Courtesy of The Financial Times, a report on Francisco Parames, called Spain’s Buffett by a number of observers:
Francisco García Parames, Spain’s most successful fund manager, has revealed the first details of his new investment venture since he resigned from Bestinver in September.
Having achieved an average annual return of 16 per cent over more than two decades, through a commitment to “value” investing — a record that earned comparisons with legendary US investor Warren Buffett — his sudden departure led to large fund outflows at Bestinver.
In 2014, assets under management at Bestinver fell by 30 per cent, or $2.5bn, according to data from Lipper, with $750m of outflows from its flagship Bestinfond FI fund coming in September and October.
Mr Parames’ exit was then followed by a prolonged period of silence — and speculation in Spain — about his next move. But, in an interview with the Financial Times, the fund manager — now based in London — has confirmed that he is setting up his own fund.
“I wanted a new project in which the management have full control of the operation,” he said. “I personally would do the same thing I have always done,” he adds. “We are open to big institutions if they share our vision.”
Mr Parames has not set any targets for the size of his new venture, though. “Whenever I start a new project, we will never think about how much money we will manage,” he says. “Any amount is fine.”
Two of Mr Parames’ former colleagues — Álvaro Guzmán de Lázaro and Fernando Bernad — also left Bestinver last week. But it is not clear whether they intend to work with him in future, and the timing of his new fund launch looks likely to be delayed by wrangling over a non-compete agreement with Bestinver, which is owned by the Spanish conglomerate Acciona.
Mr Parames’s contract stipulates that he is not allowed to compete with Bestinver for two years after leaving, but has been negotiating with his former employers. “I’m going to abide by that [the non-compete clause]”, he says. “If they want to reach an agreement with me it’s fine, but it looks like they don’t want to.”
When he is able to launch the fund, it is widely expected to follow the value investing principles that he learnt from the works of US investors, and honed for himself in the late 1980s: buying and holding shares when the price appears to undervalue the earnings or assets of the business.
Although Mr Parames says he will “most probably” base his new fund in Spain, it is likely to be global in its scope and asset allocation.
“Most probably, any future company will only have 10 per cent in Spain,” he said. “You can always have value in your own country but, from the investing point of view, it’s logical to have a global investment process.”
Mr Parames also argued that the rising popularity of passive index tracking investments, such as exchange traded funds, would provide more opportunities for value investors to go against the consensus, and back cheap stocks.
“If the market becomes dominated by ETFs and indexes, [there will be] many more situations in which there will be very strange outcomes, in the sense that all the indexes go one way, and there will be a lot of leftovers for value-orientated guys,” he explained.
Whenever I start a new project, we will never think about how much money we will manage. Any amount is fine- Francisco García ParamesLike many value investors, he said he remained unconvinced by some of his contemporaries’ obsession with tech stocks. “That’s a world that I don’t know,” he observed. “You have to feel kind of sure what the business will look like in 10 years’ time.”
He suggested that the future of his new venture — and Spain’s fund management industry as a whole — could be shaped by the “mentality” of domestic savers. Until now, their traditionally conservative approach has meant the Spanish retail investment market “still is dominated by the big banks and their distribution networks”.
But Mr Parames said they may be forced to look elsewhere: “If saver mentality changes, there will be a lot of opportunities to increase fund management in size,” he claimed. “If the ECB leaves interest rates near 0 per cent maybe it will force the Spanish saver to change.”
Faith in value investing helped avoid dotcom and property crashes
If modern-day investing entails a degree of religious faith, Francisco Garcia Parames is a self-confessed “agnostic”. He does, however, subscribe to one creed: value investing, which he discovered in the late 1980s after completing his MBA.
When he took the helm of Bestinver in the early 1990s, Mr Parames began to apply the value-based principles of Benjamin Graham, John Neff and Warren Buffett, which emphasise backing undervalued stocks over the long term. He has attributed one of his best decisions — avoiding the dot.com boom and bust — to the influence of these transatlantic mentors.
“In the 90s, 2001, if Warren Buffett hadn’t existed, people like me in Europe would have suffered a lot — much more than we did,” Mr Parames said. His reputation continued to soar after the real estate crash in Spain in 2007, as he had refused to invest in any real estate companies for the previous four years, dismissing their rising valuations as a “bubble”.
He sees no difficulty in applying this approach to whatever market conditions prevail in the near future. “What is the challenge? I don’t see any challenge. I haven’t changed in 25 years so why change in two years?