In just nine months, the newly established Mermaid Asset management has managed to accumulate DKK 1.25 billion (approx. USD 180 million) under management. At the same time, the company has now reached a point where expenses and income are almost balanced at zero, a year sooner than expected.
The concept is straight-forward: fixed cost structure, transparency for expenses, and solutions tailored to each client. Do the three partners behind Mermaid Asset Management personally make big money this way? No, is the clear reply.
Thomas Juul-Larsen, Ulrik Jonsen, and Thomas Wandel are the founders of Mermaid Asset Management, which resides in the embassy district in northern Copenhagen. Mermaid Asset Management rents one fourth of an impressive old red-brick house with spires and white paned windows.
"Essentially, we wanted to create a concept that would allow us to face ourselves and each other every day with the knowledge that our clients are treated right, and that we have done everything in our power to achieve a satisfactory return for clients, and for ourselves, for that matter," says Thomas Juul Larsen, who began his career in the Danish financial world 11 years ago with the hedge fund Mermaid Nordic. Before that, he had honed his skills at SEB Enskilda and ABN Amro in New York.
Promises are hard to keep in reality
Thomas Wandel, who was previously with Danish wealth manager Investering & Tryghed (I&T) adds: "Most others attract clients by advertising how cheap it is to become their client. But fees and expenses always add up, and in the end it's not cheap at all, and it only benefits the asset manager. We acknowledge that to create returns, expenses are inevitable, but we simply want our clients to know about all expenses related to this work in advance."
Thomas Juul-Larsen and Ulrik Jonsen together founded the hedge fund Mermaid Nordic 11 years ago. The fund started out successful with a conservative strategy with very low standard deviations. The fund ran into trouble in 2014, 2015, and 2016, when they maintained the cautious investment strategy with consequential poor results. People did not lose any money on the fund, but considering the bull market that the fund operated in, they didn't earn quite enough either.
This is why they decided to switch over to more traditional asset management. Thomas Wandel joined in May 2016, and Mermaid Asset management was born. In the three founders' experience, it has become too unmanageable for wealthy clients to keep track of expenses, and they want to break away from this trend.
"We see clients being handed 25-page-long client agreements from other asset managers. The information is in there, but you have to sift through the document to locate the expenses, and then there's a percentage rate, and then that even has to be weighted, etc.," Wandel illustrates, "Our margin is considerably smaller than what you normally see in the business. It is a premise that we have chosen. We earn less, but we can look our customers in the eyes and tell them exactly how much this will cost. There's no room to enhance our margins."
Prearranged and visible expenses
Clients pay a fixed rate on their assets. If the assets grow, so does the fee income. In addition to the fixed rate come transaction fees, capital outlay, etc. Every quarter-year, clients get a tally of their exact expenses.
The partners describe themselves as a hybrid of active and passive management, because they aim to set their prices closer to passive management, but their management itself is active.
Mermaid Asset management works directly in clients' custody. If, for example, a client is affiliated with Danske Bank, then Mermaid contacts Danske Bank. They try to avoid expensive products in general, and would rather pick a good combination of solid dividend stocks, value stocks, and private equity for clients who are in the right position for it.
The asset manager's client base has so far mostly been comprised by people with some kind of previous relation to one of the three founders, either family or social relations. This is both a strength and a weakness for the asset manager.
"The weakness is that it gets very close. The strength lies in that it gets very close," Wandel explains, gesticulating widely in the small meeting room that we occupy. The thermal bridges from the old doors are almost visible in the air, and Larsen laughingly points out that if this was a lucrative business for them, they would have insulated windows in their company headquarters.
But back to the strengths and weaknesses:
"I have seen many asset managers who aren't close to their clients. They don't take it as seriously as we do. Other asset managers lean against the market and don't make any additional efforts to save money. They draw their salary and that's that. We can't work like that in this setup," says Wandel. "Clients need to know that that when we mess up – and that will happen – it will have happened because we made a mistake, and not because we wanted more out of this."
The three founders invest their assets on an equal basis with their clients', which makes a kind of joint liability in case of an unsuccessful investment. Close personal relations are handed over to someone else at the office.
English Edit: Marie Honoré