Holiday turns to 32-year career

The Fund Manager: History of the AIB Govett's European team

By Keiron Root

By Keiron Root

13 September 2000

The Russian invasion of Prague in 1968 prompted Peter Kysel to extend his holiday in Britain and 32 years later he is still here, as head of AIB Govett's European team.

"I was born in Prague and went to university there, studying engineering and economics," he says. "In 1968, when the Russians decided to stay, I decided to extend my holiday."

Mr Kysel has a broad first-hand experience of the markets of continental Europe, developed and "emerging". He has been with AIB Govett for six years. "Before that, I spent a year in Prague, setting up and running an investment bank as part of a UK aid programme to help the commercial development of post-communist countries," he says.

"I had been working for Lloyds Merchant Bank and, basically, I was sent out by the Foreign Office to oversee the project, the idea being I would stay until the bank became profitable, which took a year. It was an interesting time. I did the first share issue on the Prague stock exchange and the first bond issue in the Czech Republic."

Mr Kysel started off in the City working in a mining company, Anglo-American (De Beers). "In the mid-Seventies they told me I had to get experience on the ground and how would I like to be a diamond buyer in Angola? The idea did not appeal. Then I got a call from a stockbroker who was looking for a mining analyst so I started doing that. I moved into oil and energy companies, then the construction sector."

His next move was to Touche Remnant (now part of Henderson Investors). "I started as an analyst covering the food-manufacturing sector and moved to become a fund manager, eventually running the group's investment trust division. That is where I learned my skills. This background has been very useful because I had been analysing companies in many different sectors but always on a global basis."

This experience is now being brought to bear on the Govett European Strategy Fund. "The fund invests in continental Europe - there is no UK element - but does so broadly across all markets.

"AIB Govett has a network of international offices running funds in their regional markets so, for example, the London team manages UK and continental European funds. Unusually, for a London-based investment house, our European team covers developed and developing European markets. We feel we know as much about the Turkish market as we do about the French one."

Mr Kysel heads a team of five. "We start by analysing the macro-economic picture then try to extract the key investment themes from these trends. We are looking for themes that will last months and years rather than days and weeks, because we believe investing in equities is, at the very least, a medium-term process. Then we pick the individual stocks that best reflect these themes.

"We are biased towards growth because growth companies are more highly rated by the market and so long as they continue to deliver the goods, they will outperform. We make it our business to understand what the managements of these companies are up to, sothere is a relatively low level of turnover in our portfolio."

Major holdings include Nokia, Ericsson, Siemens, the oil giants Total Fina Elf and Royal Dutch Petrol and financial conglomerate ING Group.

Mr Kysel says his team's stock-picking philosophy is based on their "four Ms", Market position, Margins, Money and Management. "We generally avoid markets in a secular decline. Then we ask whether a company has good margins relative to its sector and whether these can be maintained. 'Money' means asking whether a company is in a position to finance growth or not and 'Management' means seeing companies in action and making sure their management is up to the job."

The team visits more than 1,000 companies a year. "I am seeing 18 companies this week. That is where we feel we can add value, meeting and analysing companies and doing so, maybe, three times a year for each one.

"One of the major European themes is restructuring, and banks are one of the major areas affected, so we are heavily into financials. The second main theme is the convergence of European business in conjunction with the development of the euro.

"This means that you no longer need a factory in each of 10 different countries because of local economic differences. With one currency and one trade policy you only need one factory for the whole of Europe, which will allow companies to cut costs by closing the others."

Then there is the key theme of the growth of the use of technology and of e-commerce. "We are looking at companies that are going into the internet, but in a sensible way - firms which have an existing profitable business and are using the net to expand.

"Some of our largest holdings will be ones such as Alcatel, a French telecom equip- ment manufacturer, where new management has done an excellent job in restructuring and refocusing the business. As a result, the company has lost its conglomerate image and it is delivering good results.

"By accident or design, it is very big in optical networks, an area where there is very strong demand."