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This Hedge Fund Made 43% Returns Last Year—the Hard Way

This Hedge Fund Made 43% Returns Last Year—the Hard Way

(Bloomberg) --

Former Goldman Sachs Group Inc. investment banker Klaus Umek has a simple strategy for his hedge fund: seek out complex investments.

After a timely bet on Germany’s Comdirect Bank AG raked in stellar profits last year, the founder of Petrus Advisers Ltd is seeking other investments where several steps are needed to unlock value.

This Hedge Fund Made 43% Returns Last Year—the Hard Way

“We don’t believe in buy-and-hope or shorting a stock and then just wait,” Umek said in an interview in his street-level office in Vienna where a “Beat the market” sign in the window beckons to lure by-passers. “We look for situations like Comdirect/Commerzbank or S Immo/Immofinanz, where there are several moving targets that we can also possibly influence with public engagement if needed.”

The strategy has proved a winning one for the 48-year-old son of a Viennese doctor, whose Cayman Islands-domiciled fund returned 43% last year, far outpacing the hedge fund industry average of 10.4%. Umek said Petrus will continue to be an activist investor with a focus on Germany and Austria, taking minority positions and pushing managements or writing public letters to make proposals that prove to be profitable for investors.

With 700 million euros ($758 million) under management, Petrus runs multiple funds, including the Cayman entity that has swelled to 150 million euros since its inception in 2009. The Special Situations fund, which on average returned 15% a year since its inception, is likely to continue to do at least as well in the future, while the more regulated 120 million-euro Europe-domiciled fund should return between 8% and 10%, Umek said.

This Hedge Fund Made 43% Returns Last Year—the Hard Way

Petrus’s rise was fueled in part by Umek’s efforts to offer a fund tranche to retail investors who can put in a few hundred euros -- a rarity in the world of hedge funds that typically target large professionals or family offices with millions to invest.

Petrus also often offers to represent retail investors in cases where companies try to buy out minority shareholders to gain 100% control of the company. That strategy paid off when it built a position in Comdirect Bank AG, Commerzbank’s online banking subsidiary.

In early 2017, Petrus had started buying Comdirect shares when they traded under 10 euros. It declined Commerzbank’s buyout offer of 11.44 euros per share and eventually agreed to sell the shares at 15.15 euros apiece.

“Commerzbank was announcing a new strategy including a retreat from Poland and bigger investments in its online banking operations, so there were several moving parts,” Umek said. “Now, we are not only making money on Comdirect but also on Commerzbank which we like.”

Umek is currently looking at Aareal Bank AG in Germany, where he is arguing the company can unlock value in the medium term by selling its software unit Aareon AG. In Austria, Petrus is looking at real estate companies including S Immo AG and Immofinanz AG, which have been in merger discussions for years with the latest attempt failing last year.

The situation got new impetus after Austrian investor Ronny Pecik built a 15% stake in S Immo. Umek is now arguing the two should finally combine, and expects that there will be movement at both companies before their shareholder meetings in April and May.

“A merger between S Immo and Immofinanz would create a reduction in operating and funding costs, so that shareholders of both companies would benefit as the company gains in size and profitability,” Umek said.

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Umek, a wine collector who worked for Goldman in London, Frankfurt and Moscow before starting his own hedge fund, is now turning more of his attention to Germany. That’s where he wants to target more institutional and retail clients, he said in the interview, dressed in a blue Patagonia jacket decorated with his mission statement that reads “Premier je suis, Petrus ne change,” a reference to the French wine maker that considers itself the best worldwide.

“German and Austrian equity investors are often left behind because management is allowed to under-perform for a long time before anyone complains,” he said, noting that he wants to change that.

To contact the reporter on this story: Matthias Wabl in Vienna at mwabl@bloomberg.net

To contact the editors responsible for this story: Boris Groendahl at bgroendahl@bloomberg.net, Vidya Root

©2020 Bloomberg L.P.