The founder of Knight Vinke Asset Management moved to Monaco fifteen years ago. Eric Knight describes himself as the manager of an activist fund, and he is that in every sense of the word.
His latest victory: being the centrepiece of the merger of FNAC and DARTY, of which Knight Vinke is one of the leading shareholders. Previously, he was one of the main participants in the merger of Royal Dutch in the Netherlands and Shell Transport in the UK – no mean feat. In 2012, he contributed to the departure of Lars Olofsson, former Chairman of Carrefour, when the stock price was under pressure from the market… These are just a few examples of his astounding work.
As a Swiss national of Italian origins, with a Masters degrees in Economics from Cambridge and another in Management from MIT, he created Knight Vinke Asset Management in 2003: an institutional asset manager with particular expertise in energy and financial services. His message is clear: "Large institutional investors increasingly manage assets on a passive basis, using the market index as a benchmark. This requires a statistician’s mind-set rather than financial analysis and implies accepting performance as it is." With interest rates near zero and public sector debt continuously rising where can investors seek an acceptable return? In emerging markets? Or ‘exotic’ investments such as classic cars, coloured gems, or works of contemporary art? For Eric Knight, ‘large cap’ equities remain an essential component of any portfolio aiming for preservation of capital and long-term value creation. But with an important nuance: one should invest with an owner’s perspective. "Investing in governance is ultimately the only true investment."
Knight Vinke has developed a unique approach to activist investment based first on the quality and depth of its financial and strategic analysis and secondly on the will to engage constructively not only with the board and management but also with governments, regulators, creditors and sometimes even unions – to achieve a consensual solution with a wide range of key stakeholders.
First, identify the undervalued companies, then modify their governance in the true sense of the word.
"In a classical governance framework, the board often has little influence on management since the volume and complexity of the information it has to master -- think of large banks’ annual reports which sometimes extend to over 1000 pages – require a level of commitment and expertise that few directors can truly provide. The shareholder/board/management model needs to be changed by introducing other stakeholders such as regulators, government and opinion leaders. Foster public debate, engage with all key stakeholders -- that is how performance can be improved." Partnering with the California Public Employees Retirement System, one of the world’s largest pension funds, gave him the opportunity to refine the model when he started in 2003. Ten years later, Eric Knight bought out the interest that CalPERS held in his fund and went on alone. Since the fund was created, over twelve years ago, the value creation and investment performance have been considerably above the market average.
This new model, which is complementary to the activity of a traditional asset manager, is much appreciated by sovereign wealth funds. Knight Vinke Institutional Partners (KVIP), which specialises in managing investments for very large institutional investors, is the company’s flagship product. But Eric Knight is working on two further developments. "Large institutional investors allocate their assets centrally and once that allocation is made they require that 100% be invested at all times, regardless of market volatility. With private clients one has more freedom to avoid this." Hence the creation of the Global Value Fund (or GVF) last September, which is designed for high net worth individuals and family offices. It offers investors daily liquidity and a much more accessible minimum subscription level than KVIP – in exchange for the right to keep part of the portfolio in cash when market conditions seem unattractive.
Eric Knight is also considering a co-investment fund for large institutional investors, sovereign funds and the most sophisticated family offices which have the means to invest larger amounts in a single security. Very recently he raised over Euro 400 million to be invested in a single stock – alongside the position already taken in the GVF portfolio.
This activist investor also has a company in Zurich and one in London, but he particularly likes Monaco. "In Monaco I can think independently. I love this country which sits at the heart of Europe. You can take a morning flight to London and be back in time for dinner. It’s the ideal place for family offices and fund managers. The development of financial services can be Monaco’s future."
