I am a mathematician that spent all his career in the asset management industry. Before creating TOBAM I was the CEO of Credit Lyonnais Asset Management, where I had being working for the previous 12 years starting as a structured product and financial engineer ending being the CEO. I have a mathematical background, and when I left CLAM, I went back to research, I wanted to implement what I had always being convinced with. Market-Cap weighted benchmarks are highly inefficient and we needed to provide a solution for investors looking to capture the risk premium of an asset class.
After months of research, I had found something , robust enough to construct a business from. TOBAM was created in 2005, and the Maximum Diversification® approach first patent filled in 2006.
I launched TOBAM in 2005 as an independent venture and in 2006 Lehman Brothers proposed to incubate the company on the basis of a 3-year incubation period. I became the Head of Lehman Brothers Quantitative Asset Management Europe. Obviously, the 3-year period ended up in Q2 2008 and I bought back TOBAM earlier than initially planned.
TOBAM is now independent and employee-owned, which is a strong component of its DNA and success.
In April 2011, CalPERS decided to select TOBAM for their highly selective Manager Development Program II driven by the belief that the Anti-Benchmark® strategy and Maximum Diversification® process were an innovative solution for the world’s leading institutional investors. As part of this program, they became our first US pension fund client and a minority shareholder of TOBAM.
In May 2012, Amundi acquired a minority stake in TOBAM, and became a distributor of the Anti-Benchmark® strategy. The distribution agreement allows us to improve the accessibility of our products to a broad clientele on a global level, in particular in Europe, Asia and the Middle East where Amundi’s network is well established.
Why did you call your strategy the Anti-Benchmark®?
I believe that benchmarks have a role in the asset management industry. They are representative of the market, they are the sums of all speculations and as such provide an information, for asset managers and investors. But they need to remain an output. The trends over the last 20 years to use market cap weighted benchmarks as inputs , in the passive management industry is a big mistake and highly destructive for the economy.
We at TOBAM have implemented a unique strategy, based on the Maximum Diversification® approach, that allow to capture the risk premium of an asset class, without biases. In opposition to the benchmarks that are hugely biased, the Anti-Benchmark® is the absence of strategy, we are the truly risk neutral allocator.
How do you explain TOBAM’s success?
TOBAM is one of the founder of the “Smart Beta” movement back in 2005 and 2006 . I don’t like the expression “Smart Beta” since it is lacking a clear definition and as a mathematician, I don’t like undefined terminology. I don’t know if we are smart but for we believe at TOBAM that we provide the Beta.
The Maximum Diversification® Approach and the Anti-Benchmark® strategy answered needs that were unanswered before. Our development strategy since the beginning was to start reaching for the largest pension funds in the world, and they indeed were our first clients.
Also, TOBAM was set up in a very rigorous way, we made sure to construct our strategies on solid academic research grounds.
How did you draw TOBAM’s Sustainable Way?
Since early 2007, a few months after we set up TOBAM, we decided to apply the Norges Bank recommendations and exclusions list to our equity portfolios. This early initiative reflects the way we conduct our business.
In our opinion, there is no sense in anything other than sustainable investing. Why would you even start something that is not sustainable?
The second step was to sign the United Nations Principles for Responsible Investment in early 2010.
Sustainability, means embedding responsible real returns ( growth ) achieved by innovative investing over the long term . ‘ Responsible’ means respecting the whole investment process , starting with the clients , your own work , the resources used and the wider environment.
Among the providers of ESG research and exclusion lists, why did you decide to implement the Norges Bank’s?
The question was raised early in the foundation of TOBAM. Our investment process allowed for taking into account ESG criteria. We believed that removing from our investment universe, firms that had clearly and obviously a behaviour, engendering an unacceptable risk of severe environmental, social or governance (corruption) damages, was in line with our engagement towards our clients. The benefits of working with the exclusion list published by Norges bank was first, working with a globally-recognized investment institution, which align its exclusion list with the UN-PRI without seeking to impart a moral judgment. Secondly, Norges Bank’s ESG research embodies an activist dimension, and I believe that dialoguing with companies aims to encourage broader adoption of the principles reflected in the UN-PRI and Global Compact.
What is different about TOBAM’s approach to sustainability and responsibility?
The most important of all, is that each employee of TOBAM is a shareholder of the company, this is crucial to us in the way we conduct our business. We act in the best interests of our clients and shareholders making us implicitly long-term investors.
The second measure that I consider key to us is the implementation since 2011 of a carbon offset program. We realized that our day to day activity implied lot of travels that were necessary, but had a significant environmental impact. We set up a yearly measure of our carbon emissions (travels, employees transportations, water & energy consumptions …) and decided to compensate at 125%.
TOBAM assumes a small part of this responsibility and strives to make a contribution, albeit a small one, to a global effort.
What was the rationale behind your support to Amnesty International?
Our engagement with Amnesty International is representative of the way we consider our long-term investor responsibilities.
In line with the spirit of the carbon offset program, soon after we launched the Anti-Benchmark Emerging Markets Equities strategy in June 2011, we decided that we needed to offset our “human rights” impact.
Investing in the Emerging Markets, obviously favours the local economies and population, but it also implicitly supports governments that are not always blameless on the topic of human rights.