AMSTERDAM - Not many money management firms are named after the principals' favorite watering hole, but Palladyne Asset Management B.V., a firm newly created by United Asset Management Corp., is.
The bar - located off Amsterdam's famous Leidesplein - actually is named Palladium, but that name already is used by other Dutch firms so the principals modified the Dutch equivalent word, palladijn. More importantly, palladium is a "very strong and trustworthy" metal, the type of connotation a money manager would desire, said Hans Nibbering, director of sales and marketing. Pallas also is the name of the Greek god of wisdom, he said.
Despite the inside joke on the name, Palladyne's principals are a very serious group. The four, all former employees on the quantitative team of Dutch-Belgian insurance giant Fortis Investments, offer Dutch equity, currency management and global tactical asset allocation products.
In the works are a European equity product keyed to the development of a single European currency and a market-neutral product that uses both U.S. and Dutch stocks. Also under development is a financial planning product geared for smaller individual investors.
"Risk control really is the basis and one of the important characteristics of our models," said Erik van Dijk, chief executive officer and director of research at Palladyne, which opened last week.
'Man and machine' concept
As a former academic at the University of Amsterdam, Mr. van Dijk developed his "man and machine" concept of investing. "Man is pretty good in coming up with trends but does a lousy job in coming up with factor weights in pricing," he said.
Thus he tried to combine human qualities in developing estimates of earnings, dividend yields, gross domestic product and other factors and combine them with quantitative techniques.
After offering his multifactor model results to institutional investors and high-net-worth investors from 1990 through 1995 as an independent consultant, Mr. van Dijk and his two partners joined Fortis at the beginning of 1996.
But Mr. van Dijk and three others left Fortis in October. The problem, Mr. van Dijk said, was Fortis officials opted for an enhanced passive approach after last year's acquisition of MeesPierson Capital Management B.V., Amsterdam. MeesPierson, which also had a quant team, had relied on the more passive style and, Mr. van Dijk said, Fortis officials decided there wasn't room for both styles under the same roof.
A Fortis spokeswoman said the company regrets the loss of the individuals and wished them well in their future positions.
Mr. van Dijk's team explored opportunities with other Dutch and German companies, but opted to set up a new firm with Boston-based UAM, which has started up a number of firms, including Paris-based Expertise Asset Management last summer. Palladyne officials already were familiar with UAM from previous discussions with principals at two other UAM subsidiaries: Jerry Gould, chairman of Investment Research Co., Rancho Santa Fe, Calif., with whom they are collaborating on the market-neutral product; and Gary Bergstrom, chief investment officer of Acadian Asset Management, Boston.
Plus, UAM offers autonomy to its subsidiaries and a solid name. The holding company has been expanding its presence outside the United States, with a target of 20% of assets under management to be invested abroad within the next two years. To date, about $30 billion of $206 billion - just less than 15% - in UAM's total assets under management are invested overseas.
Dutch equity Strategy
The Dutch equity product produced spectacular results in the nearly two years it has been run at Fortis. A cornerstone 450 million guilder (U.S.$224 million) portfolio produced a 46.9% average annual return for the 23-month period ended Nov. 30 - 6.06 percentage points over its benchmark. (The benchmark is a modified Dutch CBS index that reduces Royal Dutch Petroleum from about 25% to 10% of the yardstick.)
Palladyne officials decline to name the client involved, which is a sizable Dutch pension fund.
Palladyne's global TAA portfolio shifts money among stocks, bonds and cash within 12 countries. The currency overlay product is derived from the global TAA model. While Palladyne officials have advised on TAA and currency issues, they haven't yet garnered a money management client for those strategies.
A European stock-picking model that builds on the firm's Dutch equities approach is under development. Mr. van Dijk said the product is "of major importance for UAM. They really want us to come up with the European model as quickly as we can."
European pension funds are expected to shift their definition of "domestic" market to the euro zone after the adoption of a single currency. Like many European managers, Palladyne is adopting a sector approach to cover Europe as European stock markets become further integrated with the adoption of the euro.
The firm's long/short product, also under development, offers a new twist on market-neutral products. Because Holland is a small equity market, it often lacks opportunity to short stocks.
But cooperation with Investment Research's Mr. Gould from before the UAM deal spawned the notion of using longs and shorts in both markets. A Dutch investor would gain access to sectors such as entertainment stocks, where the domestic market is thin. A typical market neutral portfolio would be about 60% Dutch stocks and 40% U.S. stocks. Investment Research will offer the converse product for U.S. institutional investors, but the country weightings probably would be reversed.