Carlos Val-Carreres joins MyInvestor to launch his own ‘value’ fund

He comes from True Value, where he landed a few months ago to set up his project, although it could not be due to commercial incompatibilities.

Headquarters of MyInvestor.

MyInvestor bang on the table value investing. The digital neobank has acquired the services of Carlos Val-Carreres, a recognized former manager who has worked for firms such as Ibercaja, Lierde Sicav (where César Alierta has part of his fortune) or Singular Bank.

He arrives at his new project from TrueValuewith whom a few months ago he partnered to set up his own investment fund, although finally their paths have parted due to commercial incompatibilities and he has ended up joining the neobank owned by Andbank, AXA, El Corte Inglés Insurance and others family offices.

On MyInvestor, Val-Carreres will launch a fund under Spanish law, with philosophy value investing but with a close structural approximation to the economy (with new trends such as digitization or electrification) and of a global nature, since it will be able to invest in Europe, the United States or other geographies.

The news, announced by ‘El Confidencial’ and which has been confirmed by invested, break the status quo of the value philosophy that has been applied in recent years by managers such as Francisco García Paramés (Cobas), Álvaro Guzmán de Lázaro, Fernando Bernad (Azvalor) or Iván Martín (Magallanes). Without going any further, it is linked to the recent signing by A&G Banca Privada of Andrés Allende, whose new fund value in this house he will overturn with the technology, Asia and sustainable factors.

Very low commissions

The manager from Zaragoza is expected to have his new fund ready on MyInvestor at the end of October as a cap, and it will be under Spanish law. The intention of the neo-investment bank is to start with a very aggressive commercial policy in commissions, “one of the lowest in the market in active management”, and trying to position it as its star product.

José Luis Benito, partner and CEO of True Value, has indicated on his social networks that “we wish the best of luck to Carlos Val-Carreres in his new journey”, since “in the end not all the pieces of the Project. We call for later, he is a great friend and a great professional, so It is not a goodbye, but a see you soon.

True Value, which is funded by both Rent 4 as with Creand (the old Banco Alcalá, where they launched the active management fund with the cheapest commission in the country up to now), has its small and mid-cap fund closed for trading. Since last September 6, the maximum volume of shares for class C of the True Value Small Caps fund is one share.

This partial closure has been produced “by a shortage of investable assets that hinder optimal management of the IIC and its investment policy, so, in the interest of the fund’s participants”, Benito and his other partner, president and head of investments, Alejandro Estebaranz, came to the decision to limit it to the clients.

Is Spain bankrupt?

On October 10, the leader of the opposition and the Popular Party, Pablo Casado, surprised locals and strangers with a statement in which he stated that “Spain is broken. Beyond the unfortunate nature of this demonstration, which can damage the image of our country abroad and create social alarm at home, the objective of this article is to assess whether this phrase can make any economic sense.

Strictly speaking, a country, like a company or a family, is “bankrupt” if the value of its liabilities exceeds the value of its assets. This situation, which occurs in families and companies, is very unlikely to occur in any state. Debt, which is a stock, is usually measured in terms of a flow, GDP. And, in the most extreme cases, one can speak of a debt 4 or 5 times that flow (400-500% of GDP).

Nevertheless, the set of assets, the wealth of a country, is much higher. It encompasses the value of its territory, its natural resources, the capital of its companies, technological capital, that of its buildings, both those intended for production and residential, the value of its historical and artistic heritage, its gold reserves and other metals, its financial assets against other countries, not to mention its human capital and its intangibles. All of this probably amounts to 50-60 times annual GDP.

It is true that many of these assets are not easily sold and, therefore, cannot provide liquidity to meet the payments to the creditors who hold our debt. For this reason, Casado was probably referring in his phrase to the concept of “suspension of payments” or defaultWhat is it a situation in which a country is unable to meet its commitments to pay interest or repay principal to its creditorseither because of their volume or because they have not generated enough confidence in the international markets for creditors to renew their loan or other new lenders to decide to take it on.

This was what happened in the eurozone crisis in 2010-11, with several countries that had to be “bailed out” (Greece, Ireland, Portugal, Cyprus), that is, receive a liquidity line from the international public sector (ECB, European Commission and IMF, the so-called Troika) to be able to meet their payment obligations, in exchange for a series of adjustment measures or reforms imposed from outside. That was not the case of Spain, which did not suffer any bailout of its sovereign debt, like the aforementioned countries, although it did receive a bailout of its financial system in 2012, coinciding with the Rajoy government.

The question is whether we are now in a situation similar to that or not. As I said before, at least one of the following conditions must be met: (i) that the volume of debt is exorbitant and (ii) that international, private and public creditors are not willing to renew their loan to the country .

Public debt, private debt

The first point is very relevant because, frequently, it is measured whether the volume of a country’s debt is exorbitant, referring exclusively to public debt. One of the great lessons we learned from the international financial crisis and the Great Recession of 2008 is that identifying “national debt” with “public debt” can be very wrong. That was the main thesis of my book The False Bonanza. How we got here and how to try not to repeat it (Ed. Peninsula, 2015).

Indeed, In 2007, Spain was one of the OECD countries with the lowest Public Debt ratio: 36% compared to 65% in Germany, 64% in France or 103% in Italy, to give a few examples. The public deficits close to zero of the last Aznar government and the public surpluses of the Zapatero government (the only surpluses that there have been in democracy) managed to drastically reduce the debt ratio, which reached 64% when we entered the euro in 1999 .

So why was Spain so hard hit by the crisis? The answer is very simple: because of our private debt and its corollary, the external debt. At the beginning of 2008, when the financial crisis was about to break out (Lehman Brothers fell in September 2008), our private debt was 385% of GDP, more than 10 times the volume of our public debt. Of this debt, 90% of GDP corresponded to families, basically mortgages. The debt of non-financial companies was almost 200% of GDP, which included not only the liabilities of real estate developers but also the indebtedness of many of our companies that decided to position themselves as “champions” in the international market in sectors such as energy , banking, insurance, telecommunications or infrastructure.

Getting into debt in a pandemic is normal. For the first time in a long time we are doing what needs to be done.

The rest, 100%, were the debts of our financial sector, banks and savings banks, which had borrowed in the interbank market of the euro zone to lend abroad and fuel the credit and real estate bubbles.

This private debt explains why the foreign debt, what Spain owes to its international creditors, reached 100% of GDP. And it was in this ratio that our vulnerability rested. When there is an international financial crisis and the markets “dry up”, the countries that suffer the most are those most indebted abroad. Japan has a colossal public debt (250% of GDP) but hardly any external debt, since it finances its internal public debt with domestic savings. That is, it does not have private debt either.

Including total public and private debt, the question would be: why do countries get into debt? The typical response is war, natural disaster, or pandemic. The surprising thing about Spain in the years of the “False Bonanza” is that the excess of indebtedness took place in full economic boom, unleashed after our entry into the euro in 1999. That was not normal. The current thing, getting into debt in a pandemic, yes it is.

Therefore, for the first time in a long time, we are doing what needs to be done, borrowing from the impact of the pandemic and reducing the debt ratio (largely thanks to nominal GDP growth) with the recovery.

What is our current debt level?

If we start with private debt, the Bank of Spain has recently published the debt ratios of both households and non-financial companies, which are shown in Chart 1.

Source: CaixaBank Research, based on Bank of Spain data.

Source: CaixaBank Research, based on Bank of Spain data.

It is true that the debt of companies and households has risen as a result of the pandemic. But, as he defended before, it is a “natural” increase. Furthermore, despite this increase, private debt ratios are much lower than they were in 2012-16, when Spain was not only not “bankrupt” but, according to the opposition leader, “enjoyed iron solvency”. And far from it these current ratios are comparable to those during the False Bonanza and to those I have referred to earlier. Therefore, as far as private debt is concerned, it does not seem that we are in a situation that is much less close to suspension of payments.

As far as external debt is concerned, as Figure 2 shows, it is true that in 2020 a path of decline that began in 2014 is cut short. But it is also a “natural” upturn.

Source: Bank of Spain and own elaboration @migsebastiang

Source: Bank of Spain and own elaboration @migsebastiang

The increase is consistent with the increase in private debt that we saw earlier and with the increase in public debt that we will see next. In any case, these are external debt ratios that are much lower than those reached in 2012-16 and can hardly be associated with levels close to “insolvency”.

And what about public debt? As I said at the beginning of this article, this is the variable on which the focus is usually placed, both political and media. In Graph 3 I present the Public Debt ratio of all the Public Administrations of Spain, according to the excessive deficit procedure.

In 2019, despite the coalition government, there is a reduction in public debt.

As I pointed out before, from our entry into the euro until 2008 the public debt ratio was systematically reduced, taking advantage of economic growth, until reaching a minimum at the beginning of 2008. From that moment on, a sharp deterioration in the debt ratio began for two reasons: (i) the crisis reduced tax revenues and increased certain expenses, such as unemployment benefits . This deterioration in the public deficit translates into an increase in debt. But this also increases due to the bailouts that the public sector makes of private debt: part of the debt of banks and savings banks, electricity debt, etc.

Public debt increased by 25 points of GDP during the Zapatero administrations (from 45% in 2004 to 70% in 2011, going through the minimum of 34% in 2007) and by 31 points under Rajoy (from 70% to 101% in 2014). So far, all quite reasonable, given the magnitude of the financial crisis of 2008-2013. What is most extraordinary is the absence of a correction of the debt ratio from 2015 to 2018, despite the fact that the economy was already growing. Indeed, in those years Spain not only did not reduce the structural deficit, but rather increased it.

Source: Bank of Spain and own elaboration @migsebastiang

Source: Bank of Spain and own elaboration @migsebastiang

In 2019, despite the coalition government, there is a reduction in public debt to 95% of GDP. But this trend is cut short with the arrival of the pandemic and all the expenses associated with it (health, ERTEs, aid, etc.), as well as the corresponding loss of tax revenue due to the crisis. In addition, the rescue of the SAREB takes place, in an unsustainable financial situation after a disastrous management of the previous years. The debt ratio has climbed to 125% of GDP. But the forecasts of the European Commission itself point to a significant reduction in the coming years.

Source: CaixaBank Research, based on Bank of Spain data.