Risk Is All Part Of The Strategy

Robert Tomei is President and CEO of Advanced Capital, an alternative asset management group with €1bn assets under management ranked by research consultancy Prequin as the second best performing private equity fund of funds manager in 2011.

How would you describe Advanced Capital and its various funds and activities?

Advanced Capital is an innovative, alternative investment firm, with European roots but an ever more global outlook. We’ve been successful with our pure private equity funds of funds, and we’re now building a series of niche funds exposing our investors to a series of promising opportunities, across many different sectors and geographies. 

Do you see current market conditions as an opportunity for investors, or a chance to step back and consolidate?

I suppose for some it’s a time to take a step back and lick their wounds, but we’ve got an investor base which is keen for us to press on doing what we do best – generating strong risk-adjusted returns. Obviously, market volatility augments both risk and reward, and our focus has been on identifying pockets of opportunity which can go against the trend.

Are these conditions of volatility ones that have favoured the innovators?

Absolutely – but only for those who have made the right innovations. Our investment attitudes are constantly evolving, but never in the name of change for its own sake. The evolution of Advanced Capital is driven by a desire to capture the best investment opportunities at any given time, whatever and wherever they may be. In the depths of global stagnation in the US and Europe this meant investing more widely, launching niche funds investing in areas with the most growth potential. 

How hard has the Eurozone crisis hit your investor base, particularly in Italy?

Our investors, both in Italy and elsewhere, recognise the balance we strike between generating strong returns and our focus on wealth-preservation – in tough market conditions, we (and without overgeneralising, most of our clients) feel we’re the most sensible place for their money. We were the first southern European fund to offer such a wide range of private equity investments, so we have a long track record of helping our investors put their money into prospects which are uncorrelated with the ups and downs of Italy’s own economy.

It was reported that you relocated Advanced Capital from Milan to London last year, a decision that might surprise some in the wake of EU political criticism. Why did you decide to make the move?

I should make it clear that we maintain a strong presence in Milan – I spend a great deal of time there – and it remains a major office. Our expanded presence in the UK was a natural extension of Advanced Capital’s increasingly globalised nature, both in terms of the investments which we are making, and our investor basis. In order to introduce ourselves to new UHNWI and institutional clients, London was an important place to be.

What’s your personal assessment of the health of the UK’s alternative investment scene?

There’s a great deal of potential – I have been watching the east London technology start-up scene with interest, after it went through a patch of hype last year, with the media and government getting caught up in the frenzy of attention. After this time in the spotlight, there’s been a sense that these firms have been buckling down and getting on with the hard graft of growing their businesses and adding value. Acquisitions of firms like Saffron Digital and Tweetdeck show the potential of the area and the next step for it is to move from exiting on values in the tens of millions, to exiting on values in the hundreds of millions. 

How successful has the joint seed investment into the mCapital Special Situations fund last year been so far?

As you probably know, mCapital is a new manager that launched its first fund just over a year ago. The team has over 185 years of investment experience with the managing partners having run banks and investment managers in their careers, giving it a very mature and open but controlled feel. The fund has done very well with positive returns so far and we believe there is more to come before that first fund liquidates in 2013; they have beaten their peer group which had negative returns of 13% in 2011. This is in line with their history; the team, led by industry veteran Mark Devonshire, came from the Merrill Lynch/Principal Credit Group, which had no years with negative returns and indeed had averaged 22%+ IRRs (unleveraged) in their time there. With our backing and that of APG’s IMQubator, we have also seeded the second fund in October of last year and they are now launching the third fund in the series. Investors really appreciate this combination and the structure of their fund which looks at stressed, distressed, turnaround and rescue finance opportunities with just a two-and-a-half-year year lock-up making it unique in its European and Asian focus. There is no doubt that these guys should be running a billion-plus of assets in the near future.

And can we expect to see similar investments in the pipeline as AC continues to expand?

Certainly in terms of investment themes; mCapital represents an exciting investment opportunity taking advantage of a specific scenario. We will continue to seek out unique pockets of opportunity in often out-of-favour sectors and geographies. Currently, we are working on two new funds… watch this space!

You’ve recently written about frontier markets – which Advanced Capital has invested in. Do investors in the developed world have a patronising view of developing countries (beyond the BRICS)?

We are currently in the due diligence phase of our frontier markets strategy and have just made a major new hire who will be spearheading our activity. I’m not sure that patronising views come into it. When developers look at promising developing economies like the frontier markets, their only focus is on how to get involved in their explosive growth potential. If anything, I’d say the emotion is closer to admiration. Those emerging economies which manage to go some way towards following the example set by China over the past 10–15 years – and it has to be said that not all of them will be able to achieve this – will be setting the pace of global economic growth.

And where are the best places to look for profitable frontier markets?

As ever, it’s just a matter of weighing up opportunities and risk. The investor who correctly identifies that the market’s concerns about political risk are overstated can pick up assets at a discount. But, of course, getting it wrong can be disastrous – and even a correctly gauged level of risk can prove to be of no use if that 30% chance of nationalisation comes about and turns the investment into a write-off. Countries-wise, we’re looking towards Southeast Asia, Kenya, Bulgaria, Kazakhstan, Colombia and Venezuela.

And does the fact that you’ve now publicised your interest in frontier markets mean it’s too late for other investors to get in on the act? Have they missed the boat?

We’re ahead of many but behind some – we certainly aren’t the first to dip our toes into the emerging economies beyond the BRICs! However, we do feel that this is the opportune time to be getting involved and being an early mover makes it easier to get access to the best investment opportunities.

You sit on the board of several arts organisations. What seeded your interest in contemporary art (and the arts in general)?

Art has been a passion of mine since my university days and I’m just glad to be in a position where I can act on that passion, both in terms of buying art for myself and by acting in an advisory capacity for others. I have now been collecting artwork for more than 20 years and I can tell you that it is never enough.

When you invest in art personally, do you only buy art you expect to profit from in the future?

I think the line between investing pleasure and along the lines of one’s own taste is sometimes a blurred one. In something as personal as art, it’s hard to invest with any finesse by simply identifying objective trends. Naturally, those who try to invest solely with their head have a tendency to end up investing in what they see as sure-fire bets, but the art market can be rather capricious when it comes to that sort of thing. Naturally, most art investors will be most informed in, and therefore best equipped to invest in, areas of personal artistic interest. I’d say my approach is mixed; I tend to buy pieces around an area of interest, which I also expect to increase in value. For example, when I started collaborating with my friend and advisor Simon de Pury, we decided to build a collection of work created in the last decade by artists who emerged in the 1990s. Then I make each individual purchase through a combination of my personal preferences and where I think its value will go.

Does Advanced Capital still have any arts investment funds?

Yes, we continue to manage the Libra arts fund, advised by myself and Simon de Pury.

You’re well known for being a stylish man but, with dual Italian and American nationality and a business with a presence in London, where do you get your suits made?

Funny that you should ask this, as I am rather the same with my sartorial tastes. When it comes to suits my Italian heritage shines through, and I get suits made at Rubinacci but also Tom Ford.

Where do you eat, drink and shop when you’re in London?

As a member of the Dover Street Arts Club, I tend to spend time there both on business and pleasure when I’m in London. For food and drink I’m a regular patron of Scott’s of Mayfair, Claridges and the Connaught. Apart from that, I’ve been known to drop into Santa Maria Novella in the Piccadilly Arcade.

Biography

• Prior to Advanced Capital, Tomei advised on alternative investments and private placements at Merrill Lynch.
• He began his career in the financial industry in New York in 1993, where he worked for Kidder Peabody as institutional advisor on structured finance. He later transferred to the firm’s London office.
• Tomei received his degree ad honorem in Logic and Analytical Studies from St Bonaventure University, New York and undertook post-graduate studies at both Yale and Columbia Universities. 
• Currently, he is a member of the CFA Institute and of the AIFI institutional investor board, and member of the YPO (Young Presidents’ Organisation).

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