* Data system calculates corporate margins in 700 sectors
* Fund made money in ‘08, data used across firm’s portfolios
* Savouri learned value of data at LSE
By Laurence Fletcher
LONDON, March 4 (Reuters) - Trusting in hard numbers rather than the forecasts of company managements is key for Toscafund chief economist Savvas Savouri, as he helps one of the UK’s best-known hedge fund firms recover from a tough credit crisis. A self-confessed “data junkie” who claims a number-crunching computer programme he built in the mid-1990s is now the world’s biggest single user of government data, Savouri feeds his colleagues, and his own fund, with his calculations of how much money companies can really make.
“Data ... is a passion of mine. So much of what we see (in the financial world) is subjective, but data of a high enough provenance won’t lie,” said Savouri, who combines a Greek Cypriot heritage with a North London accent.
The system, which covers 700 sectors, collects mostly free-to-air data in areas such as a product’s selling prices, the material and fuel costs and the number of units sold, to calculate the margins a company can earn.
This data — which could for example show that selling prices in a sector are rising but costs are rising at a faster rate, squeezing margins — will then be compared with analysts’ forecasts to see if the market is being too bullish or bearish.
To Savouri, this is far more trustworthy than listening to optimistic forecasts from a company’s management team, and lets him arm Toscafund CEO Martin Hughes and the firm’s other fund managers for their face-to-face company meetings.
“Company managements are conflicted. The moment you give them share options, they’re incentivised to give you the good news,” said Savouri in an interview this week at Reuters’ Canary Wharf offices.
“We present (company management) with data, to stop companies coming in and reading a script to you. (Toscafund managers) will have the ammo to smoke them out of their script.”
It was at the London School of Economics, where he took his undergraduate degree and later a doctorate, that Savouri developed his fascination with data, working with the likes of Stephen Nickell, Sushil Wadhwani and Charles Bean, who all later served on the Bank of England’s Monetary Policy Committee.
“I fell in love with economics. These guys taught me the value of data,” he said.
Mild-mannered Savouri found a commercial application for his number crunching after being introduced to Martin Hughes — who went on to co-found Toscafund and earn the nickname “the rottweiler” for his aggressive style — in the 1990s by Alastair Mundy, now a top fund manager at Investec.
Savouri had Hughes to thank for backing him as he built his data system over two years whilst they worked at Credit Lyonnais. The system was further developed under Mehmet Dalman, now a Toscafund partner, at Commerzbank.
Savouri was reunited with Hughes, and later Dalman, when Toscafund bought Savouri’s broking firm Quantmetriks in 2008. The system was used to launch Toscametriks, a small global long-short equity fund with 50 to 70 positions, but an important one given it consists mainly of Toscafund partners’ cash.
Toscametriks has had mixed success so far, impressively making gains in 2008’s market meltdown and also 2010, but losing out in 2009’s huge market rally when his system was caught out by the wave of corporate fundraisings, which often boosted the share price of a struggling company.
“We were right on the earnings, wrong on the recapitalisations,” he explained.
Savouri has nevertheless helped Toscafund, once manager of $6-8 billion before its flagship fund fell around 60 percent in 2008, onto the recovery path. The firm’s Mid-Cap fund, which uses Savouri’s data among other sources, rose more than 100 percent in 2009, for instance.
In his other role as chief economist Savouri gives his colleagues “a reference point” for their own macro views and produces research for clients, and won’t shy away from bold views.
In a current paper on South Africa he calls for better regulation of the financial sector. [ID:nLDE7230N2] [ID:nLDE70N1OD] Savouri, a keen follower of Premiership football club Arsenal, is currently positive on capital goods firms, which he says will benefit from higher orders and lower average costs.
But producers of consumer goods face trouble from soaring commodity prices and an inability to raise prices sufficiently. “You’ve got a wave of costs,” he said. “In 20 years I’ve never seen this before.”