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What is the story behind ProfitFundCom?
The well-known economist Richard A. Werner, who is also the chief investment advisor of the firm, founded ProfitFundCom in 2000. ProfitFundCom is an offshore fund management firm based in Liechtenstein with offices in Europe and Japan. It was launched on the back of the success of the research of advisory firm Profit Research Center in Tokyo, which Werner founded in Tokyo in 1998. Since 1998 many hedge funds, pension funds, investment banks and other organisations have used his liquidity research as a basis for their asset allocations. In 2000, after having established a two-year track record and a return of 309.50% with a private fund, Richard set up ProfitFundCom together with Prince Michael von Liechtenstein.
Richard is well known for his asset allocation and currency models that are based on central bank and bank credit creation. Central bank creation (i.e. liquidity) is the prime driver of economic expansion and, hence, stock markets. We base our investment decisions on proprietary in-house research and analysis on central banks. Our flagship fund, the ProfitFundCom/Global Macro Fund, invests in a universe that is made up of the 36 markets covered in our proprietary liquidity research. We invest in currencies, government bonds and equity indices.
Tell us about your founder and chief investment advisor Richard A. Werner, the economist that Tokyo University once called “a famously accurate strategist using his analysis to forecast stock market movements with a high degree of precision”.
Richard Werner is indeed a hedge fund manager with a difference and he is the explanation why our global macro fund has outperformed the competition. Richard is German-born and got his training in economics at the London School of Economics, University of Oxford and University of Tokyo.
His reputation for accurately predicting the global markets contributed to him becoming a member of the asset allocation committee of the TelWel pension fund, one of the largest pension funds in Japan with assets of $6.2 billion.
Prior to founding the Profit Group he was chief economist at Jardine Fleming Securities here in Tokyo and a researcher at organisations such as Bank of Japan, Japanese Ministry of Finance, Asian Development Bank, Japan Development Bank, Nomura Research Institute and the Institute of Economics and Statistics at the University of Oxford. Richard has been advisor to Japan’s ruling Liberal Democratic Party's Central Bank Reform Research Group and served on several Ministry of Finance advisory panels in Japan. He has been teaching finance and banking at universities in Japan and the UK since 1997 and is currently teaching at University of Southampton.
In October 1991 he published his first major report on the Japanese economy, “The Great Yen Illusion”, which warned that Japanese banks were on the verge of bankruptcy and a historic recession was likely in Japan. He was voted as one of Japan's top economists by investor surveys conducted by the Institutional Investor magazine, the Greenwich Survey and the Japanese Economist.
“Princes of the Yen”, Richard’s recent book on the Bank of Japan and the influence of central banks on financial markets, won wide acclaim and became a no. 1 bestseller here in Japan. His achievements as an economist were also acknowledged at the 2003 World Economic Forum in Davos when he was selected as one of the “Global Leaders for Tomorrow”.
But one man doesn’t make a successful fund management firm. Is ProfitFundCom a one-man band or is there a proper management team in place?
While Richard, as the founder and chief investment advisor, is a key person in the company, he is part of a wider management team with some considerable experience from both central banks and asset management.
In Europe we have, for example, professors Steve Thomas and Richard Dale, both with research experience from Bank of England. Prince Michael von Liechtenstein, who is a principal of ProfitFundCom, is based in Vaduz, Liechtenstein, where our global macro fund is domiciled. In Liechtenstein we also have a small team, including Matthias Voigt, our CEO who is also currently president of the Liechtenstein Fund Investment Association.
Here in Japan we have several highly experienced people, including Yoichi Kataoka, formerly CEO of SG Pacific Asset Management in New York and managing director of SG Yamaichi Asset Management, and Mizuho Tabata with 37 years’ experience at Yamaichi Securities. I joined ProfitFundCom in Tokyo in 2004 after spending ten years in London where, after completing my MBA, I was general manager for the Hedge Funds World conferences in Europe and the Middle East as well as project manager at Euromoney Institutional Investor.
Our well-educated, multinational team consists of team members from England, Germany, Japan, USA, Liechtenstein and Sweden.
What makes you different in a world full of hedge fund managers?
It is Richard Werner’s credit creation research and our management team that make us stand out from the crowd and why we will still be here when the bad and the ugly have been washed out from the industry.
Our approach to research and subsequent investment decisions is different because of three main factors:
- Most economists and investors are too fixated on interest rate analysis. Interest rates are only a secondary tool used by central banks to control economies. Their main tools are the basis of our proprietary approach, which was developed using input from central bankers and has been statistically superior to other models. We look at economies the same way as central bankers do.
- Liquidity is the key. Put simply, money drives the economy. However, it must be measured correctly. The monetarist approach was discredited, because monetarists fell for the central bankers' ruse of selling to the public as measures of the “money supply” what actually amounts to mere measures of the savings supply, namely deposit aggregates such as M1, M2, etc. Net new economic activity is only possible when net new purchasing power becomes effective in the economy. Net new purchasing power can only be created by central banks and the private banking system (the credit creation process). Measuring this with our proprietary liquidity indices, we explain and forecast GDP growth, exchange rates, capital flows and asset prices in virtually any country.
- Top-down analysis. Many mistakes in forecasting are due to a narrow focus on microanalysis (encouraged by neo-classical economics). Micro research is important for stock selection, but with it you cannot catch market turning points. This is due to the fallacy of composition: the mere addition of parts does not add up to the whole, because the crucial interaction between those parts is neglected. To give an example: classical theory says that exchange rates and capital flows are determined by the interest rate differential. This is the result of a model of one “representative” investor, for whom interest rates are given. However, no empirical evidence could be found for this widely held theory. The reason is simple: though true for one investor, for all investors together, interest rates are not external, but the result of their collective actions. Our top-down analysis captures exactly this.
We have quite a variety of different kinds of investors, mainly from Japan, Hong Kong and Europe. A major Japanese pension fund has invested directly with us, as have several funds of hedge funds, family offices and high net-worth individuals. With such a diverse investor base we have adopted a low volatility investment approach. This approach has seen returns for our investors in the ProfitFundCom/Global Macro Fund of more than 49% since September 2002.
Where is the hedge fund industry heading?
At recent conferences and meetings I have heard many funds of hedge funds saying that they simply can’t find enough talented managers to give money to. There are obviously very talented managers out there, but it has become harder for them to stand out from the crowd. There is always room for new talented managers, but there is bound to be a shake out of some of the underperforming managers. I am convinced the industry will continue to grow, but in asset terms rather than number of managers. As the Wall Street legend Jim Rogers said at the recent Hedge Funds World Japan conference, there simply is not enough smart people out there to sustain 10,000 good hedge funds in the world. When the big investment banks downsized, many of the executives used their severance pay to launch their own hedge funds. However, just because you have been an investment banker, doesn’t automatically make you a great money manager. To profitably manage money in the long term, you need a sound investment philosophy and superior analytical skills. That requires talent, not just financial industry experience.
Also, I think that Japan is a very exciting market for hedge fund investments right now. More and more investors, both institutions and private investors, are starting to invest in hedge funds. We are looking forward to a busy and profitable 2005.
Stefan Nilsson MBA, partner and senior management member of ProfitFundCom, is based in the company’s Tokyo office. He can be reached at: stefan.nilsson@profitfund.com or Tel: +81 3 5573 4771. For more information on ProfitFundCom, please visit www.profitfund.com
