Helsinki Capital Partners (HCP) is a Finnish asset management company that offers its services globally to private investors, institutions, professional athletes, and artists. The company has three funds, where the shareholders have invested their own money as well. HCP is known for active and responsible portfolio management. We are a modern asset manager thanks to our transparent operations, virtual working methods, and the various projects for societal well-being. HCP’s headquarters are located at the cultural centre Kaapelitehdas (Cable Factory) in Helsinki. HCP also has a mobile office, the #HCPSPIRIT tour bus.
#HCPSPIRIT is about our way of doing business, our leading idea. It can be seen in everything that we do, from fund management to societal work, and from our customer relationships to different kinds of collaborative projects with artists, athletes, and the third sector.
In this review, I will first go through our key figures and the most important recognitions in 2016. I will also shortly present a study of social responsibility, which confirms that we, as a mission-based business, are on the right track. Lastly, I will discuss the development and success factors of our company that turns 10 years in 2017.
The year 2016
In 2016, our customers’ returns on our funds were the following: –3.16% on HCP Black, 4.58% on HCP Quant, and 11.51% on HCP Focus.
During the year, we gained 49 new customers. The assets of 947 customers under discretionary portfolio management and in the company’s funds totalled 78.5 million euros at the end of December 2016 (69.5 million in 2015). The growth from the previous year was 12% (23% in the previous period).
At the end of 2016, HCP had invested 53% of its customers’ assets (AUM) responsibly. This means that we have the tools and methods to review the responsibility of these investments. The rest 47% are by no means invested in companies with low accountability, we simply do not have the tools to verify the responsibility of those investments accurately enough at the moment. Usually, the problem is that smaller companies do not report on the sustainability of their operations as comprehensively as bigger companies do due to lack of resources. Of all the investments, 20% can be counted as impact investing with a particularly positive societal impact. These investments carry the risk of potential natural disasters or are related to the rising resale value of life insurances.
The profit before tax of the financial year 2016 was 7,107 euros. The board of HCP Group suggests that 7% of the group’s equity, 100,000 euros, shall be distributed as dividend to shareholders (81,000 euros in 2015). In our budgeting, we are prepared for the next unexpected recession or depression so that we can continue our operations in such situation as usual.
Helsinki Capital Partners received the following recognitions when the best in the investment industry were awarded in 2016:
- Helsinki Capital Partners: Fund Manager of the Year. ACQ Global Awards 2016, ACQ5
- Helsinki Capital Partners: Fund Manager of the Year, Finland 2016. The European, May-June 2016
- HCP Black Fund: Best Multi-Strategy Asset Manager, Finland. 2016 AI Hedge Fund Awards
In addition, HCP was recognised for its #HCPSPIRIT theme. The 2016 AI Hedge Fund Awards awarded Helsinki Capital Partners for the systematic inclusion of responsibility in everything that the company does: Best New Sustainability Fintech (#HCPSPIRIT).
Nevertheless, the most memorable thing from 2016 was when two students from Umeå University contacted me. They had found our company in the Global Reporting Initiative’s database and become interested. Two people from our team were interviewed for the students’ final thesis. The results of the study were very promising. According to the thesis, we have been able to turn our responsibility endeavours into concrete actions, and as a community, we are at the most mature stage of development as regards corporate social responsibility. Therefore, social responsibility is not a separate issue that we deal with, but we are integrated into society. This result is a very valuable signal telling us that we are on the right track and that we create more value than the mere financial figures may suggest.
In spite of the recognitions and study result, we did not yet meet the rigorous standards of verified social and environmental performance to become a Certified B Corporation in 2016. Certified B Corporations, or B Corps, are for-profit companies that have a vision of a better way of doing business. These companies are well-integrated into society, and they use business to solve environmental and social problems. We continued working hard for the systemic improvement of responsibility, and today we can finally say that Helsinki Capital Partners is a member of the B Corp community! We are, in fact, the first company in Finland to have this certification.
Celebrating ten years of business
In 2017, HCP celebrates its 10-year anniversary. This is a good time to review our operations.
The idea behind the foundation of HCP in 2007 was clear: a desire to be an open and honest asset manager. From the beginning, we have been committed to complete transparency in our operations. It is a self-evident fact for us that customers are told how much they pay both directly and indirectly to the company for our service.
In fact, when reviewing these past ten years, I can say that transparency has definitely been our most important guideline. We have been true advocates and trustees of our clients.
Today, we work as a team of seven people and with the help of several partners. I am happy to say that with the help of our partners, we have developed more principles, practices, and regulations, which have been combined with our original, healthy values to form an even better whole. This is all thanks to our team, new partners, and our collaboration.
It is time to say thank you
All owners of HCP, thank you very much for capitalising the company, and a special thank you to You who funded the company in the very beginning! The significance of each equity investment, issue, and loan is reflected in our financial statements for the first six years of operation. We needed all that capital to keep the business going.
Also, Thomas Hoyer, thank you for the intensive start-up co-operation in the beginning and the ten years in the company’s board. Jarno Lämsä, thank you for building the portfolio management system that has now worked for ten years, and for increasing transparency with IT solutions (Confluence corporate wiki, Google, Sugar, Facebook, WordPress, Apple). Toni Schlobohm, thank you for the seven years of full-time work at HCP, before and after the valley of death. And Josef Boumedienne, thank you for the service development and sales work that you did for HCP Sports.
I have to say that without the self-developed portfolio management system, even the above-mentioned financing would not have been enough. Similarly, two Tekes projects were other key factors that enabled us to make investments.
The year 2007 was an exceptional time to start an asset management company. In fact, as regards obtaining customers and capitalisation, the time could not have been much more challenging. The following year, we witnessed the subprime mortgage crisis, and a global stock market crash was already underway. On the other hand, maybe this was the perfect moment to start a company considering our mission – transparent and responsible asset management. In the aftermath of the stock market crash, many issues that have unfolded in the financial sector have clearly shown that there is still demand for improvement as regards the transparency and responsibility of the industry.
However, none of us alone would have managed to start an asset management company – not me or anyone else of the founding members. But together we made it! One more time, thank you and a deep bow to the team of co-founders: Thomas Hoyer, Jarno Lämsä, and Toni Schlobohm. It was an enormous experience to found HCP with you!
At this point, I also want to thank all of our first customers: You who trusted us during the first years and were ready to see and hear what we were doing. No company founder forgets their first customers, as they will not forget their first business partners. Without You, dear customers, our journey would have come to an end before a proper start. Thank you.
Today, the company is taken forward by a team of seven full-time colleagues. When Juhani Halminen subscribed for HCP’s shares in the share issue of autumn 2016, I can happily announce that now we all who work at the asset management company have ownership in the company (in one sister company, one person is not a shareholder). Thank you, Juhani, for being in charge of HCP Shareholderservicing (the Unitholders service). A large number of our customer contacts pass through you, and the way that our company appears to our clients in everyday life is largely dependent of your work. Also, a big thank you to Timo Vertala for developing and managing HCP Sports, and to Elias Koski for managing HCP Artists and leading the company’s compliance functions. Ernst Grönblom, thank you for everything, especially for your thorough concentration on managing the HCP Focus fund and developing the Institutions partner group. I also want to thank you for your participation in the share issue of autumn 2016 with a significant sum. Although we have not needed constant funding for years, this new capital is a welcome addition to our recession buffer! A big thank you also to Pasi Havia for your in-depth focus on managing the HCP Quant fund and the Private Investors partner group.
Our strategy is simple: we are an asset manager to be proud of. This is a big promise, but we stand behind it. Our strategy works systemically: each worker leads their area of responsibility independently, but all work is guided by our common values. The strategic milestones emerge from our common work. An important objective that we have worked hard for, especially for the past two years, is making HCP better known. Regarding this work, I want to thank Farrél Boussir for organising the very special Asylum events. Also, thank you Pekka Puustinen – without your contribution to our communications, the communication and execution of our strategy would not be so clear and efficient. We are also grateful to Pekka for making us see that what has been worth sacrificing to us is ultimately what our customers can experience as valuable.
It has been an honour to work as HCP CEO from the very beginning. Together we have been beaten, and together we have pulled ourselves together and back in the game. And what is best, this work has been fun, and we have always had a positive work environment with space for humour.
The past ten years through traditional indicators
What are we today, and have the past ten years been successful?
According to the typical norms in the industry, we should compare our growth to competitors that have been operating in Finland during the same time. Therefore, if we had gathered the most customer assets and made largest profits, we would be better than the others. Similarly, if we had made the least profit and gained least customers, we would be worse. However, HCP was founded exactly because we did not agree with the typical norms.
We have made an intentional decision not to have hidden costs in our earnings logic. Thus, our own revenue from the managed customer funds will continue to be lower than in the industry in general. As regards customer acquisitions, we have also refrained from the very dubious industry standard of introducing new investment products continuously so that we could eliminate the worst ones every five years and only show the return history of the two winner funds.
So we will continue to travel the narrower but longer road as regards customer acquisitions and sales. In other words, we offer solutions that we think are beneficial to the customers. This mode of operation is not self-evident in the financial industry, and it requires more dedication from asset managers. It would be easier to sell what has proven to sell at a particular time.
When we assess the success of the companies that started roughly at the same time as HCP with economic indicators, it is easy to find the two extremes: At one end, there is Taaleritehdas with its 3,600 customers, 4 billion euros of customer assets, and market value of 240 million euros. At the other end, there is Sofia bank that went bankrupt in 2010.
Taking these two examples into consideration, what does it mean to us to have 947 customers, 79.5 million euros of customers’ assets (Jan 30, 2016), and a market value of 3.5 million euros (based on the share issue for operational shareholders in the autumn of 2016)? At least it means that we are a strong candidate to consider when customers are looking for the best asset manager for their money. Without knowing the details of the beginning of the success story of Taaleritehdas, I cannot review its share appreciation from day one. As regards HCP, I can say that those who have financed the company for ten years have increased their money five-fold. It sounds like a lot, but this is 18% annually. For example, the return of the HCP Focus fund investing in established companies for the corresponding period was 9%. The higher return of HCP’s shares can be explained by the higher risk profile of the start-up company. All in all, HCP’s equity, which has been augmented annually, has always been at least sufficient. As a result, we have been able to continuously develop and grow our business.
The past ten years through new indicators
If the traditional economic indicators do not show an absolute truth about how good or bad a company’s financial performance is, then what is important when evaluating the company’s success? At one extreme, we can view value as pure monetary value, and the company’s only purpose as profit maximisation. At another extreme, we can view value and value creation as a much broader concept. This broader sense of value is what we highlight at HCP, and to be able to evaluate the current state of our company as a whole, the use of new indicators with the traditional ones is necessary.
For example, our co-operation with artists creates value which cannot be measured with economic indicators. Our customers often ask whether they can become rich by investing in art. If “rich” means purely monetary wealth, then our answer is typically “no”. But, as Ernst Grönblom wrote in the opening words for our first art exhibition: Investing in art is ultimately about investing in our own humanity. Similarly, nearly a hundred years ago, economist Lord Keynes summarised the idea of a broader sense of value as follows:
“The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems – the problems of life and of human relations, of creation and behaviour and religion.”
So halfway through our ten-year journey, we started to steer ourselves more and more into activities that we did not find sensible to estimate through their economic benefits. We were guided by our new shareholders who brought their own healthy values into our community. Since 2012, it has been typical of us to be involved in a number of projects whose main motive has not been our direct earnings but other things we value.
One example of such projects is the Professional Athlete Foundation that Timo Vertala from HCP Sports founded. The new foundation brings welcome competition in the field of athletes’ pension savings. No one with the sole purpose of gaining profit would have started this project. However, it was important to us to show that pension saving service for athletes can be operated openly and responsibly. Instead of buying advertising, we aim to make our company visible through such concrete actions.
Another example is our cultural production. The biggest individual efforts in 2016 were the Asylum techno music events organised by Elias Koski’s Artists partner group and Farrél Boussir with the #HCPSPIRIT Label. The expenses of the #HCPSPIRIT events were nearly 100,000 euros in 2016. This is ten per cent of HCP’s annual expenses. If even one large financial group supported cultural production with a corresponding percentage, it would mean more than 400 million euros annually. And what would this mean to Finnish society? At least a welcome stimulation! A vibrant and rich business environment might also attract modern companies from around the world to set up their offices here in Finland.
The past years have also included continuous development of our services. When Pasi Havia joined our team in 2013, we started to prepare to automate our processes so that we could offer our funds also to those who wanted to invest smaller sums of money. This led to the introduction of digital subscription and redemption as well as the introduction of virtual meetings and electronic appointments. Thanks to Pasi, we have enhanced our electronic communication both inside and especially outside the company, and we are now able to offer our services to those who want to invest smaller amounts of money in our funds.
We have grown our business organically. From the beginning, we have built on a healthy value base. We have consciously chosen transparency and healthy incentives as our guideline. During the same period, the financial sector has been caught for several crimes and irregularities and has been fined soon over 300 billion dollars. HCP has never been detrimental to society. Today, we can proudly state that we already do many things that are socially beneficial. Indeed, continuous development of social responsibility has grown into our new strategic goal alongside increasing public awareness of the company.
One example of social responsibility is our microcredit to entrepreneurs in developing countries: we have loaned 25,472 euros through the Kiva organisation and 6,578 euros through Zidisha (over a three-year period). In absolute terms, the sums are not large, but they present two per cent of the company equity. If even one large financial group gave an equal share of its capital, it would make more than 200 million euros! We hope to inspire other players in the financial sector to new social initiatives.
I am quite convinced that it is exactly the projects outside our core business that made us appear as a model company in the Umeå University’s study: instead of optimising our own dividend flow, we see ourselves as an integral part of society.
I conclude this ten-year review with a couple of key points that clarify our company’s mode of operation and our commitment to it.
Our management culture is quite different from the traditional management methods of asset management companies – and almost any other industry. HCP works systemically and dynamically. Our guidelines are the values that we have drawn up together and the principles, rules, and incentives that base on those values. In practice, this means that our operation is rich interaction that stems from those guidelines: everyone can choose their way of working, and the whole organisation is in a cycle of continuous learning and development. The systemic and dynamic thinking makes our leadership and operations agile, flexible, shock-resistant, and – paradoxically – very clear.
We have healthy incentives. All permanent employees are tied to the earnings and losses of the company, because we own HCP together. All employees can keep their shares for as long as they want, and if they wish, later pass them to someone else. Therefore, we are in the same boat with our clients, not just maximising short-term profit. This is “skin in the game”, as is the fact that our entire recession buffer is invested in our HCP Black fund. This fund is managed so that, with a high probability, our company will be operational in the next possible downturn or depression.
In HCP, management is not the brain of the company. We know that in knowledge worker organisations, the best know-how and knowledge is in people. This is when the company – or with traditional terms, top management – is responsible for ensuring a safe, constructive, and motivating working environment and for providing everyone with resources.
Our company’s strategy, asset management to be proud of, is realised in partner groups, where new ideas are welcomed and errors accepted. That is how we learn and find our way to new value-creating practices. We also receive new real-time information from our environment through our #HCPSPIRIT projects and communications, which also increase our agility.
We believe that the best practices also in the future will be found through trial and error, even in times when our operating environment is encountered by unpredictable shocks. We will ensure our future success by continuing to keep each company operation as an independent and agile module that is guided by our values – transparency, partnership, and efficiency. Any of these modules may turn out to be key players in the company and make it grow significantly. We resource, inspire, and encourage each employee so that everyone would have the best possible chance of success. Based on experience, we know that this organisation model and management style work in the best possible way.
The development of partner group services will continue in 2017. In addition to these services, the whole team takes part in improving public awareness through partner group campaigns. The common label for these industry-independent projects is #HCPSPIRIT.
This #HCPSPIRIT activity is the most visible part of our community, and it lives its own life, which may sometimes seem chaotic, even. #HCPSPIRIT is guided by our values, and the various projects that we participate in create shared value for the participants. As in chaos, what may seem like randomly-occurring events is, in fact, rich and deterministic interaction of pre-determined rules. As in nature around us, this interaction is the most effective part of our operation.
In Helsinki, May 26th 2017
HELSINKI CAPITAL PARTNERS
Tommi Kemppainen, CEO
One of the founders