Great artists evolve and refine their skills over time. It is with this mentality that Philippe Gaboriau, chief executive and chief investment officer at the Louvre Endowment Fund, has rethought exposure over the past 10 years.
Speaking to Citywire Selector, Gaboriau has sought to reinvigorate tired and underperforming aspects of the €250 million endowment fund since taking the reins in 2009.
Looking back over the past decade, Gaboriau, who was profiled regarding his first five years in the role back in 2014, said his main ambitions of reducing index-tracking exposure and adding more alternative exposure has largely come to pass.
‘We have very few index-tracking funds, as we only have them on the US equities and Japanese equities. All the other asset classes we have are actively-managed funds. It is a movement we initiated five years ago,’ he said.
‘Another movement was adding more absolute return funds, both Ucits and offshore, and now they represent about 15%. At the time in 2014, I thought the majority of investors were concentrating on index funds and we had a big shift on that asset class, which created a concentration on specific names. That isn't very good, so we decided to be quite careful with that.’
Fixed income rethinking
Given the changing macroeconomic picture, Gaboriau has also been forced to rethink his fixed income exposure. Ultra-easy monetary policy has created a low-yield environment, in which Gaboriau fears many investors can be trapped with expensive but low-functioning assets.
‘Government bonds and investment grade debt were both getting increasingly expensive and they have gone much further than we would have thought. That is why we decided to go to absolute return funds,’ he said.
‘Currently in the portfolio we only have 5.5% in traditional fixed income, we have no high yield, as we didn't want to take more risk to compensate for lower yields. We do have emerging market debt, as we believe this asset class is really cheap.
‘The idea is really to try to generate income without over-stretching, so we have been negative risk over the last two or three years. We believe we are more at the end of the cycle than in the middle, so now is not the time to take too much directional risk.’
Eyeing alternative avenues
This has led to other alternative elements as well, namely in the infrastructure and private assets arena. ‘We concentrated a lot of the fund on unlisted infrastructure and we have 10% of the portfolio now allocated there,’ he said.
‘Inclusive of infrastructure, alternative assets are now 25% of exposure, while we have 5% exposure to private equity, which is done for impact investing. This is something relatively new that I implemented to ensure we have a positive impact.’
This money is largely channelled into schemes such as apprenticeship programmes for young craftsmen, as well as natural heritage and cultural initiatives in France. Gaboriau expects to launch a fourth project on this theme in the coming months.
All of this echoes his aim of expanding beyond traditional areas, which he said has become increasingly less dependent during his years as steward of the fund. He highlighted how stock investments have had to change over time as well.
‘Currently, for equities we are on 40%, we have had 55% and during the summer we were down to 20%, which was the lowest rate ever. We have been structurally underweight equities for a year or 18 months now. That positioning is partly why we achieved such good performance in 2018. Year-to-date we have around 12%. The losses for last year were already compensated for by 5 February.’
Philippe Garboriau featured in the French Top 30 magazine in October, which showcased the biggest names in the country's fund selection industry.