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THE WEEK OF JANUARY 16, 2012
M A N A G I N G Y O U R M O N E Y
personalWEALTH
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Value hunter David Winters’
2012 stock picks
Expert’s view
BlackRock’s Bob Doll gives
his 10 predictions for 2012
Alternatives
Top shorted US stocks slump
but funds fail to cash in
Collectibles
Top 10 art sales of 2011
PLAYING
COACH
to fund
managers
Still at the top of his game, veteran fund
manager and ex-Fidelity chief investment
officer Michael Gordon is gradually working
his magic on BNP Paribas Investment Partners,
which could become a serious contender in
the global equity fund management arena
Reproduced by permission of The Edge Publishing Pte Ltd., Copyright © 2012 The Edge Publishing Pte Ltd. All Rights Reserved Worldwide.

PW4 • THEEDGE SINGAPORE | JANUARY 16, 2012
PERSONAL WEALTH
COVERSTORY
Gordon: Success takes a number of years. But in my judgement,
I am very happy to be where we are right now.
SAMUEL ISAAC CHUA/THE EDGE SINGAPORE
PLAYING COACH
to fund managers
Still at the top of his game, veteran fund manager and ex-Fidelity chief investment officer
Michael Gordon is gradually working his magic on BNP Paribas Investment Partners, which
could become a serious contender in the global equity fund management arena
2002 to 2005 and helped build the Asia team
at Fidelity. I also had a very interesting time
running fixed income [as acting head of fixed
income at Fidelity] when the Asian financial
crisis hit in 2007. That was great. Beyond that,
it wasn’t that challenging,” says Gordon.
A possible disagreement with the top management
at Fidelity also contributed to his resignation
in late 2009, when he left without a
job. “When I was in London as global CIO at
Fidelity, I felt that we needed to make some
changes in structuring the UK team and I proposed
one or two things. But they were not
accepted,” he reveals. It wasn’t the first time
Gordon left a big fund management company
after losing interest in his job. “Yes, I have
done it before. I left Schroders Australia at the
end of the 1990s. Similarly, I took a break and
Fidelity came calling [in 2000],” says Gordon,
who was once CIO for Australasia at Schroders,
where he spent eight years.
| STORIES BY KELVIN TAN |
In the afternoon of most weekends, whenever
there is a football match at the Emirates
Stadium — home to famous London
club Arsenal — you will find Michael Gordon
at the stands, rooting for his beloved
Gunners. During a recent business trip to Singapore,
the London-based season ticket holder,
who has been an ardent supporter of Arsenal
since 1986, was even planning to watch
an FA Cup Fourth Round match on TV in his
hotel room. The Gunners versus Leeds United
game was shown at 3.45am in Singapore
on early Tuesday morning.
But a jetlagged Gordon could not wake up to
catch the match, which was shown live across
the globe owing to the possible involvement of
legendary striker Thierry Henry, who rejoined
his former club for a two-month stint from
his current team, the New York Red Bulls. “I
overslept and woke up at 6am. But it was too
late to catch the match and I missed Henry’s
goal,” sighs Gordon, during an interview with
Personal Wealth recently. In a fairytale return,
the 34-year-old French striker sent the crowd
at the Emirates into a delirium when he slotted
home the winning goal after coming off
the bench in the second half of the match. Arsenal
won 1-0.
Like Henry, Gordon — a veteran fund manager
with more than 25 years of investment experience
and a former global chief investment
officer (CIO) at Fidelity International — is still
at the very top of his game after having turned
around the equity funds’ performance at BNP
Paribas Investment Partners (BNPIP) over the
past 18 months as CIO of equities. “When I
arrived at BNPIP [in May 2010], around 46%
of our equity funds outperformed the benchmarks.
Now, the figure is around 60%. It has
certainly improved,” says Gordon, who oversees
roughly US$50 billion in equity assets.
Gordon joined the French asset management
firm shortly after Fortis Investments
was merged into BNPIP. He was immediately
tasked to streamline the equity teams at the
combined entity and improve the overall performance
of the asset management house’s
stock funds.
“When Fortis was merged into BNPIP, we
had a number of Asian and European equity
teams, with duplications everywhere. We had
a couple of things that were set up in what
I called the old fashion way. [The management]
came to me and said, ‘we really need
to address the problems in the equity teams’.
So, I joined the firm and that was what I have
done,” says Gordon, who resigned from Fidelity
in late 2009, and has since been playing
“coach” to the equity teams at BNPIP.
At Fidelity, the 51-year-old Australian held
several key positions during his nine-year stint
at the global fund management firm. He was
global CIO, Asia CIO, acting head of fixed income
and most recently, global head of institutional
investment. Gordon left Fidelity because
he felt it wasn’t challenging during the later
years. “I was in Hong Kong as Asia CIO from
Smaller teams are better
Presently, Gordon seems to be enjoying work
for the French asset management house, which
allows him to express his management philosophy
that focuses on smaller and nimbler investment
teams. “The changes we made are
quicker than anticipated. I have been given
greater freedom and trust than I had before,
which is great,” he says.
Among the many things that Gordon has
implemented over the past 1½ years at BNPIP
was the restructuring of the firm’s global listed
real-estate group, which used to have teams
with different approaches scattered in the US,
Europe and Asia. “It used to have three centres
in three regions. They put them together and
called it global. I think that was rather an old
fashion way of doing things. So, I shut down
two centres and brought the teams into one
smaller group, sitting in one centre in Amsterdam.
They now work together real time and
making decisions formally and informally, examining
what is driving listed real estate.”
Reproduced by permission of The Edge Publishing Pte Ltd., Copyright © 2012 The Edge Publishing Pte Ltd. All Rights Reserved Worldwide.

THEEDGE SINGAPORE | JANUARY 16, 2012 • PW5
PERSONAL WEALTH
2012 will be a good year for equities, says BNPIP’s CIO
The good showing of global equities in
recent weeks suggests that risk aversion
towards stocks is slowly fading away on
the back of robust economic news from the
US and the stabilisation of the European
debt crisis. The next trend will be a strong
short-term rebound in global equities, where
emerging-market equities will outperform
their developed market peers, according to
Michael Gordon, chief investment officer of
equities at BNP Paribas Investment Partners
(BNPIP).
“I am increasingly bullish on equities.
First of all, I feel that equities are extremely
cheap and bonds are looking extremely
expensive on all the long-term valuation
measures. The equity risk premium is
incredibly high. The long-term earnings
forecasts for stocks that people are inputting
from that are actually negative. If you take
the long-term equity risk premium for
European stocks, the market is expecting a
fall of 5.5% in earnings every year forever. It
just seems too bearish.”
Cheap valuations, however, will not be
the sole catalyst for stocks to move higher,
according to Gordon, who feels that positive
US economic data coupled with speculators
getting tired at playing the gloomy European
markets are the other two key factors that
will lead to a strong rally in equities. “People
will get bored looking at Europe and they
will look elsewhere. And if they do, they will
realise that the valuations of stocks around
the world are looking very, very compelling.”
Over the next quarter, there will be a
“risk on” type of environment, where risky
assets would outperform the safe haven
ones. “That means emerging equities will do
better than developed equities. It also means
higher-beta plays will do better than lowerbeta
plays in the interim,” says Gordon.
Beyond that, Gordon will look for further
proof of a sustainable bull run. “I am more
confident of predicting a short-term bounce
than forecasting things to get better over
the long run,” he says. Assuming that global
equities rebound 10% to 15% over the next
three months and if gold doesn’t participate
in that rally, then Gordon says he will be
“more encouraged” with regards to the
sustainability of the stock market rally. If
global investors are leaving the safe haven
assets for riskier investments, then that will
be a clear sign of more good things to come
for equities, he says. If there is a sharp bounce
in the equity market without gold, then he
feels that the high-quality companies such
as the global MNCs will be the next group of
stocks after emerging equities to feed on the
on-going rally.
“I would be buying high-quality
developed market companies, especially
those that are benefiting from the growth in
emerging economies. There is a case to be
made for some developed-market companies
that are making more money out from
the emerging economies than developing
-market companies,” says Gordon who is
bullish on large, well known MNCs such as
Apple, Nestlé and McDonald’s, which
will continue to do well in terms of profits
and revenues, given the growth of emerging
markets.
“Apple is a good example. You take
Apple and HTC. It is classic American
[capitalism] at work. Apple is very strong,
very powerful, despite the emergence of
many new competitors. Apple is basically
crushing them, except for Samsung to
be fair. You also got the consumer goods
companies such as Nestlé, with good, solid
reliable earnings. Over the last 40 years, it
has never had a negative revenue year. It
has many products that benefit from the
growth of emerging economies. It is fairly
amazing,” he says.
Although many fund houses and private
banks are still recommending defensive,
high dividend-yielding stocks as safer equity
plays for 2012, given the extreme volatility
of last year, Gordon cautions that such
counters, which generally fail to capture
the upside of a strong bull rally, could
underperform this year. “The argument that
those people made, which I agree with, is
that over the long run, dividends make up
a far greater component of total returns.
And they are right. If you are going to take
a five- to 10-year view, yes, high dividendyielding
stocks are the place to be.” But
over the next three to six months, they may
underperform the high-beta or economicsensitive
counters, he says. “When we have
a risk-on rally, high dividend-yielding stocks
are likely to underperform. You don’t bet on
dividend stocks in a strong rally, you invest
in dividend stocks for the long term.”
Overall, global equities, which slumped
7.6% last year (measured by the MSCI
World Index), could turn in double-digit
returns in 2012, according to the bullish CIO,
who likes US stocks and shares of global
MNCs as an emerging-market play.
Customers look at Apple Inc’s iPad2 tablet computers at a Best Buy
Co store in San Francisco. Apple is one of the global MNCs that are
benefiting from the growth of emerging economies, says Gordon.
PICTURES: BLOOMBERG
Gordon also did away with the “extremely
bottom-up focused investment approach”
of his global listed real-estate team, turning it
into a more “top-down” focused one. For listed
real estate, macro factors are the ones that
influence the investment opportunities, he
adds. “It is macro, country and sector factors
[that drive returns].”
Nonetheless, the CIO says he brings no “preconceived
investment style views or biases” to
his equity investment teams, which are largely
run independently. “If we look at the setup that
we have, we have a set of investment teams that
is autonomous. We don’t have a house view on
a stock, sector or a market. Every team exists
in its own right. It has a head of the team, with
fund managers and research analysts. It exists
on an autonomous basis. But it must have a
valid investment philosophy and a process that
works with that philosophy. It is working with
a collection of boutiques within my parameter,”
says Gordon. “There is no overriding philosophy.
It is whatever works for that group.”
Still, the heads of the BNPIP equity teams
will have to report to Gordon, who periodically
challenges them about their investment
philosophies and processes. “I work only with
the teams with regard to their philosophies
and processes. I don’t want to go into any
group and say, you should increase the beta of
your funds or underweight this and that sector.
What I would ask them is to explain to
me their philosophies and how the processes
come up with the stocks.”
A keen admirer of Arsenal coach and manager
Arsene Wenger, Gordon says the role
he plays at BNPIP is like coach of a football
team who has no control over the outcome
of a match. “You pick the team, you have the
strategy, and you send them out to play. Once
they get on the field, they have to stick to the
plan. If they don’t or try something different,
you have to tell them at the end of the match
what went wrong and say ‘guys, we must
stick to the plan’,” says the CIO who finds the
management of fund management teams and
people to be more interesting compared with
managing money.
His game plan and management style have
been successful over the past 1½ years, given
that more than 60% of all equity funds at BN-
PIP are currently outperforming their benchmarks
on a three-year basis, compared with
just 46% when he first arrived, according to
Gordon’s estimates. Still, there is room for improvement,
adds Gordon, who wants to push
the three-year outperformance numbers of his
equity funds to be around 66%. “The goal is
66%, as it was at Fidelity. We should be able
to do that. At the moment, we are still a bit behind
that,” he admits. “Success takes a number
of years. But in my judgement, I am very happy
to be where we are right now.”
Beating the benchmark
Having seen numerous bulls and bear cycles
over the past 2½ decades, Gordon is sensing
that global equities could make a strong
rebound over the next three months, and is
advising his equity teams not to shun highbeta
stocks to avoid underperforming the
benchmarks.
Cheap equity valuations, positive economic
data from the US and the recent containment
of the sovereign crisis in Europe by policymakers
in the eurozone could easily spark a strong
rally in global equities, he says. “We may see a
sharp rally quite quickly. Valuations are compelling
for equities. Certainly, the news out
of the US is increasingly positive, and people
will start to pay more attention to that. But I
think the catalyst that would swing the market
higher is that investors are getting a little
bit bored with the situation in Europe. I am
not saying that the crisis in Europe is going
away, but I suspect it may not get any worse
and that will be enough for [investors] to look
Traders at the New York Stock Exchange. Gordon is bullish on US equities, which he feels will outperform
those of Europe and Japan this year.
somewhere else,” says the bullish Gordon, who
reckons that global equities could turn in double-digit
returns this year after last year’s tumble.
(See story above for more of Gordon’s investment
views.)
That’s why he is cautioning his fund managers
against taking an ultra defensive approach
to stock picking, especially over the
next three months, which could see a broadbase
rally in both good and bad stocks. “For
me, the only point I am making with my teams
is for them to be aware of the risk inherent in
what they don’t own. There are a lot of things
such as high beta stocks that could bounce
up quite sharply over the next few weeks and
that could harm their portfolios in the relative
sense if they don’t own them,” he tells
Personal Wealth.
Gordon, however, says he will not force
his managers to buy trash stocks in order to
boost their short-term performance. “I just
want my fund managers to be aware of that
risk of underperformance as a result of not
owning those high-beta stocks. I am not telling
them to do anything but I would remind
them to address that issue. If they looked at
it and say they just couldn’t buy those highbeta
stocks because they are rubbish companies,
then it is fine.”
The optimistic Gordon, who is part of BN-
PIP’s asset allocation committee representing
the voice of his equity fund managers,
reckons that the positive performance of global
equities during the start of the year will
likely gather steam in the weeks ahead. “The
strong rally is already happening now. It is
the nature of the market that rallies happen
quite quickly. It will happen more quickly
than what most people would anticipate,”
says Gordon, who is equally sanguine about
the match performance of Arsenal over the
next two months, especially with the talismanic
Henry back at the club. “For sure, I
wouldn’t miss another Henry goal over the
next couple of matches,” he quips.
E
Reproduced by permission of The Edge Publishing Pte Ltd., Copyright © 2012 The Edge Publishing Pte Ltd. All Rights Reserved Worldwide.