Davide Serra: "Never Marry an American Woman"

http://www.nytimes.com/2015/06/17/business/dealbook/bravado-and-high-ret...

LONDON — “Never, ever marry an American woman. That’s the advice I give my friends.”

It may seem an odd way to start an interview, especially one with a female American reporter who is married, but Davide Serra, an Italian hedge fund manager based here in London, is not one to opine gently, or particularly carefully.

Still, what Mr. Serra says — about Europe and the global financial services industry, if not matrimony — has caught the ear of investors and European policy makers alike. He runs Algebris Investments, a $2.5 billion hedge fund that has been successful in investing in financial service companies around the world. And his sometimes acerbic perspectives on banks and government policy have been in high demand as Europe has stumbled from crisis to stress test to recovery and potentially back to crisis again.

Speaking out sets him apart from most hedge fund managers here, who typically go to extensive and expensive lengths to avoid a speck of attention. Yet Mr. Serra, 44, is advising governments (for free) and issuing policy papers to central banks and finance chiefs — all the while putting forward plenty of unvarnished opinions.

When the British Treasury increased a bank tax, Mr. Serra called the move stupid and predicted that it would shave 10 percent off London’s gross domestic product if HSBC and Standard Chartered relocated their headquarters as a result.

The billions of dollars in fines that banks have paid for the improper selling of payment protection insurance? “Extortion done on a national level,” he said. “You don’t leave your bank in the hands of scavengers.”

After he was caught walking into 10 Downing Street with a presentation labeled “RBS” — the Royal Bank of Scotland — and news cameras caught it with a telephoto lens, he said that he should have walked in with a Playboy magazine.

His investment returns, however, match his bravado. Through May 31, his global financials fund was up 30 percent and his credit fund was up 5.6 percent. The MSCI World Financials Index was up 4.01 percent during the same period.

Investing in financial services is not for the fainthearted. When economies grow, financial sector stocks often soar. When crisis hits, they plummet, making timing particularly important. In late 2011, Mr. Serra bet that Europe would not fall apart. He was too early: As Europe sat on the precipice, his equity fund fell 45 percent and his credit fund 17 percent; many investors rushed to withdraw their money.

But George Soros liked the trade and gave him $500 million, another investor in Mr. Serra’s fund said. Europe turned around, and since then Mr. Serra has returned 100 percent in both strategies. Mr. Serra declined to comment on whether Mr. Soros is or was an investor.

Now, with Europe whipsawed by yet another round of what-will-happen-to-Greece, Mr. Serra is betting again on Europe’s recovery.

He thinks that as the United States and Britain move toward raising interest rates, the European Central Bank will continue its bond-buying program known as quantitative easing for another five years.

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His funds are currently geared for recovery but hedging against catastrophe — namely that Greece has a disorderly exit from the euro or the American and British central banks shift too quickly toward raising rates.

“I learned a lot in 2011,” Mr. Serra said. “People don’t always do the rational thing.”

He says he has sharply reduced the risk in his portfolio as he has been waiting out Greece. At the same time, he is betting against Spanish and Portuguese bonds.

Among his favorite investments are convertible contingent bonds, or cocos. These bonds convert to equity if a bank’s capital falls beneath a certain level. He has a $1 billion coco fund that has returned 5.6 percent this year.

Mr. Serra spent 10 years as a research analyst covering banks first at UBS and then Morgan Stanley where he was head of the European bank research team.

When a banker came in one day to complain about a negative rating Mr. Serra had on the stock of a company from which the banker was hoping to win business — Mr. Serra picked up the phone and asked to be transferred to compliance. The banker panicked.

“We got along beautifully after that,” Mr. Serra said.

Investors say Mr. Serra’s strength is understanding complicated credit products.

“They get the balance sheet of the largest European banks,” said one Italian executive at a large European insurance company. “He has a lot of relationships but he is still a very independent thinker.”

Not everyone is taken by him.

“He’s a big character,” said one senior hedge fund consultant who spoke on the condition of anonymity because of work he does with Mr. Serra. He recalled Mr. Serra telling a joke about prostitutes that did not go over well with a crowd of Americans.

Others, however, applaud his forthright manner.

“He is constructively direct,” said Colm Kelleher, president of Morgan Stanley’s institutional securities business.

Mr. Serra’s latest policy work is on the dearth of equity financing in Europe.

After six months of research into what was stalling growth, he and his team concluded that less than 0.3 percent of European savings is invested in the equity of small and midsize enterprises in Europe, despite the fact that those businesses account for 70 percent of the jobs.

“Why is Europe not growing?” he said. “There is no equity. It’s absolutely crazy.”

A letter and 13-page presentation were sent off to a who’s who in global finance with proscribed regulatory changes to free up capital.

Perhaps not surprisingly, Mr. Serra is considering starting a small private equity fund to invest growth capital in Italian companies. And he recently started a fund to invest in nonperforming loans in Italy.

Mr. Serra has been a strong supporter of Matteo Renzi, the prime minister of Italy, whom he has called “the only politician worth backing in the past 20 to 30 years” and “Italy’s last hope.” He offers Mr. Renzi free advice, as he does to the British prime minister and central banks, both when he is asked and when he is not.

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A native of Genoa who was educated in Milan, Norway and Belgium, Mr. Serra revels in being a sort of Davos-man. His office is filled with enormous pictures of himself on the 12,500-foot peak of Aiguille de la Republique or sailing on his yacht with his family through icebergs in Greenland or in the Galápagos. During an interview, he arrives on crutches because he has shattered his tibia in 16 places off-piste skiing — another passion. He mentions that he recently caught a 40-kilo amberjack while spearfishing, broken leg and all.

Mr. Serra said he was intensely focused. “I believe in performance,” he said.

That applies to managing money — which he does for a 1 percent management fee and 10 percent performance fee, lower than many other hedge funds — and sport. He acknowledges, however, that such focus comes at a cost: He went to his first concert ever just last year.

And that is how the subject of spouses, and specifically wives, came up.

How does he have time to work on policy issues, manage the fund, ski in the backcountry, spearfish, climb peaks and spend four weeks each year boating around with his wife, Anna, and four children (also prominently displayed in many photos).

“My wife is the real asset on my balance sheet,” he said.

She is Italian — a former Gucci model and an interior decorator — and is apparently not nearly as demanding as he believes American wives to be.