and a Bachelor in Economics from Pantheon-La Sorbonne University. Bank Berenberg was founded in 1590 and is headquartered in Hamburg. Its activities focus on the areas of asset management, investment banking, asset management in Germany and corporate finance. Since it was founded, Berenberg has been managed by personally liable partners.
When will inflation in Switzerland go down again?
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By the end of the year it will be falling.
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At the earliest in spring 2023.
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Inflation between 3-4 percent will remain with us.
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Inflation will continue to rise in 2023.
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Inflation will increase to 10 percent before falling again.