Luis Bononato (Madrid, 1970) is fishing for tuna in the Azores Islands, celebrating his father’s 80th birthday. He is relaxed. And is not for less. The fund that he advises, Global Allocation (of Renta 4 Gestora) has achieved a profitability so far in 2022 of 77%. “It’s one of the best funds in the world in September, but that’s not what matters to me; the really important thing is that those who started investing with me 16 years ago have multiplied by six the capital they put in,” he explains in a telephone conversation.
Indeed, the sicav that was launched then and later became an investment fund, accumulates a return of 521% (which is equivalent to more than sixfold investment, or 11.7% per year), since it was launched in 2006. It currently manages assets of close to 200 million euros, through the aforementioned fund and the sicav Remellan Global Allocation.
In addition, it has reached agreement with Renta 4 to advise the Luxembourg free investment fund Absolute value SCA SICAV-RAIF, which will give you more freedom and with which you hope to achieve even better returns. “Conventional investment funds have too many regulatory restrictions, which we will no longer have with this new vehicle.”
Global Allocation is the second best investment fund in the world in 2022. Only behind Crispin Odey, a British fund manager who has struck gold betting against bonds and the currency of the United Kingdom. “Yes, Odey beats us this year, but partly because he operates as a hedge fund and has more flexibility when investing. But if you look at the average annual return over the last three years, he has made 29% while I I have achieved 33%. Unfortunately, there is very little talk of Spanish investment talent,” he complains.
The great unknown for those who approach the figure of Bononato is: How is it possible that it achieves a return of 77% in the worst year for investment in recent decades? His investment style is what is called in the jargon convexity arbitrage. It consists of identifying pairs of bonds (for example, 10-year German debt, together with 2-year US debt) to exploit inefficiencies in their relative value. We speak of convexity because in fixed income investment the slopes of the curves and the inflection points are very important. For a layman, Bononato’s feat is equivalent to solving the Matrix.
“I know that my investment style can be complex. But in the end, what I try to do is identify what types of assets are cheap, or expensive, and take advantage of it. Whether it is investing in corporate bonds, derivatives that reflect the evolution of interest rates, volatility instruments…”, explains Bononato.
The great move in recent years has been to flee like the plague from the Stock Market and bonds, considering that they were highly overvalued. The instrument used is options on swap contracts (swap options, in this financial Matrix jargon). The market has ended up proving him right. “I saw that inflation would end up skyrocketing and interest rates would rise sharply, but the fund’s investors have had to be very patient, because we have spent years without earning anything when the entire stock market rose.” Indeed, between 2017 and 2021, Global Allocation recorded losses.
Manager worked for years in the treasury, foreign exchange and fixed income desk of several banks (Dresner Bank, Banco Exterior, Argentaria, Deutsche Bank…). In 2006 he decided to sell several properties – “it seemed to me that they were already very expensive” – and he chose to start managing my money and that of several friends and colleagues through a sicav. After two years, he left his banking job to dedicate himself exclusively to investing.
In his current portfolio he maintains his convexity arbitrage (whatever that means). It has, among many other assets, options on swaps 100-year Austrian bonds. “The general thesis is that rates are going to continue to rise, but if they start to fall sooner than the market expects, we are going to make a lot of money.”
Bonanto defends the importance of having a independent judgment, and not depend on what happens in a specific asset. Over periods of two or three years, a certain asset (be it oil companies, tech companies, or Indonesian small and medium-sized companies) can have a boom moment. The great test for an investor is to maintain consistency in the very long term. “And that’s what we’ve achieved,” Bonanto says goodbye as he gets on the boat that will take him to fish for tuna with his father.
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