€2.5 billion manager: why I’m holding 35% cash (Article by Chris Sloley on 09.02.2012 in Citywire)

9 Feb

by Chris Sloley on Feb 09, 2012 at 10:13

€2.5 billion manager: why I’m holding 35% cash

European multi-asset manager Luca Pesarini is holding near record levels of cash in his €2.5 billion portfolio over concerns about the ‘real state’ of the global economy.

Speaking to Citywire Global, Pesarini, lead manager on the Ethna Aktiv-E fund, said he has increased cash holdings to 35% as he believes many investors are wrongly banking on China eventually coming to the aid of the Eurozone.

He said: ‘The situation is anything but safe. We don’t have any growth at the moment, everyone in the Eurozone talks about how they can reduce the debt but they don’t talk about unemployment and they don’t talk about growth.’

‘We are saving money on one side and trying to reduce debt levels on the other but doing nothing about unemployment. This is the same in all the European states. The reality is everyone believes China is going to save us. China is going to do everything except save us.’

Explaining the large cash holdings, Pesarini admitted it is a defensive move and said he had held nearly 50% cash in August 2008 in a similarly risk averse move.

Discussing the Eurozone as a whole, Pesarini said he still has faith in bonds backed by Europe’s major institutions – such as the European Financial Stability Facility (EFSF) and the European Investment Bank. These currently account for around 10% of his overall portfolio down from 25% in November.

Although, he did admit to reducing his exposure further following the EFSF downgrade at the start of January.

‘My opinion is the EFSF is a good investment that will continue to pay whatever happens, as it is backed by so many countries,’ he said. ‘But, we decided to exit out of part of it, we did take some losses even though I do think we did it at a good time.’

His co-manager Guido Barthels had explained this strategy to Citywire before Christmas.



Pesarini said he expects Mario Draghi to build on the positive sentiment created by the €489 billion longer term refinancing operation, by doubling the amount available in the second round due to be launched at the end of February.

However, Pesarini said there were limitations to the programme which meant sovereign debt – the main area of difficulty – was not attracting long term investors.

‘People in France, Italy and Spain have started to buy government bonds. But banks are looking at 10-year sovereigns and saying, ‘we have to pay back this [LTRO] in three years’, so why would we do that? They are looking for shorter and shorter maturities on government bonds.’

The next major issue facing the Eurozone, Pesarini said, is going to be on March 20, when €14.5 billion worth of Greek sovereign bonds reach maturity.

He said investors were likely to have to take some sort of loss on this and this, he said, would trigger a widening out of CDS spreads.

‘What will be the message to investors then? The world will think Europe is unable to solve itself.’ He said. ‘The other scenario is they get lent €365 billion and that is given to a country that cannot attract a penny. It is a lose/lose situation.’

Fleeing the dollar

Elsewhere in his portfolio, Pesarini is gradually reducing his exposure to the US dollar. This is due to concerns over the impact of November’s Presidential election.

‘We are reducing our exposure by 1% each week and we currently down to 7-8%, we used to have as much as 10% of our bonds in US currency. We sold out of the USD and bought the euro, so we think that whatever comes out on November 14 – with the election – is going to cause too much of a surprise.’

Over the past five years the Ethna AKTIV-E fund has returned 21.5%. Its benchmark, the LCI Mixed Asset EUR Bal, has risen by 0.1% over the same period.

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