Tancredi Cordero founded Kuros Associates after becoming disillusioned with the poor level of service offered by most asset managers. Working at some of the largest players in the game early in his career left a bad taste, so he set up his own outfit in 2017 with a goal to remedy this.
After studying at the Bocconi University in Milan, where he specialised in behavioural finance and completed a thesis in equity portfolio management, Cordero joined the equity portfolio management team at BNP Paribas Investment Partners before moving to the business development and sales side, first at Fidelity and then at Mirabaud Asset Management.
“I really loved my job, but hated the culture,” he says. “That inspired me to put together Kuros Associates and to create an inclusive culture with an open, flat architecture where everyone has his or her say.”
‘After a certain point, managers become disincentivised’
The firm’s logo is the Japanese ensō symbol, a circle made up of two uninhibited brushstrokes in black ink, said to represent a moment when the mind is free to let the body create. “We wanted something that was dramatically different from the environment in a bank,” says Cordero.
Kuros Associates started out with just couple of clients and four years later has a team of four, each with the title of associate. Cordero, who still owns 100% of the firm, says “we grew ultimately, delivering performance for our clients by picking good managers”, though he is reluctant to share the firm’s assets under advice figure.
While it is not a wealth manager in the purest sense of the definition, Kuros Associates does advise high net-worth individuals, family offices and private banks on their investment strategy and manager selection.
To “fill the cracks left open by big asset management firms”, Kuros Associates’ team has a laser sharp focus on customer experience, which it feels is better delivered by independent boutique managers that run just one or a few funds and have limited assets under management.
“After a certain point, fund managers become disincentivised to deliver good returns for the money that investors are paying in fees,” Cordero explains. “We created this platform-like model where we research, select and advise on the on the allocation to fund managers.”
The sweet spot for an individual fund’s AUM is between $100-500m (£73-363m), he says, although Kuros Associates assesses funds up to about $1bn. On a firm-wide basis the upper AUM limit is about $15bn because beyond this, Cordero thinks managers are running a company instead of a fund.
“It’s natural that as your AUM grows, your business expands and diversifies, and that waters down the returns investors are expecting. It’s a natural consequence of the lifecycle of any fund manager.”
Cordero also believes that managers running limited assets are more incentivised to deliver performance because they don’t make as much money from management fees.
“You actually have to make performance to make performance fees, or if you don’t have performance fees because you are a mutual fund, you need to meet performance to attract the spotlight and stand out from the pack.”
Kuros Associates also prefers managers who have ‘skin in the game’ and who are aligned with their investors, something Cordero says is nigh on impossible at the big fund houses.
“In a big fund house, the fund manager is an employee and at the end of the year their payout is not so dramatically influenced by how well they perform; they still have a salary and a pension waiting for them at the end of this journey.
“Whereas for an independent fund manager, your pension is the fund you run.
“This might sound a bit contrary but I think good managers never get paid enough. The lousy managers get paid too much, even if they get one basis point. If you’re a good fund manager and you deliver – and do it consistently – you’re in the 1% that can afford to ask for compensation.”
Young firm proved its worth during Covid crisis
At the tender age of 30, Cordero is the eldest of Kuros Associates’ four employees, though he says hiring people under 30 wasn’t intentional. He does, however, think it sets the firm apart.
“It wasn’t that I started saying, ‘OK, just millennials in my firm’. I happen to be one and the people I found were very good and suitable for their roles,” he says. “I guess we are a firm that has a different perspective, because our competitors tend to be way older than us.”
But it has taken until recently to gain credibility. Cordero says until last year he often received comments about how he had not yet been involved in money management during a financial crisis. That changed when the Covid crisis hit markets last year.
In 2020 the firm’s roster of managers closed the year with an average return of 17.5%, with a high of 47.2% and a low of 6.2% in dollar terms based on a simple weighted average.
But Cordero says being a younger company is beneficial from an ESG perspective because, as one might expect from a company made up of millennials, sustainability is a big focus.
“We believe ESG is a free lunch because a company that is run sustainably is the best thing from a shareholder perspective. Also, we’re in an historic phase where not just people but also governments are waking up to the call of climate change.”
Cordero is also increasingly seeing millennials taking charge of family wealth, moving into C-suite positions and company boards, and even top political roles. “It’s a generation that is much more attuned with the theme of sustainability.”
His observation on the ESG industry is that the focus has shifted from everyone thinking they are an expert in sustainability to becoming an expert in calling out greenwashing.
“It happens with a lot of fund houses that have hundreds of millions, if not billions, invested into coal miners, oil fields, oil companies,” he says. “They take out paid articles with big media outlets saying that everybody else is into greenwashing. That’s something that really needs to change.
“Instead of finger pointing who’s green and who’s not, people should just do their best and strive to make a positive impact.”
Again, this is where Cordero thinks boutiques have an edge because smaller independent managers are not as incentivised to be liked by everyone, as they know not everyone can invest in their funds.
“When you become too big, it’s easier for you to be involved in greenwashing because you know you can reach a lot of people with your marketing. You try to get more people to like you, and sustainability is a nice ribbon to have on your lapel.”
‘We like to put a face on our selections’
Kuros Associates assesses managers using its own proprietary selection process, which starts with quantitative screening and peer analysis for AUM and performance in particular periods. It then uses qualitative methods, spending a lot of time talking to managers.
“We try to understand how the brains of our managers work, how much risk they are willing to take, if they have an edge. Then we reconcile this with skin in the game, if they are aligned with their investors, whether they’re in it for the long term.”
Picking relatively small and often unknown managers does come with risk, but Cordero thinks it is one worth taking to gain an edge. “A lot of allocators prefer to allocate to the big names because if they screw up, they can cover their backs.”
He adds: “The edge we provide is we like to put our face on our selections. Ultimately, if we do well, we get rewarded and if we don’t, we get punished, as our managers will.”
In terms of themes among his client base, Cordero says a growing number of investors are approaching portfolios from a thematic perspective. Rather than, for example, weighing up growth or value they are investing into themes such as ageing populations and renewable energy.
In a world where yield is hard to find, Kuros Associates is also finding value for clients in private debt strategies, but Cordero says the “rookie of the year” is bitcoin. He has observed the space evolving over the past couple of years and a big surge in products, with institutional investors such as pension funds, banks and sovereign wealth funds allocating, even if it’s just 0.5% of the portfolio.
“It’s taking front of the stage for a lot of investors who are getting more interested in blockchain. Bitcoin is the entry point, the mega-cap of the crypto space, so it’s really where people are getting comfortable investing.”
This interview is taken from the April 2021 issue of Portfolio Adviser. Red more here
