The story of Rogge Global Partners mirrors that of the space it occupies.
Located on the former site of the Church of England's theological library, the building — and the money manager business — represent a labor of love built on the philosophy that value lies in differences rather than similarities.
When Olaf Rogge — CEO and co-CIO of Rogge Global Partners PLC — was searching for a location in 1998, he specifically didn't want “to walk into a faceless office with marble floors and where (the employees) are all numbers,” Mr. Rogge said. So he chose to convert the theological library into office space, a project that ended up taking three years and costing twice as much as initially budgeted.
During the same time, the euro was introduced — an event that helped define the business as an active global fixed-income manager established on a foundation of relative value analysis across countries. Like the growing pains associated with the company's headquarters, the euro also tested the firm whose employees now represent 13 nationalities.
How did the creation of the euro affect your business? We believe the introduction of the euro leveled the playing field in Europe and massively enhanced productivity. But others didn't ... and the euro went down (following its launch) as the dollar went up. At the time, 95% of our clients were U.S. pension funds, who were being told (by consultants) to get out of international fixed income. By 2002, one euro was worth below (US)80 cents, and that's when we were at the lowest point. Our (assets under management) had gone from about $8.5 billion to about $5 billion. Three years later, the euro was worth $1.60, and clients would have doubled their investments just from the currency movements, plus the extra returns on top of that.
So that was a lesson, and we diversified our client base. Today, we have $57 billion (in AUM). About 45% of our clients are from Europe, 30% are from Asia, 10% from North America, and 15% from Latin America and the Middle East. Not only are we global, but our clients are global.
What do you think of the euro now? The euro is here to stay. Are there problems? Of course, but they are being addressed. They aren't always addressed voluntarily. Sometimes, the markets will force them to be addressed. ... The problems with the euro are going to be in the headlines probably for as long as we live, because there are so many governments and so many central bankers, all wanting to say something and do something differently. This is very confusing for investors.
What do you make of recent geopolitical events and its impact on global markets? We're in a completely different world. If you base your analytics and your long-term forecast on what has been happening over the past five or even 10 years, you're totally deluding yourself. ... At no time ever were capital markets run by politicians and central bankers in the way that they are today, at least not over the last 100 years. This is completely new. You cannot ignore this. ... What we have is a situation in which the market is getting the equivalent of a cocaine injection, and more and more is needed. In 1971, when (President Richard) Nixon abolished the Bretton Woods system, one dollar of (gross domestic product) growth was created by one dollar of debt. Today, to create one dollar of GDP growth, you need three and a half dollars of debt in the U.S. When politicians talk about growth, they're actually talking about more debt. ... Whether we're talking about the Federal Reserve, the Bank of England or (the European Central Bank), they're all throwing conventional monetary policy out of the window to restart that old engine, that economic engine which isn't delivering anymore.
How has the current sovereign debt environment changed the way Rogge invests in government bonds? Going forward, I have serious doubt that we can achieve a real rate of return with the old (investment) models. Traditional asset classes of cash, equities and bonds were all that was needed for the last 50 years, because these three asset class mixes could take care of your liabilities and deliver, say, 7% or 8% annualized returns. ... Now, you know these three asset classes can't deliver that level of returns. Now institutional investors ... who have been betrayed by poor economic mismanagement, are going to have to ask, "How can I get a real rate of return?' We have the same problem. We have to ask ourselves what we can offer to our clients to give them a realistic hope of getting a real rate of return. ... This search for new products to protect our clients' assets and to deliver a real rate of return is clearly occupying my nights.
How do you plan to grow the business? In our business, you have to grow or you fall behind. You're condemned to grow. We are now facing — and our clients are facing — a very different capital markets environment. If you're honest and you want to protect your assets, you've got to go into countries which are growing faster with less debt, and that's emerging markets. So that's what we're doing. ... In our emerging markets currency strategy, for example, if you give us $1, we put this into Treasury bonds. Then we borrow money in the market against the $1 and use this in the forward market to buy emerging market currencies. That fund has returned 4.5% annually since 2008, and is now up to about $3.7 billion.
We've also been investing in global corporations and emerging markets since 2008. We had decided that we wanted to invest in global corporations in addition to global government bonds. We also knew that global high-yield was growing fast, but if you invest in high-yield bonds, you need a different approach. So we bought (ING Ghent, the high-yield business of ING New York) to broaden our skill set. Global high yield is actually one of the products that can deliver a real rate of return right now.
You mentioned Verizon Communications Inc. as the first client, how did that come about? Verizon is our pioneer client, and they were absolutely fantastic. They saw the logic in the diversification benefits of global government bonds. What do you think is the annualized difference (in the rate of returns) between the best- and the worst-performing countries of the U.S., Japan, the U.K., Germany, Australia and Canada from 1985 to 2011? It's 25%. I said to Verizon at the time that if you really want the benefit of the relative outperformance of one country vs. another, the purest form is to buy domestic debt, globally. We have this huge opportunity set, which means that a truly global manager will always outperform any domestic fixed-income manager in the long run and therefore also any domestic liability requirements. This opportunity set is the core reason we went into global bonds. Verizon accepted it and is still our client today. For 28 years, that portfolio has outperformed the benchmark, and the benchmark (returned) 8.6%.
How will increasing regulations affect the firm, and the asset management sector? Not well. I understand why there needs to be additional regulations — it's because regulators have failed in the past. But these new regulations are being done by people who do not understand the real world. We, as managers of people's savings, are experiencing much higher transaction costs because the liquidity has gone out of the market. Regulators want to make theses costs even higher. This “Tobin tax” is 10 basis points. If you buy German bonds, let's say the yield is 1.2%. If you buy in January and sell in December, 20 basis points go to the government. In a way, you only net 1%. From a pensioner's point of view, 17% of the income is going to the government and makes the returns worse for us. The regulators want to punish (banks') trading desks, but they're also punishing long-term savers.