Heptagon Capital, a boutique wealth management house created nine years ago is, perhaps unsurprisingly, a fan of the adage that "small is beautiful".

There seems to be as much dispute as ever about what is the best way to deliver smart investment ideas – get them from a big-gorilla institution with an army of analysts, or by contrast, obtain them from some nimble outfit able to move fast.

At the “small is beautiful” end of the spectrum is the nine-year-old firm Heptagon Capital, created by a team of former Morgan Stanley bankers in the shape of Tarek Mooro, Fredrik Plyhr and Eran Ben-Zour. Heptagon Capital now has 24 employees with a total of around $8.5 billion of assets under management, expanding by almost two-thirds in the space of two years. To give some flavour of this firm’s cosmopolitan style, meanwhile, there are no fewer than 13 nationalities on the payroll, highlighting how this is a very international firm, despite its relative modest size when compared to a Citigroup or a UBS, for example.

Arnaud Gandon, who is chief investment officer at the firm, having previously worked at places such as Union Bancaire Privée, the Swiss bank, and Gerrard Ltd, certainly seems keen on the “small and nimble” benefits he sees of his firm.

“Most of the talent of portfolio managers is to be found outside the large institutions,” he told this publication in an interview at his firm’s London offices.

“Talented people don’t tend to be found inside them…..Here, by being independent we can serve clients and avoid conflicts of interest,” Gandon said.

The attractions of Heptagon seem to have gone over well with clients, at least so far. In 2012, AuM was around the $5 billion mark, so since then it has chalked up a growth rate of around 60 per cent. There are three lines of business:  Managing discretionary portfolios for families and high net worth individuals; a UCITS platform (five funds in that at the moment), and advisory. There is around $3 billion on the UCITS platform.

“We believe that our edge is in identifying outstanding specialist managers across all asset classes. As an example, the Oppenheimer Developing Market Equity fund outperformed the MSCI Emerging Market Index by 10 per cent in 2013. This fund is on our UCITS platform and it has now close to $850 million in AuM,” he said.

Getting results
Gandon said that much of the success of the firm will hinge around being able to perform for the client, and as a result, he was keen to explain his views on the investment outlook.

“The easy money of putting money into equities is behind us,” he said, talking about the bounce in equities since the crisis, some of which had been driven by cheap central bank money.

He said the dispersion of returns last year in hedge funds was quite high, creating opportunities for flexible managers.

“The dispersion of returns between stocks sectors and equity managers was high in 2013. This is usually good news for active, concentrated equity managers,” he said. “The dispersion of returns has been enormous…we are seeing the return of Alpha to be earned in the market. People need to be choosier about fund managers and country allocations,” he said.

Asked about his views on countries such as the US, Gandon focused on specific sectors,  rather than taking much of a view about economies as a whole.

“The US is recovering but it is gradual…..we are looking at managers focusing on M&A arbitrage.” He mentioned sectors he likes such as pharmaceuticals and biotech. Pharma firms have plenty of cash and are looking to buy smaller firms to obtain a patent pipeline, he said.  

Market outlook
On equities, Gandon said that despite the markets having reached new nominal highs, there is little evidence, in his view, of investor euphoria to suggest an unsustainable position.

“Growth and earnings expectations now seem to be set at more realistic levels than at the start of the year, while prospects have improved and valuations in most regions remain relatively undemanding. Our preference is for Europe and Japan, but we also see an improving case for emerging markets. Globally, bottom-up, alpha-focused managers should also continue to prosper in this current environment, which remains characterised by high dispersion levels,” he said.

In the case of the credit market, he said some profits that could be earned in specific market segments look less likely than a few months ago.

“If prospects really are improving (or at the least, look less negative than some months ago), then it seems reasonable to ask how much further yields can compress,” he said. “The carry that can be earned on credit (sub-10 basis points on two-year German debt, for example) looks increasingly unattractive,” he said.

“Our approach remains one of selective allocations within the space, particularly towards managers with flexible mandates and differentiated approaches,” he continued.

As far as the alternative asset class space is concerned, Gandon said Heptagon Capital hasn’t changed its view in favour of, and hence allocation towards, event-driven managers.

“Over $1.7 trillion of M&A has been announced so far in 2014, and given little change in broad equity market valuations year-to-date, high corporate cash balances, improving lending conditions and growing CEO confidence levels, we expect the trend of deal-making to prevail for some time longer,” Gandon said.