Markets

Fund managers are blinded by the markets returning to their highs

At times like these, it’s essential to understand that risks don’t come from what you see and understand, but rather from what you are unable to see or understand. This pattern has repeated itself every time a crisis has hit the markets: you never see it coming.

Rafael Alcántara-Lansberg has finance in his blood. His family led a major financial group in Latin America starting in the 1970s, and from the age of just 13, he spent every summersitting at a Telex machine, a device few people remember anymore, and sending and receiving international trade confirmations.

For a time, he was not impressed by finance. He began his studies of existential philosophy in Paris, then went on to pursue political philosophy and economics at the prestigious University of Pennsylvania. From an early age, he was interested in psychology. He wanted to understand how society works and how the conceptualization of human agency has evolved throughout history in different moral philosophies, political theories and economic models. His intellectual process has always been based on discovering what lies beyond the surface, on identifying the factors we do not understand and how they affect us.

So what does philosophy have to do with financial markets? Alcántara-Lansberg smiles and paraphrases Keynes: “All of us – no matter how execution-oriented or pragmatic we believe ourselves to be – are acting on ideas and models conceived by some dead person. Without asking questions, you won’t understand what works, which is no different from doing things out of habit, or worse, getting swept up in the crowd’s feelings and mentality without realizing it. Asking questions takes time, focus and discipline.“ Today he describes his job as discernment, risk management and building investment portfolios.

A series of events impacting both family members and friends gave him perfect insight into how the work of businesspeople in all sectors and parts of the world can be vulnerable to unforeseen and misunderstood contingencies that can occur both inside and outside of organizations. With the encouragement of his maternal grandfather, a Dutch-born businessman and intellectual who urged him to ask himself what he could do with his life to bring value to his community, it wasn’t long before he embarked on his career in wealth and financial advising. It is interesting to consider how he was influenced by this second father figure, who was at one point incredibly successful before going on to fail in an equally spectacular way.

After several years in the financial market, he decided to launch his own risk analysis and investment firm in 2004. “I started working as an adviser from the angle of risk analysis, because I was very attracted to the idea of being able to preserve my clients’ assets at times of volatility and uncertainty, and even make their portfolios grow steadily at all times. Due to a lack of understanding, and since it has slow returns, the area of risk management was barely developed, yet fundamental.”

Over time, this global citizen of eclectic origins, for whom “friends, family and devotion to his profession are the pillars that give everything meaning,” specialized in finding spaces in the markets – investment asset categories – where uncertainty could be reduced, and then adjusting the types of risks to improve performance. “My preference is for asset categories where losing capital is unlikely or even difficult, and if it does happen, the losses are limited and short-lived. After these categories are identified, a lot of work must be done to minimize the remaining risks and improve potential performance. But this path leads to far better equations than the 50%/50% involved in the vast majority of financial asset categories. And over time, probability and compound interest favor the investor.”

And infact, the strategies, portfolios and funds managed by the firm he co-founded, where he is director of investment strategy, performed quite well amid the recent market turmoil. 

“While in March, many investors bolted or were too shocked to react, the Harbor Ithaka team was aggressively buying up short-term, investment-grade corporate bonds, being cautiously optimistic. And right now, our team is working nonstop to prepare itself.”

It was in 2014 that he definitively relocated to Miami and founded Harbor Ithaka, the continuation of the team at his previous company, while adding new elements. His most longstanding partner, the Spaniard Miguel García Cardona, has worked with him since 2009. “With his excellent analytical abilities, initiative and management skills, Miguel has been a wonderful companion on this journey. He’s pure energy. Our calling was to truly become a transparent financial advising firm, capable of weathering adverse market conditions anda place where people are the priority above all else.” Now, along with a team of investor-partners and enviable advisers, they have learned to establish vehicles for these investment strategies and provide them for the benefit of the independent financial adviser industry.

Their track record of more than 15 years, in which their team has added reinforcements and services, is more than positive. Professionally, it’s because “a growing number of clients and financial entities are using our investment vehicles, and companies are hiring us to oversee their risks or assist them with cash management. And personally, it’s because we have created a team of professionals who are an absolute joy to work with, because of what you learn every day and how much we enjoy our work,” he explains.

“We are enjoying these times that are putting us to the test. Also, the value of our hard work in terms of research, risk management and preparation, which tends to go unnoticed over long periods of time, really stands out at moments like these. Not all important things are immediately visible or measurable to the untrained eye.” He also humbly concludes that “the most important thing is for every investor to be well-advised and well-served at all times. It’s impossible to always know when the work of risk management will be rewarded.”

Having a strong technical background – both financial and regulatory – but above all being a good person, principled, hardworking and intellectually humble, are the three basic aspects that Rafael Alcántara-Lansberg prescribes for all those who aspire to join the growing Harbor Ithaka team.

And as a company, regarding partners, they also seek regional leadership and consistent principles. “In the network of Harbor Ithaka-associated firms we are building on the continent, with whom we are negotiating and reaching good, strong and long-lasting agreements, we find demanding professionals who can even be tough negotiators, but who are also very humble and have their clients’ wellbeing in mind. This is an improvement that’s nice to see: Increasingly, we are finding independent groups that seek to avoid arrogance, superficiality and conflicts of interest, taking their roles as advisers and protectors very seriously. These qualities are essential not only for them to access our strategies, all designed to improve the limited risk diversification that traditional investment products and strategies offer end-client portfolios, but also for us to help them develop their businesses regionally with all of our experience.” 

Alcántara-Lansberg is a guest speaker at several top investor forums organized in the United States, Latin America and Europe. “You can imagine how much you can learn by thoroughly analyzing the portfolios and construction strategies followed by dozens of investment groups, both managers and advisers,” he says, alluding to one of the firm’s services in which the team serves as an independent “quarterback” for family offices, trusts and families with a certain level of means. “I believe it would be hard to find a nicer and more fulfilling job for my intellectual interests.”

When asked if he believes the financial culture of Latin Americans and Spainiards has improved, based on his extensive experience, his answer is clear: “Yes. Naïveté and blind trust in suppliers, big brands and seller overconfidence are disappearing. People increasingly understand and value financial advising that makes sense, and the effect of bad incentives has made clients more demanding. The coronavirus situation is causing more investors to wake up. But there is still a long way to go.” And he gives an example: “Over the past few weeks, many business owners and family offices have asked us about our outlook and risk analysis for creating portfolios, as they have realized that maybe they were not properly prepared to deal with so much financial volatility, and that, at the same time, the rest of their assets, businesses, deals, cash-flow, and even their lives are at risk. Furthermore, since they were so busy reacting and putting out fires, and they don’t have enough liquidity, they find themselves poorly positioned to take advantage of the opportunities we’re seeing in both the markets and the actual economy.”

Finally, when asked if he loses sleep over situations like the current “coronavirus effect,” Alcántara-Lansberg warns: “We cannot anticipate for sure when or how market turbulence will arise; the reality that nobody can imagine is one that many managers and advisers never quite examine. But we must think about scenarios; the coming months (or even years) could be very complicated. There were significant vulnerabilities before this shock and now they are being ignored once again because people are blinded by the markets returning to their highs. There’s so much betting that the huge monetary and fiscal injections will offset the huge accumulation of so many fundamental problems. Actually, it’s simple and based on common sense: Good management implies always being ready to not only navigate turbulence, but also to take advantage of it. Surviving the road ahead, through successful investing, cannot depend on us being capable of understanding the future.”