Using business to fix our future

We attended the fourth European B Corp Summit – the gathering of purpose-driven businesses – on the 23rd and 24th of September. Almost 700 people from 23 countries attended two days of inspiring panel discussions, workshops and networking opportunities in Amsterdam. The event was organized by the non-profit B Lab Europe which helped HCP get certified in 2017.This was the third time we took part since becoming a B Corp. We could see that the B Corp network is becoming bigger and their message of balancing purpose and profit louder.


Businesses have a responsibility to work together to build a more inclusive economy and B Corps are at the forefront of this movement.  We are proud to be a part of this movement as the first B certified company in Finland.

Messages from the B Lab and other B Corps

Jay Coen Gilbert, co-founder of B Lab and the B Corp movement declared: “We don’t have much time left to make sure we can preserve our home not just for us but for future generations. […] Incremental change is insufficient, individual change is insufficient. We need systemic change”.

A systemic change may be hard, but we have seen some promising initiatives lately. In September, the Financial Times declared it’s time to reset capitalism. They are examining a model of free enterprise capitalism that does not focus on maximizing shareholder value under the heading of the ‘New Agenda.’  

The Business Roundtable, an association of CEOs of leading US companies including Apple and JP Morgan Chase, announced in the New York Times that they are committed to lead for the benefit of all stakeholders.

This is also our mission and the mission of the B Corp movement. But what we need now is action beyond nice words. We need to walk the walk – as it appeared in the response by a group of B Corps to the above NYT piece.

B Corp letter to the Business Roundtable

Some of our B Corp friends like Patagonia and Ben & Jerry’s have hit the streets to support climate strikes. “We need to stand out because with more heads, it will become easier to build a more sustainable future. This is the power of the B Corp community,” stated Anuradha Chugh, Managing Director at Ben & Jerry’s.

Some other B Corps work within their line of business.

What is the role of finance?

In the summit, we were happy to see many other financial service providers that have joined the B Corp movement. Some are seeking to build a better future by directly financing companies and innovative solutions for a more sustainable tomorrow.

We were especially pleased to meet people from a Swiss private bank, Lombard Odier, that got B certified earlier this year. They have been in business for more than 200 years, and surely know something about sustainability in finance.

Their Head of Corporate Sustainability, Ebba Lepage stated that: “We see our role as a thought leader, leading the change. […] We invest in sustainable business models because we believe they do good for the world and have good business models that will last.”

At HCP, we want to be a part of a more sustainable future by leading the change we want to see within the financial service industry.

“We believe HCP’s way of operating as a business can demonstrate how an asset manager can be responsible. It is not just about launching green bonds and ESG funds. We emphasize having a high standard on governance and we disclose what we do – from how much tax contribution we make to the company’s pay structure. If we cannot be a responsible business ourselves, how could we preach others to be one,”  stated Jo Iwasaki from HCP. 

We would like to believe that we demonstrate to the world that the financial service industry can be a force for good.

Leading the beat of purpose-driven business 

We believe that the B Corp movement is one of those initiatives that carries a promise of a more sustainable tomorrow. We wish to encourage more business leaders to think about their mission and contribution to the wellbeing of the world by promoting the idea of B Corporation at Slush, that is, the leading tech start-up event in the Nordics.

We host an afternoon event on 22 November at Mesukeskus, attached to Slush but not within the main area, so you don’t need a Slush ticket to join us. At this event, we will have a presentation by B Lab, a couple of B Corps to share their experience of getting certified and what it brought to them, followed by a self-assessment session.

If you wish to know more or attend, email our investor relations at

We will follow this by a networking event (‘HCP lounge & sauna’) back at the HCP office at Kaapelitehdas/Cable Factory, where we can continue discussions on the topic.

Telling HCP’s B Corp Story

B Corp Summit attendees taking a break in between workshops

At B Corp Summit in Amsterdam, I was asked what problems I face when telling my company’s story. In my work at Helsinki Capital Partners (HCP), I try to tell people that the way their financial service provider does business really matters. And most of the time nobody cares.

The financial sector has a bad reputation for a reason. It is known for incentives encouraging short-term thinking, irresponsible processes, and hierarchical management. In addition, financial products and services are often very complex, they carry hidden costs and they might not even be in the clients best interest.

This is a problem within the industry. How you treat your clients, workforce, and how you give back to the society are questions that have to be answered within any given company.

We have thought of these questions carefully, and our answer is not to be a prick.

Not being a prick in our line of business includes committing to transparency. It is self-evident for us that clients are told how much they pay both directly and indirectly to us for our service. We focus on the best interest of our client, which is why we have eliminated all short-term incentives, such as staff bonuses, from our company.

The #BCorp certification makes our business even more transparent. Moreover, it encourages us to consider our impact on all of our stakeholders.

We operate as a limited liability partnership, where all the permanent employees own a share of the company. They will prosper if the company will. On the other hand, if the company would go bust they would lose their money. This is the healthiest incentive for employers long-term thinking we can imagine.

The shareholders are important for a company. However, they are only one stakeholder group to take into account. This is as obvious to our company as it is to all of us as individuals. A life where you only value a high salary and fat dividends is a poor one. We want more!

Meeting people from other mission-driven companies is always inspiring. They are ready to #leadthebeat of human-faced capitalism, where businesses balance purpose and profit.

They care.

Thank you all who made it to #BCorpsummit2019! It was great to hear your stories and share ours.


HCP Quant 8/2019 -10.98% | Recession ahead? What will happen to stocks?

August was a harsh reality check for investors around the world as the trade war between the US and China intensified further. For HCP Quant, the month was a bad one. Especially for Chinese companies, the price drops were significant. During the month, a stop-loss was triggered for three companies, as a result of which they were liquidated. HCP Quant’s value decreased by 10.98% in August. The benchmark index MSCI ACWI SMID Value Total Return in turn dropped by 3.10% in euros. In Europe, the S&P Europe 350 Total Return dropped by 1.37%. The S&P 500 Total Return index performed the best, with a small drop of 0.33%. American markets amazingly continue their excellent performance.

Another thing that spooked investors in August was the inverted yield curve of the US, the biggest driver of the world economy. An inverted yield curve is a situation in which the interest rate over a shorter duration is higher than for a longer period. In a normal, healthy market, a longer maturity’s interest rate is higher than that of a short one. There is more uncertainty related to a longer maturity and to compensate for this risk, investors demand higher returns, i.e. better interest.

In what kind of sitution is the interest rate over a shorter maturity higher than that of a longer one? In such a situation, the short-term risk outweighs the uncertainty over the long term. What could this situation be in the case of government bonds? A recession.

Interest rates for US government debt over the past five years. Source: Bloomberg

Above are shown interest rates for US government debt over the past few years. For government debt maturing in 3 months (USGG3M, green) the interest rate has this year risen higher than the interest rate of debt maturing in 2 years (USGGZYR, white) and 10 years (USGG10YR, yellow). In August, a hair-raising situation was caused by the interest rate for debt maturing in ten years falling below the interest rate of debt maturing in two years. This has historically been quite a reliable indicator of a coming recession. Since the 1970s, every time that the interest rate of government debt maturing in ten years has fallen below that of debt maturing in two years, has a recession followed. Since the occurrence of a yield curve inversion, the recession has started in 10-22 months.

Yield curve inversion and the time lags between inversions and recessions. Source: Fortune

If a recession is knocking on the door, could one think that selling off stocks would be the wise thing to do? Considering that one ought to be able to buy them on the cheap in a recession? The yield curve inversion seems to be a historically good (even though not an precise) prediction tool for recessions. It is however not useful for timing the market.

Eugene Fama ja Kenneth French published a paper at the end of July called Inverted Yield Curves and Expected Stock Returns which studies this question. Not only for the US market but also for the world market and the world ex US. In the paper, Fama and French try investing strategies that gradually move out of stocks to one-month US Treasury bills (an alternative for cash) as the yield curve inverts and remains inverted. Such a portfolio’s returns they compared with stock market returns over one, two, three, and five years. They also tested combinations with yield curves of a different length. All in all 72 combinations were produced. In 67 cases of 72 a buy-and-hold portfolio beat the strategy that moved from stocks to T-bills as the yield curve inverted.

The monthly outperformance of an investing strategy making use of yield curve inversion over different holding periods.. Source: Fama & French

Above is the most relevant table from Fama and French’s paper. It is somewhat difficult to read, so I will explain it in simple language. The table has three portfolios: US at the top, the world ex US in the middle, and world including US at the bottom. The years in the top row indicate holding periods of these portfolios. The spread on the left indicates which yield curves are in question. The “24-120” I have marked with red are the two-year (24 months) and ten-year (120 months) inverted yield curve strategies. The out- and underperformance are indicated on the monthly level. For example in the United States, the strategy that moved to T-bills from stocks when the two-year interest rate was higher than the ten-year interest year lost to overall stock-market returns by 1.08 bps with a two-year holding period.

Fama and French are unequivocal in their conclusion about the uselessness of timing stock markets using yield curve inversion: “We find no evidence that yield curve inversions can help investors avoid poor stock returns. Relative to the returns on the three passive stock market portfolios, all 24 active U.S. and World strategies and 19 of 24 World ex U.S. strategies reduce the average realized return for 1975-2018. The longest forecast period is five years. With the diversification of 11 or 12 countries and 60 months after each inversion, almost all the expected five-year premiums for the active World and World ex U.S. strategies are reliably negative.”

Michael Burry shot to world fame as a result of the book and film “The Big Short.” Burry saw the formation of a bubble in US residential real estate and related subprime problems years before others and correctly predicted that the bubble would burst in 2007. He positioned himself to profit from a fall in the residential real estate market and profited when the markets collapsed. After this, burry closed down his fund and lived quietly for several years. Now he has found a new attractive opportunity about which he told in an interview with Bloomberg. Oh, what is it? Small-cap value stocks.

It wouldn’t hurt if he was right this time as well.

Our funds are open to subscriptions all of September. You can subscribe electronically by clicking the button below. Remember that the subscription sum must be visible in our account on Monday September 30th at 4 p.m. at the latest, so it is good to do the bank transfer the week before.

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Pasi Havia
HCP Quant portfolio manager

“If you don’t risk looking foolish, you’ll never do anything special.”
Ethan Hawke

Best for the World: Workers – HCP honored by B Lab

The asset management company Helsinki Capital Partners (HCP) has been honored by B Lab for its way of working, which takes into account unusually widely employees’ interests.

HCP is praised for its unusually small pay gaps between employees and for having all permanent employees own part of the company.

Communications and customer experience manager Miika Koskela bought a partnership stake in the company in spring after working at HCP for two and a half years.

”I invested in the opportunity to eat the fruits of my labor. Now that I own HCP shares, I am even more interested in the sustainability of the business and the value it creates for owners, employees, clients, and the society around us.”

CXM Miika Koskela

HCP is also honored for its low hierarchy and openness in the work community. All projects that go on in the company are logged into its intranet, which all employees have access to. Anybody in the company can start a project whose cost is less than 10,000 euros without a supervisor’s approval.

Employees are encouraged to manage themselves. Nobody’s working hours are supervised and remote work is always allowed

Pasi Havia, an HCP portfolio manager with a background in the IT sector has made use of remote working by having his office first in Spain and now in Estonia. He considers free working hours self-evident.

”If I dug ditches for a living, keeping track of working hours might make sense – in the IT sector, not so much. Bad code does not become better by throwing more hours at it. This applies to all knowledge work.”

Pasi Havia

Fund Manager Pasi Havia

In 2017, HCP was the first company in Finland to receive B Lab’s B Corporation corporate responsibility certificate. B Corporation companies are profit-seeking firms with a mission. They seek to take into account all stakeholder groups – not just the company’s owners.

”You might compare a company to an individual person. If the entire purpose of your existence is to make profits, your life is rather poor,” comments HCP’s CEO Tommi Kemppainen.

Tommi Kemppainen

CEO Tommi Kemppainen

B Lab, B Corp, and Best for Workers

The non-profit B Lab grants the B Corporation certificate to companies who meet extremely stringent environmental, societal, and governance criteria. The world has 3,000 B Corporations in 64 different countries and in 150 different branches of industry.

B Lab honors 10% of certified companies who take into account their employees and other stakeholder groups particularly well. HCP has already been named two years in a row as best for workers.

“Best for Workers honourees have an exceptional corporate culture, work environment, worker health and safety practices, ownership and compensation policies, and other employee-centric practices. Companies like HCP represent the kinds of impact-driven business strategies that are inclusive, regenerative, and delivers value to all stakeholders, not just shareholders,” comments Anthea Kelsick from B Lab.

The list of all honored companies:

HCP Quant 7/2019 +2.58% | The Scottish Salmon Company | Concentrated Portfolio | Key Ratios

The hot July was favorable to stocks. On stock exchanges, summer months are quieter than other months. Trading volumes are lower, as a result of which stocks move more on thinner trading than at other times. When trading is lower, you don’t need to draw as strong conclusions from price changes as at other times. Small news that would normally swing the price only a little can in the summer result in meritlessly large moves.

The HCP Quant fund rose by 2.58% in July. The benchmark index MSCI ACWI SMID Value Total Return’s performance was a bit lower at +2.49% in euros. The US enjoyed a cheerful time with the S&P 500 Total Return index rising by 3.54% in euros. Europe missed the party while returning +0.28%.

HCP Quant’s key ratios, weightings in the fund, market capitalizations, and home countries. Situation 31.7.2019. Source: Bloomberg

HCP Quant’s investments’ geographical diversification. Situation 31.7.2019. Source: Bloomberg

HCP Quant’s investments’ dividend yield since 2015. Source: Bloomberg

HCP Quant’s investments’ monthly P/E ratio since 2015. Source: Bloomberg

HCP Quant’s investments’ monthly P/CF ratio since 2015. Source: Bloomberg

HCP Quant’s investments’ monthly P/B ratio since 2015. Source: Bloomberg

HCP Quant’s investments monthly P/S ratio since 2015. Source: Bloomberg

HCP Quant’s investments’ monthly ROE (%) since 2015. Source: Bloomberg

HCP Quant’s investments’ monthly EV/EBITDA since 2015. Source: Bloomberg

Last time I went through the fund’s key ratios four months ago. I have now updated the ratios manually on a monthly level. No large changes have taken place. All key ratios are still strongly on the so-called deep value end, so the fund is exposed to undervalued stocks in line with its strategy.

The investments’ geographic diversification has on the other hand changed much more. At the last evaluation, China’s weighting was the highest at 31% and now it has dropped to second place with a 20% weighting. Australia has risen to the highest weighting, whose most important trading partner is in turn China. Australia’s weighting has increased from 19% to 22% since the last evaluation. Hong Kong and Russia’s weightings have not seen large changes. The United States has shrunken from 15% to less than 5%, so it is clear that HCP Quant’s development does not follow the benchmark index MSCI ACWI SMID Value Total Return. In the MSCI ACWI SMID Value Total Return, American stocks make about half the index. Australia, China, and Hong Kong together constitute 55% of the fund’s investments, which means that China still has a great impact on the fund’s development.

Below is a comparison between HCP Quant and the US S&P 500 index’s key ratios. It gives a good perspective on how much cheaper valued stocks the fund is invested in.

    • Dividend yield 5.74% (S&P 500 1.89%)
    • P/E 7.69 (S&P 500 19.48)
    • P/CF 4.46 (S&P 500 14.17)
    • P/B 1.72 (S&P 500 3.39)
    • P/S 0.52 (S&P 500 2.19)
    • ROE 23.75% (S&P 500 16.01%)
    • EV/EBITDA 5.40 (S&P 500 13.27)

In the second week of July, one of HCP Quant’s companies, The Scottish Salmon Company PLC announced a potentially up-coming buyout. Several different parties have formally expressed their interest in buying the company partly or in its entirety but without committing to an offer. These parties are now studying the company. The Scottish Salmon Company has announced that it does not comment on the negotiations. Decisions are expected in September. Investors have received the news with open arms and the shares trade at a level approximately 20% higher than before the news broke. At this point, there is no certainty of a transaction taking place.

Jack Vogel writes of an interesting exercise in his Value Investing & Concentration article. Much has been written of value investing and its results generally. On the other hand of concentrated value-investing portfolios with fewer companies have been researched much less. In the exercise, Jack formed two universes of the 1000 largest companies out of FactSet’s database, both in the United States and in developed markets. He studied how hypothetical 50-, 250-, and 500-company value-investing portfolios would have performed at different times. The exercise thus included large and mid-sized companies. HCP Quant’s investments are in small and mid-sized companies, and they are concentrated in an even smaller number of companies than in this exercise.

As one can guess, in the long term (30.5 years) value investing generally speaking outperformed markets and growth companies both in the US as well as in developed markets. This is nothing new or surprising. When value investing works, a concentrated portfolio also works better. The more concentrated a value investing portfolio is in the long term, the better its returns.

On the left is the US markets’ (Universe VW) and different value investing portfolios’ annual returns and on the right the same for developed markets 1.1.1989-30.6.2019 (Source Alpha Architect). In developed markets, concentrating investments in 50 companies would have nearly doubled returns. In the US too concentrating value investments would have significantly increased returns.

In the medium term (10.5 years) the situation changed. As is well known, the past ten years have passed dominated by growth companies, and this can be seen in Vogel’s results. Because concentrating a portfolio sharpens its exposure to selected factors, in the US the returns weakened in the medium term when the portfolio’s concentration was higher. Correspondingly, the wider the portfolio was diversified the better it fared. For developed markets, the medium term’s result was not as clear. Equal-weight value investing portfolios nevertheless outperformed the wider market.

The last five years are a story of their own. If the last ten years have been challenging to the value investor, then the last five have been pure torture. Growth companies have outperformed value firms significantly. In the US, the higher the concentration of a value portfolio, the more it lagged the market. Growth companies on the other hand outperformed markets. Ouch!

A value investor who formed his portfolio using EBIT/TEV only would have made a loss, especially if fees are taken into account. For developed markets, the situation was luckily not as bad.

On the left, annual returns for the US market and different-sized portfolios and on the right for developed markets 1.7.2014-30.6.2019 (source Alpha Architect). What can we learn from this exercise? First of all that value investing is a long-term activity. Secondly, even if outperformance in the long term is rich, the underperformance over a shorter period can be painful. Thirdly, the more concentrated a value-investing portfolio is, the more it is exposed to select factors. When the market cycle has favored the value investor, a concentrated portfolio has had majestic returns. Correspondingly when it has been out of fashion, the performance has been chilling. This is what is meant by “no pain, no gain” in investing. As the counterweight to good returns comes pain, which the investor who has chosen this investing style must bear. Bumps in the investing road in turn can be evened out by increasing diversification geographically as well as the number of companies.

Best regards,
cast-iron stomach Pasi Havia
HCP Quant portfolio manager

“Everyone has the brainpower to make money in stocks. Not everyone has the stomach.”
Peter Lynch

We Are Proud to Have Reached €100 Million in Assets Under Management in Our Own Unique Way

Here we are – we’ve just reached our first €100 million in assets under management (AUM). We aren’t the first firm to achieve this. But we are unique for having done it fairly and transparently to all our stakeholders.

Fairness to our clients

We have reached the €100 million AUM threshold with a transparent fee structure applicable to everyone. We have also returned all thinkable and unthinkable kickbacks to our clients (e.g. trailer fees, sales charges, and structuring fees). We have done it before Mifid II came into effect – since our inception in 2007, instead (read: HCP Initiative). We respect our clients and demonstrate it in the way we operate. We are grateful for your trust, now and ever.

The way we work

We are also transparent in our salary structure. The lowest salary of a permanent employee – excluding new partners – is only 35% lower than the one paid the most. We pay no bonuses.

We reward everyone committed to the company by making them an owner. Staff who have joined after the company was founded collectively own 38% of the company (if we include current employees who have been here since the day one, this goes up to 57%).

We own this company together. We have said that we respect everyone, and this extends to employees. This is important for us, because we want to create long-term value.

Best for the world

We want to show a positive example for how to operate in the financial services sector. We are one of the very few B Corp asset managers globally. If you are interested in how we have qualified for this prestigious certification, you can check out our B Corp profile.

This year the B Corp community saw another – and very significant – example. Lombard Odier, a long-established, and highly respected Swiss banking group, also received B Corp Certification. We are delighted that they have become part of our B Corp family – with its CHF 259 billion in AUM.

We might need the next 20 years before we reach our first €1 billion in assets under management at the current pace, and we are prepared for this long-term journey. We anticipate a possible recession, and for years already, we have accumulated a safety buffer. This is to make sure that we can ride out the waves even in the period of economic downturns.

We do our best to continue growing and to be part of this industry. This is important for the society around us and for our stakeholders engaged with us via our #HCPSPIRIT activity.

Let’s imagine what we could do together with €1 billion  under management. We’re already working to make this a reality.

Read more in our Sustainability Report 2018.

HCP Quant 6/2019 +4.04% | Bosideng International +140%

If May was challenging, June was more favorable in markets. HCP Quant rose by +4.04% in June. The benchmark index MSCI ACWI SMID Value Total Return’s return was left slightly behind at +3.60%. Other markets performed as follows in June: the S&P 500 Total Return up by 5.19% (large US companies), the S&P Europe 350 Total Return up by 4.40% (Europe’s large companies) and the Shenzhen Stock Exchange Small & Medium Enterprises up by 2.50% (small and mid-sized Chinese companies). All returns in euros.

Drama, speed, and dangerous situations were fed as expected by the meeting between Donald Trump and Xi Jinping at the G20 meeting at the end of June with the markets already having finished the month, as well as by the highest-weighted company in HCP Quant, Bosideng International.

Trump and Xi’s meeting was important to HCP Quant because of its high China weighting. I consider the chances for a tangible result in which the countries agree to continue trade talks quite unlikely, but this time it seemed to be enough for markets. In the week following the meeting, China’s markets opened strongly and in the United States, the S&P 500 Total Return hit an all-time high of 6018.54 points on 3 July.

Knowing Trump, negotiations can take sudden and surprising turns, in which Chinese stocks will undoubtedly move quite sensitively as a result of Trump’s tweeting and the actual development in the future as well. It seems positive that if indications at the G20 meeting of continuing talks got stocks to open strongly on the following trading day (e.g. CSI 300 +2.88% and the Shenzhen Stock Exchange Small & Medium Enterprises +4.04%) then what might the development look like if the talks reach more tangible results?

Another important event in June was the short seller activist Bonitas Research’s presentation of accusations against Bosideng International, the highest-weighted stock in HCP Quant. I immediately began sharing information about the issue and the progress on Twitter. Bosideng had risen to the highest weighting thanks to its excellent performance. Bosideng’s weighting before the attack was 12% and the share price was 2.30 HK$.

Bosideng International, one year’s shar price. Source: Bloomberg

In a report published June 24th, Bonitas Research accused Bosideng  of several obscurities relating to among others accounting and related-party transactions. The company’s share price decreased by 25% to 1.73 HK$, and Bosideng asked the exchange to suspend trading in its stock. Bonitas’s accusations largely rely on differences between the numbers published in the company’s financial statements and the numbers published by its subsidiaries in the Credit Report in China.

Part of HCP Quant’s investing process is estimating the probability of accounting fraud. For this, the fund uses the Beneish M-Score model. Measured by the Beneish B-Score, Bosideng’s risk of accounting fraud was not unusually high. The same thing goes for the Montier C-Score, which also measures the probability of falsification, showed the risk to be low for Bosideng. No model is naturally one hundred percent accurate and trustworthy. Some companies falsifying their accounts pass this filter too. Using these models nevertheless decreases the risk of picking companies for the portfolio whose accounting is misstated.

Bosideng answered Bonitas’s accusations the following day with an exchange announcement.In the announcement, Bosideng denies all accusations and holds them baseless. According to Bosideng, Bonitas’s report is misleading, inaccurate, and biased. Since sending the exchange announcement, stock trading has resumed. The share price rose 15% to 1.99 HK$ during the day.

In my view, the short-seller’s attack is baseless. Bosideng’s response appears credible. According to Bosideng, the differences between numbers in the financial statements and the Chinese Credit Report arise out differences between China Accounting Standards and IFRS. Additionally, the reported time periods differ.

The following day, Bosideng published its outlook for the year. Bonitas’s attack is however not yet over. Bonitas continued its accusations by sending a new report. The company reacted to it quickly with an exchange announcement, in which it considered the report equally baseless and irresponsible speculation as the previous one. Bosideng denied all accusations and promised to provide additional information against the accusations. At this point, the company’s patience towards Bonitas wore out, because Bosideng announced initiating legal proceedings against the attack. Citec began following the firm and gave it a target price of 2.84 HK$. The company’s share price rose by 2% to 2.03 HK$.

On June 27th, Bosideng published its annual earnings presentation and as an exchange announcement a new response to Bonitas’s accusations, going through them one by one. The share price rose by over 4% to 2.12 HK$. After this, no more was heard of Bonitas and the share price has risen to 2.44 HK$. Since the drop caused by the attack, the share price has risen 41% in two weeks.

The change in Bosideng’s short positions was Bosidengin 43% 6-14.6.2019.
Source: China Galaxy International Strategy Note 24.6.2019

China Galaxy International’s report published 24.6. on the most shorted stocks on the Hong Kong exchange 6.-14.6. is an interesting read. Bosideng rose to this list quickly. The number of short positions in the company rose 43% to 175 million shares. It is slightly below of 6% of the company’s free float. I doubt Bonitas is behind these short sales.

Another interesting thing to note about Bonitas’s attack is the timing right before the earnings release. This is unlikely a coincidence. It looks like Bonitas has sold the stock short a week or two before publishing the report, timing its release right before the company’s earnings release. Perhaps this has been an attempt to maximize damage to the company by casting doubt on the new, published numbers. Investors have however come to Bosideng’s side on this issue. The company’s share price has risen to over a five-year high. The share price may have been pushed ahead by the closing of short positions at significant losses.

The HCP Quant fund has sold its position in Bosideng International today Friday. The reason for this is not Bonitas’s accusations but the published results. According to new financial information, Bosideng no longer fulfils the investment criteria and it is replaced by three new firms. Bosideng was in HCP Quant’s portfolio for almost ten months and returned over 140% in appreciation and dividends on top of that. Bosideng has been undoubtedly one of HCP Quant’s best investments in its history. I hope similar success stories will be picked going further too.

Russell Flannery writes in his Forbel article Canada Goose’s China Rival Bosideng Recovers From Bonitas Attack interesting information about the company’s founder Gao Dekang’s background. Gao founded his first clothing business in 1975 in China’s Jiangsun province with 11 other villagers. Gao learned sewing from his father and cycled to work at the beginning of his career. The business grew aided by China’s reforms. Gao built a product and brand step by step. Gao’s story is that of rags to riches. Today, the billionaire no longer has to cycle.

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Wishing you success,
Pasi Havia
HCP Quant salkunhoitaja

“Never confuse genius with luck and a bull market”
John C Bogle

Teal organisation model: self-management, wholeness at work, and evolutionary purpose

At HCP, everyone gets to choose where and when they work. Our CXM Miika Koskela likes to work remotely not only from his home but wherever he is.

Last year, our fund manager Pasi Havia came across a book called Reinventing Organizations by Frederic Laloux. This book introduces a new paradigm of organisational structure: Teal organisation model. Teal organisation is characterised by three breakthroughs: self-managementwholeness at work, and evolutionary purpose.

This looks a lot like us, Pasi thought to himself and suggested our CEO, Tommi Kemppainen, to have a look. He, in turn, recommended everyone else to read it. And here’s what we think about it.

It is only natural that our own digital nomad Pasi was the one who came across with Teal. He has a background working in the creative IT business. Pasi has always taken his work with him wherever he chooses to live in.

For Pasi self-management is self-evident: “If you are digging a ditch for work, keeping track of the time spent working makes sense. In IT it is different. A lousy line of code does not get any better by punching more hours to the timecard. “

Knowledge work is independent of time and place. We appreciate individual styles of working and offer our colleagues the freedom, responsibility, and support they need in order to bloom.

All working at HCP have diverse backgrounds and skills with different responsibilities allocated. We do not prejudge how others fulfill their tasks – the key is to complete them. When people feel involved, they pursue their tasks in the best way they see fit. This removes the need for micromanaging.

Instead of a rigid hierarchy, the individual with the most expertise works on any given topic and makes decisions after seeking advice from his colleagues.

At HCP, the CEO is one of the team members. One of his tasks is to listen to all others to find out where they are coming from and where they are headed to next. This helps us refine our strategy together accordingly.

Our Compliance Officer Juhani Halminen pointed out one potentially major weakness in Teal: the model has not lived through many economic cycles yet.

To tackle some foreseeable problems, we have agreed on swift decision-making processes during economic downturns. This should allow us to get back to normal Teal-style working even in the worst times. We have also prepared for challenges by saving up a healthy recession buffer for bad times.

An organisation without power hierarchies works for us. In a country with an excellent education system, advanced information networks and a high level of trust among the population, we believe that many other organisations could adopt similar principles. It might seem like many organisations doing knowledge work function without traditional leadership. This, however, is not to say that their processes would not have an appropriate organic structure.

Want to know more about HCP and its culture? This piece is from HCP’s Sustainability Report 2018. Read more here.

Our first ever company community meeting

“Everyone shades on!”

Limited liability companies are sophisticated platforms for different people and resources to work together for a shared goal. They have their roots for soon 700 years.
In addition to general meetings for shareholders (yhtiökokous) there is a need to also meet with all the people we work alongside. Therefore, last Thursday 6th of June we organised our first ever “company community meeting” (or yhtiön yhteisökokous) to meet with all stakeholder groups as they are all important as are the shareholders!
This is us. Our identity is shaped by our clients, collaborators, and friends – past, present, and future. Huge thank you to all of you who made it!
No one knows how a meeting like this should be structured. What we know is that it must have of all the stakeholder groups and it can not be a closed meeting between top executives and shareholders.
“We encourage all companies to find the courage to organize their first company community meeting that has people from all stakeholder groups!”
– CEO Tommi Kemppainen

#HCPSPIRIT artist Kuuhullu performs unplugged

CEO Tommi Kemppainen welcomes all HCP community members to his home

Campfire after the sunset

HCP Quant 5/2019 -11.59% | The Work of a Portfolio Manager

In May, markets took a real nosedive with the trade war accelerating. The negotiations between the USA and China have been difficult. Especially Trump’s way to “negotiate” has recently led to a situation which has been humiliating for the Chinese. Possibly the worst thing to experience in this culture is to lose face. This Trump seems to not understand. The negotiations have drifted into a stalemate, which was reflected in stocks all over the world during the month.

The HCP Quant fund decreased in May by 11.59%. During the month, the fund’s US weighting fell to zero. Asia’s weighting is over half, concentrated in Chinese stocks. With uncertainty running high, valuations are low and therefore it is quite natural that many Chinese companies have found their way into HCP Quant. This is one of the reasons why value investing has worked in the long run. When the situation looks bad, a value investor finds more to buy but for the very same reason buying is psychologically difficult. Because the situation looks bad. For the same reason, value investing does not fit everybody. A traditional value investor finds value where many others do not. A value investor goes against the tide: he is a contrarian. Psychologically this is difficult because people are herd animals by nature. It is easier and more acceptable socially to act like the majority of other people. Being wrong in a group is not as difficult as being wrong by yourself with a differing view. In the end, a value investor has to trust that he will be compensated when the situation changes. When the very bad changes into a notch better, i.e. just bad. Then the pessimistically done pricing proves to be overly pessimistic and the undervaluation is unraveled in the form of stock-price appreciation. Sometimes the change of balance occurs quicker and more strongly, sometimes slower and more weakly.

The fund’s benchmark index MSCI ACWI SMID Value Total Return dropped by 6.13% in euros in May. It’s worth keeping in mind that the index has a substantial USA weighting, so it largely follows American markets’ movements. The S&P 500 Total Return index in turn fell by 5.89% in euros and the S&P Europe 350 Total Return by 4.66%. China’s Shenzhen Stock Exchange Small & Medium Enterprises index came down in euros by 11.22% which shows well how challenging the month was to Chinese small and mid-cap stocks.

Every now and then I’m asked what a portfolio manager’s job is like. The work seems to have some secrecy and mystery associated with it. Somehow, this makes me think of the times when I was getting started in investing. My idea of an investor back then was the stereotypical rich, elderly, and overweight man in a pinstripe suit and smoking a cigar. This idea faded away with time as I learned what a typical investor really is like. An ordinary investor is difficult to recognize in the street. He is like any of us. Similar idea are associated with portfolio managers and portfolio management as a job. I believe portfolio management as work is more ordinary than many think. Very far from Wall Street movies’ glamour and excitement, especially in a country the size of Finland.

Of course there all kinds of portfolio managers and employers. The job description and the tasks can vary significantly. It is impossible to answer the question of what one’s typical workday is like, because every day is different. To me, that is the spice of this industry. No single day is the copy of another. If there is something in common between different workdays, it is that one can pace one’s activities and tasks quite freely. On one day, the calendar is full of client meetings, on an other day time is taken up by a report on financial transaction tax sent to France (ahem, like yesterday) and on a third day time is used to log the fund’s transactions into the background system. Especially in a company the size of HCP, the diversity of required tasks stands out. Based on these, I got the idea to log my main activities over a day. This is an overview of my day. It is unlike prior days, and it will not repeat itself. Another portfolio manager’s day would look different. For those interested, however, it gives a good taste of what kind of tasks I performed over one working day.

Tuesday 21.5.2019

Open the computer, a cup of coffee, and a breakfast sandwich. Researching and reading about what has gone on in Asia and Australia over the night. There are incoming messages HCP’s WhatsApp group about an event being organized in a few weeks’ time. All those invited have not received the message, and a colleague asks for help in finding the right phone numbers, etc.

The previous day, I’ve been reading the personnel fund law to explore establishing one for the company’s personnel. The CEO sends me a message and asks clarifying questions about my previous day’s message. I immerse myself in the law and find him the answer.

I log the previous day’s trades into the Bloomberg terminal’s portfolio tool, with the help of which I stay up to date on the fund’s companies’ news reports, the fund’s cash situation, etc. Additionally I log the same trades in a separate table in the cloud, with which it is possible to keep track of investment limits, foreign-exchange-adjusted position returns, and others that the Bloomberg terminal cannot easily do.

I get a message to replace Timo with Panu for HCP’s virtual meetings. With Timo going on study leave, Panu will handle his responsibilities relating to sports clients. I announce I’ll check the matter.

One previous day’s trade has not gone through fully, and the holding period in a Canadian stock has filled up, so I open the Windows virtual machine on my Mac notebook and through it input via the Infront terminal order SEB (why, oh why does Infront’s DMA connection not work on a Mac?) I shut down Windows but it starts to update itself before shutting down. The computer freezes up and remains unusable for almost an hour.

While waiting for updates to finish, I begin configuring the virtual-meeting system on my desktop computer. Another colleague wants to change the time of availability being offered, so I work on that too. A third colleague calls and tells me that some blog posts do not display pictures. Before that, the CEO has noticed this and has already been in contact.

When checking the changes made on HCP’s website, I notice a text in which Timo should be changed for Panu and a personal link, which should also be changed from Timo to Panu. The thing is, Panu does not have a profile page to link to. I message my colleagues and inform the webmaster to get the matter fixed.

A colleague comes back to me relating to the pictures in the blog posts. He has noticed the pictures having been linked to MailChimp’s gallery. I use MailChimp for sending out Quant’s investor letters. I ask to upload the pictures to HCP’s server and linking to those.

I’ve returned from Paris on Monday late at night because of delayed flights. The fridge is empty after a few days’ absence, and my spouse has to leave for another part of Estonia at 2 p.m., so I visit the grocery store, to be able to cook for myself later.

I continue with the virtual-meeting tool. Panu wants to change his own available times. I notice that not all colleagues’ calendars have included official Finnish holidays in them. I remove an unnecessary user to free up the license to Panu, I do adjustments to date settings, etc.

I check Quant’s cash situation. I estimate how many Canadian dollars are coming in in two days based on the size of the order and the company’s stocks average trading. I come to the conclusion that there is enough currency in addition to other currency coming in the following day so that at T + 2 there is enough cash in different currencies to take a new position in the fund.

I open the Quant model in the Bloomberg terminal. I start cross-checking data with another party’s database. I check companies’ recent liquidity, I check that there have been no news reports about buyouts (the upward movement is limited) and other checks. A British company listed on Oslo’s stock exchange meets the criteria. Because of the liquidity, forming a position will take 2-3 trading days, so I launch the Windows virtual machine on my laptop and input the order through Infront to SEB.

I get the idea about logging my day’s activities and start writing up things while I still remember at least part of them. The desktop computer’s trackpad’s batteries are dead and I put them to charge. I continue working on my laptop. I check my work emails and answer those.

I check out North America’s opening at 16:30 and check that all inputted orders have gone through. Everything is in order and the US has for a change opened strongly. I will only find out the final situation about the order after the exchanges have closed down, because I execute them with a VWAP algorithm.

Because exchanges seem to be in a “normal state” and the weather outside is warm and sunny I decide to go for a 4-km walk to clear my thoughts. I know there is more work to be done in the evening, so it is good to take a break and have some free time before the “evening shift.”

Cooking, chores (doing the dishes, etc.) and free time.

Reading HCP’s intranet to stay up to date on what is going on in the company and what my colleagues are working on. Oslo’s exchange has closed, so I log the executed trade quantity and the VWAP into the cloud. For the realized costs, I have to wait for a confirmation calculation, which have been delivered inconsistently recently. I have to ask for these multiple times, which takes up working time for no good reason.

I check the announced and projected quarterly filing dates of all the companies in the Quant portfolio on Bloomberg and log those in for myself in the cloud. At the time of an earnings announcement, a stock can react strongly and a stop-loss can get triggered or a company’s fundamentals can change significantly. This is why I keep an even more watchful eye on the companies at those times.

I browse through the day’s financial news on the Web and quickly check my own Twitter feed.

I read Bloomberg Businessweek magazine.

Spending some free time. A movie on Netflix (See You Yesterday).

American and Canadian markets close. I again log the trades from Infront for myself into the cloud and update the Bloomberg terminal’s portfolio manually up to date. I send a message about the trades executed during the day to the back office so they are aware of these and later input them into the background system, with which we for example calculate the fund’s NAV.

I calculate T+2 currency flows based on the day’s trades and conclude that based on those I can do another purchase. Because I had cross-checked the data already earlier for several companies during the day, I pick the next company from the list. An Asian company is in question. I convert the stock price into euros in order to calculate the correct size for a position. I also calculate a maximum price for the purchase to be certain. I send the order by email to SEB’s Asia trading desk, because I have no direct access to this particular market. I quickly get the answer from them that the order has been received.

The desktop computer has been offering a system update since yesterday, which requires a restart. Because the day’s work is coming to a close, I accept the update and leave the computer to be updated overnight.

On my laptop, I still check an additional email inbox, which receives all order confirmation and which are used as proof in the fund’s value calculations and verification of the holdings. I notice that not all the day’s trades have received confirmations, so I know that the following day will begin with asking for those.

It occurs to me to check the virtual meeting system’s emails’ content for Panu to check if they are correct. They are not. Simultaneously I notice he needs a license for the software with which to share a screen, so I send a message to the person responsible for that. I check some other settings in the virtual booking system for all colleagues and make small improvements here and there. I decide to continue making the changes the following days, because it starts to get late.


HCP’s funds’ next subscription date is now in June. You can make a subscription electronically by clicking the button below. Remember that the subscription sum must be visible in our accounts on Friday June 28th at 4 p.m. at the latest, so it is good to make the bank transfer a day or two before.

We will begin producing a newsletter at HCP in which we will tell of our future events and company news. So that you do not miss out on these, go ahead and subscribe to the newsletter.

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Wishing you a warm summer,
Pasi Havia
HCP Quant portfolio manager

“If you are not willing to risk the usual, you will have to settle for the ordinary.”