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Features - July 2006



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The Ironman of hedge funds

The Ironman of hedge funds

Successor to Sir John Templeton. Global fund star. Olympic sailor. Mark Holowesko's competitive edge serves his investors well

The Bahamas Investor Magazine
July 1, 2006
July 1, 2006
Julie Charles

Most professional money managers are happy to downplay their early career disappointments, but Nassau-based Mark Holowesko keeps a 22-year-old framed rejection letter on prominent display in his second-floor office at Templeton Capital Advisors Ltd.

“Thank you for your helpful letter,” begins the polite, typewritten dismissal, in response to an unsolicited job inquiry by Holowesko, then a freshly graduated MBA from Babson College in Massachusetts.

It’s signed by the hand of the legendary Sir John Templeton, who pioneered a new era of international investing from a small attic office in a retail strip down the road, just outside the gates of Lyford Cay. Essentially, the letter reads: Thanks, but no thanks.

Within a year, Holowesko successfully landed a job at the Nassau office of Templeton Global Advisors with the same Sir John by impressing him with his initiative to become a Certified Financial Analyst. Inadvertently, he had also won the confidence of Sir John, who groomed him to manage the prestigious mutual funds he had created: Templeton Growth Fund, Templeton World Fund and Templeton Foreign Fund.

“I was probably too young to understand what was going on,” recalls Holowesko, who was in awe of the genius of his mentor, now 94 and still a resident of Lyford Cay in New Providence. Sir John, too, was a young man in his 20s when he opened his own money-management firm and became the pioneer of international investing.

“I joined Sir John when I was 25, and when I was 27 he gave me all the funds that he used to run and told me to manage them. In fact, in 1987, he came and put them all on my desk and said, ‘From now on I want you to run these funds.’

“And perhaps that was the best market timing move in his history because three months later, we had the great crash,” Holowesko says, of the global stock market meltdown that began Oct 19, 1987, when the Dow plunged more than 22 per cent. The events of that Black Monday had the world’s most famous contrarian, Sir John, smiling at the prospect of  picking up undervalued stocks. “Or maybe that’s why he was smiling: because I was running the money and not him at that time,” laughs Holowesko, who ran the mutual funds for the Franklin Templeton Group until 2000, the year he left to set up a new subsidiary to serve institutional and high-net-worth investors.

Today, Holowesko applies his winning ways to the competitive world of hedge funds, working on behalf of a select group of about two dozen institutional and high-net-worth investors around the world. They have placed their money in his five-year-old hedge fund, a $1.6-billion fund that is now closed to new investors. Two other funds worth about a combined $200 million include a long-only fund, and a short fund, which was also recently closed to new investors, all under Holowesko’s direction as chief executive officer of Templeton Capital Advisors.

Anyone who knows Holowesko will say it’s no surprise that he transformed an initial rejection into a win, inside or outside the investment world. Friends and colleagues describe him as extremely competitive, good natured and unfailingly diligent with details. They say he plays hard, but fair. That people like him, understand him and trust him.

“I don’t know that I’ve met anybody more competitive than him,” says Myles Pritchard, a Los Angeles-based international advisor with Merrill Lynch, and a childhood friend who grew up alongside the Holowesko family in The Bahamas. “Even at the Monopoly board, he’s pretty competitive. But, at the same time, he’s extremely ethical. I do business with a lot of people and it’s amazing how he can break everything down to the basics – it’s either right or wrong, or it’s positive or negative. It’s street smarts and ethical. And it’s always that way.”

An avid cyclist, Holowesko is up most mornings before dawn to take a two-hour, 45-mile spin around the streets of New Providence as a warm-up to his workday. He usually rolls into the office by 7:30, making the short trip from his Lyford Cay home by car or on his white Vespa. An accomplished athlete, he’s been cited as one of the “World’s Fittest CEOs” by BusinessWeek for being a three-time participant in the CEO Ironman Challenge in Lake Placid, NY. He was  a champion rower in college and represented The Bahamas in sailing at the 1996 Olympics.

At Templeton Capital Advisors, Holowesko runs a tightly knit, collegial ship, with just 13 hand-picked staff, nearly all of whom are Bahamian. The straight-talking Holowesko keeps clients in the loop of investment decisions and fund holdings at a time when the vast majority of hedge funds are notoriously sketchy on disclosing details.

“I think the hedge-fund business has come under a lot of stress,” Holowesko observes. “I think that there are too many people who’ve gotten into it that don’t really know what they’re doing. I think there are a lot of hedge-fund managers whose area of expertise has fallen out of favour, so they’ve gone off into other areas where they’re perhaps not quite as capable, to try to generate the returns.”

Tracking a rising star
Holowesko earned his accolades in the public eye in the years he spent running Templeton’s global mutual funds, before changing course into the private world of hedge funds in 2000.

In March 1992, Fortune named him as one of the bright stars to watch in the investment world and among the best money managers of his generation, based on his track record. Then just 31, the Templeton protégé was the youngest on the magazine’s list. “He works in The Bahamas but he has a record no hard-driving New Yorker could dispute,” lauds the piece, citing his 17.9 per cent five-year returns heading Templeton Foreign Fund. That is nearly double the average performance of all diversified international stock funds over the same period.

By 1998, BusinessWeek described Holowesko as one of “The Titans of Templeton,” along with Hong Kong-based investment colleague Mark Mobius, helmsmen of the firm’s flagship mutual funds, Templeton Growth and Templeton Emerging Markets. The duo were known as “The Marks Brothers,” exploring the world by private jet in search of undervalued investment gems. While the two men may have been kindred spirits in their research and stock-picking ambitions, the years of exotic travel, restaurant food and media interviews impacted them in different ways.

“It sounds really glamorous,”  Holowesko says. “[Mobius] likes it because he doesn’t have any family,” says the dedicated father of four children, 12 to college-aged. Mobius, in his 1999 book Passport to Profits, wrote: “Sometimes I wonder if I travel to run money, or run money to travel.”

For Holowesko “it just got very tiring. I was tired of waking up in the morning and trying to figure out where I was. I was on the road 200 days out of the year, or something ridiculous like that.”

The redefining career moment occurred somewhere around the time of the sky-is-falling predictions of Y2K and the sky’s-the-limit investment bubble associated with the dot-com boom in late 1999. Suddenly, the demands of being a man-about-the-world hit home.

“I was supposed to take my family on Christmas holiday to Colorado,”  Holowesko explains. “I thought: ‘this is stupid. I’ve spent 120 days in the US, and I can’t go on holiday’,” he says.

It was the beginning of a new beginning.

It had been some eight years since Sir John had sold his mutual-fund business to the Franklin organization. The Templeton fund family had grown from $19 billion to $100 billion. Funds managed from Nassau grew from $9 billion to about $60 billion. The funds for which Holowesko had direct responsibility had mushroomed to $45 billion, and the organization’s staff had expanded from nine research analysts to 60 around the world.

Then, there was the ever-expanding bubble in the investment market being fuelled by the dot-com fury.

Holowesko yearned to get off the road, back to his love of picking stocks and putting a face to each client.

“Everything was at an extreme. And I didn’t want to be a long-only money manager, and we had so much money to run. It was very difficult to run the money overseas. So I basically wanted to run a small pool of assets. I wanted to run it with a smaller group of people, I wanted to be in the same location here in Nassau. I originally thought it would be fun to have just a few clients who could sit around one board table, no more than that. And I wanted the ability to short stock. I wanted the flexibility to protect my clients as well as make them money.”

With the blessing and initial investment of Franklin Templeton, Holowesko began to assemble the team behind Templeton Capital Advisors, which was to be run as a wholly owned subsidiary to create new investment services for high-net-worth and institutional clients. Its board included such high-profile executives as Charles B Johnson, chairman of Franklin Resources, and former US treasury secretary, Nicholas F Brady.

A key recruit was fellow Bahamian Gregory Cleare, senior partner in the Nassau office of KPMG, who was brought in as chief financial officer to bring his operational and auditing experience to the venture.

“It was a completely new business unit for Franklin Templeton,” says Cleare, who couldn’t resist the offer to help build a global business, as much as he was sad to leave his colleagues at KPMG. “Mark and I had complete autonomy in establishing the business model and policies,” he says.

“His expertise was picking stocks, and he wanted to get back to doing what he loved in terms of research and picking stocks,” Cleare explains. “We wrote the offering documents. We did it in record time,” he says, going from business plan to sales calls within four months.

Four years later, in 2005, Cleare, Holowesko and their managing partners bought an 80 per cent stake in Templeton Capital Advisors, with Franklin Templeton holding a minority ownership.

Lessons from a mentor
“I don’t think there has been another Bahamian who has been as successful as Mark has been in the investment field, and I think he has been a mentor to others in this country,” says Robert Dunkley, senior vice-president of investments at Caledonia Corporate Management Group, based in Nassau.

During the 1990s, Dunkley helped establish a regional office of RBC Dominion Securities in Nassau, and had a number of clients invested in Templeton Funds, including the Templeton Global Growth Fund, then led by Holowesko. “One thing that impressed me is how diligent he is, always studying the market, studying the companies. He does a tremendous amount of due diligence,” Dunkley says.

“At that point in the 1990s, the preferable style was growth instead of value. While others were saying ‘growth is where it’s at,’ Mark was one of the few people who stood up and said ‘it’s only a matter of time,’ seeing this bubble that was developing.”

Holowesko’s market-timing instincts were developed under the tutelage of Sir John, who demonstrated to him repeatedly that there’s more money to be made in bad times than in good.

“Unfortunately, in our business, most value comes from adversity or fear,” Holowesko says. “You only get a good price on an asset under the pressure of selling. You have to be willing to go on your own path and do something that’s a little different from the rest of the crowd. And that’s what [Sir John] was always so good at.

“The most excited I ever saw Sir John was during the crash of 1987,” Holowesko notes. “To him that was an opportunity. He wasn’t as concerned that the market was down 30 per cent today as he was thinking, ‘oh my goodness, there was so much selling today, there’s got to be tons and tons of great ideas out there.’

“He was happy, he was smiling. In a strange way, through adversity and problems, you have to look at them as opportunities and be willing to go against the crowd. That’s the sort of patience and bravery Sir John constantly showed.

“It’s easier for me to do that, having lived with him and watched him do that all the time–taking a longer term perspective on things. You sleep better at night, too,” Holowesko says.

“He had a phenomenal mentor in Sir John,” observes Pritchard, who talks to Holowesko several times a week from California to discuss trends in the marketplace.

“But Sir John never gave him any breaks: Sir John only gave him opportunities. There’s a difference. And Mark always took the opportunities and developed them.”

Demystifying hedge funds
Since the 1990s, the demand for hedge-fund investments has expanded from high-net-worth individuals to institutional clients such as pension funds and endowments. The churn rate is high: In 2005, a record number of hedge funds went out of business. Chicago-based Hedge Fund Research Inc (HFR) reported that 2,073 new funds were launched in 2005, but 848 funds liquidated their holdings, translating into an attrition rate of more than 11 per cent–triple the rate of 2004. “It is an unforgiving environment,” HFR president Joshua Rosenberg says.

Exempt from the rules and regulations that govern public mutual funds, hedge funds aren’t required to disclose their activities and are only permitted to privately solicit sophisticated investors. Because they have flexibility in investment options, they can use short-selling, leverage and derivatives to bring returns that aren’t correlated to the markets. Individual hedge funds vary dramatically in the level of risk they are willing to undertake.

In this often murky environment, Holowesko stands out as a straight-talker in an industry that tends to shun discussing details.

“With most hedge funds, there’s sort of a certain… mystery,” Holowesko explains. “A lot of hedge fund managers try to maintain this aura in terms of what they do. They feel that maybe they can charge a higher fee. I think the amount of disclosure hedge funds give you is important. The more disclosure, the better.

“[If] you go to a lot of hedge-fund managers and give them $10 million to invest and you say, ‘Can I see a copy of your portfolio?’ they will say, ‘No.’ You can see the performance, but if you want to know how the performance is generated, they’re just going to tell you ‘No’. ”

Conversely, Holowesko and his team keep their international clients thoroughly informed on fund activities and investment decisions. A comprehensive quarterly report outlines the performance of holdings. More importantly, the report also measures and indicates the volatility of returns and amount of leverage in the portfolio, which is the key to understanding a fund’s riskiness and ability to protect assets in a down market.

Bahamian team
There is no question that the Bahamian office of Templeton Capital Advisors competes with the best of them in New York, London and Paris. Holowesko has achieved this by retaining a wealth of home-grown talent.

“You can’t run global money without putting together a team to do it, no matter how much you travel,” Holowesko says. “You rely on people to produce ideas and research… I might be in charge, but I’m not the smartest guy. I try to hire people who are much smarter than me, and who also have different spheres of expertise or experience to help complement what I can do.”

Both in their mid-40s, the two principal founders of the operation are about a decade older than the rest.

“Greg [Cleare] and I are the old guys,” Holowesko says laughing. “Most of these guys are much younger and all generalists. I owe these guys a huge amount, all of these guys who came with me from Templeton.”

Those “guys” include portfolio manager Sean Farrington, along with analysts John Crone, Christopher Maura and James Nottage. Heading the trading desk is younger brother Stephen Holowesko, who used to work with Goldman Sachs in London and New York, and colleague Lee Farmer. “They help organize a lot of the equity arbitrage work. Those guys not only help buy and sell stuff, but they also track and monitor everything,”  Holowesko says.

Crossing the finish line
You’ll find that Holowesko is always in training for some kind of event, whether it’s an upcoming bike race or a triathlon. Living and working in The Bahamas has allowed him to keep in balance all of the things that make him happy: career, competition and family.

To help others become more competitive, Holowesko helped found a cycling team, VMG Cycling, which supports promising young Bahamian and foreign athletes to participate in national and international competitions.

Whether it’s crossing the finish line or measuring a return on investment, the end results are what motivate this ironman investor.

“That’s what’s fun about this job,”  Holowesko says. “I can quantify how I’m doing. I can tell you whether I’m good or bad at what I do, because it’s in black and white. If you’re competitive, it’s always fun to keep score.”

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