10 years of entrepreneurship by passion

The Angermayer, Brumm & Lange group celebrated its 10th birthday in 2009. In the current yearbook the five partners talk about their corporate philosophy and the key milestones in the development of the group and give an insight into their expectations and plans for the next 10 years.

Mr. Angermayer, your tenth anniversary coincides with the worst economic crisis in the last 100 years. Are there still reasons to celebrate?

Angermayer: Of course! Even more than would otherwise be the case. For one thing, looking back makes us proud of what we have already achieved. Peter and I started ten years ago with a part-time secretary in an one-room office facing the rear courtyard in Bayreuth. Together with our other three partners, Andreas, Ralph and Sebastian, who joined us later, we have come much further than we imagined at that time. We are also very optimistic about the future. Although times of upheaval like these can topple large com panies and wipe out large fortunes, at the same time, new companies and fortunes are created. And we are very confi dent that we will be among the winners.

What is this confidence based on?

Brumm: We are currently living through a form of “déjà vu”. Shortly after we had managed to get VCH Investment Group – our first company, which formed the starting point for the current group of companies – up and running to some extent, the dot.com crisis in combination with 9 /11 erupted throughout the entire sector. Even though the current crisis has totally different origins, many of the symptoms are the same. In a matter of a few years, the large companies that were formerly our competitors in the venture capital and private equity sector, and who had laughed at us when we started up our business, had disappeared completely, and in the boom that followed we suddenly became one of the established players and could harvest the fruits of the preliminary work we had done in the difficult years.

Lange: Outsiders often have the impression we mainly achieved our success during the good capital market years between 2003 and 2007. This is only partly true. In fact, this positive capital market period allowed us to reap and develop precisely those successes whose foundation had been laid in the difficult years before. For this reason, we also see the current period as an excellent opportunity to cautiously expand our existing companies and make selected new acquisitions that will plant the seeds for above-average performance in the future.

Can you give any concrete examples of projects that you initiated before 2003?

Dr. Grabmaier: Gladly. A good example is the development of Aragon. During the crisis in 2002, we had the idea of taking four broker/dealer-networks that were losing money due to the diffi cult stock market situation at the time and combining them to create a new market leader. Since no investors wanted to invest in sales organisations at the time, and almost all of them thought that the stock market would never recover, it was possible to buy at highly favourable prices. And our plan worked. The four pools were combined to form Jung, DMS & Cie. AG, which quickly became a powerful and, based on synergies, immediately profi table company that today has more than 13,000 independent investment advisors and was able to fully profi t from the good state of the capital markets in recent years. The formation of our bank biw Bank für Investments und Wertpapiere AG was followed immediately by the birth of Aragon AG in 2004.

Konrad: As a result of these times, we are still strongly focussed on profitability today. The profits of our companies may fluctuate, but should never slide into negative territory. So far, we have successfully adhered to this rule, even in the current period. We also have a relatively strict no-credit-policy. Even though it might sometimes appear attractive, investing on credit is rarely profitable. As a result, all of our companies are debt-free and have large cash holdings. The same is true of Altira’s private equity funds.

Let us go back to your overall strategy. Mr. Konrad, could you give us a quick summary of ABL’s business model?

Konrad: We see ourselves as an entrepreneurial family office. Our top priority is to achieve long-term growth in the assets of the partners in harmony with the interests of the other stakeholders in our activities. We provide long-term assistance to successful entrepreneurs and companies, particularly in the financial industry, aimed at achieving growth and developing them into leading companies in their segments. We specialise in the areas of asset management, financial sales and banking.

As an employee of the Altira Group I would say that you are more than just investors, aren't you?

Lange: That’s right. As partners of Angermayer, Brumm & Lange Unternehmensgruppe, we also actively participate in the management of all of our core equity participations through positions on their executive and supervisory boards, where we dedicate ourselves fully to the further growth of these companies.

Where does your passion for the financial industry come from?

Angermayer: From the very beginning, our priority was not just to successfully increase our wealth, but also to use our efforts to change and shape the world. The fi nancial industry is the industry that has the greatest immediate effects on an economy what unfortunately currently appears in a negative light. For example, the portfolio companies of our German private equity funds alone employ more than 5,000 individuals. Without us, these jobs might never have existed.

Allianz is selling Dresdner Bank, and Citigroup is more or less being forced to think about whether its strategy of forming a broadly diversified group of financial companies was in retrospect a mistake. ABL is also active in a wide range of areas in the financial industry. Is there anything you would do differently now?

Dr. Grabmaier: No, absolutely not. Our development has proceeded according to our strategy and we are very pleased with the structure of our organisation today. We have tried to harmonise strategic ideas and a desire to exploit synergies, on the one hand, with the operational requirements of the various business models of our companies on the other hand. From ABL’s point of view, we have a well diversified presence in all important sectors of the financial services industry and are taking advantage of the resulting synergy effects. At the same time, however, our companies, Altira, Aragon, Silvia Quandt & Cie. AG and CH2, are able to operate independently and focus on their own business models. This allows them to all achieve maximum efficiency. In effect, the best of two worlds.

Lange: Another important factor is the extensive knowledge transfer that takes places between the companies, and, in particular, between us at the partner level. Our experience with each company continually teaches us more about the markets, how they develop and much more. For example, it is very important for Altira as an asset manager to know the current trends in the sales market, and deteriorating shipping markets are a helpful early indicator for all other investments decisions. This knowledge is also naturally available to larger companies, but I believe that unlike us these companies are not in a position to transform such knowledge into returns, and further diversification therefore often brings no benefits once a company has reached a certain size. Our situation is different. Five individuals are involved at the beginning and end of every important decision and use their full energy and commitment to move the group forward and take advantage of synergies.

Are there potential conflicts of interest?

Brumm: Every diversified business model has the potential for conflicts of interest. The important thing is to identify and eliminate them before they become a problem. In our case, this occurs simply because our top managers hold interests at the individual company level and, in addition, because we have external investors like Credit Suisse and AXA on board for our two listed companies, Altira and Aragon. This ensures proper risk controlling and proper internal allocation of costs.

What motivates you?

Angermayer: The desire to change things and help shape the world.

Lange: In the coming decades we want to make a sustainable contribution to the further development of the German business landscape and become involved as entrepreneurs in our home market socially, culturally, and politically. Purely financial investors are not in a position to do so because, for that, you need a long-term time horizon, focussing not just on pure profit maximisation but rather on the quest for the equality of interests of all stakeholders.

At the tenth anniversary of ABL, there are many things to be proud of. What is your personal favourite?

Angermayer: We have achieved a great deal at this point, but we see all of this as just the starting phase in our development. The financial sector is an especially volatile industry, and this also applies to the individuals involved. Many change their jobs every two years. We have been working together for ten years now, and will likely continue to do so for the rest of our professional lives. Even though we are entirely different in terms of character and personal strengths and weaknesses, we know that we can rely on each other completely. At the same time, our respect for each other allows us to actively discuss issues and come to the best decision without internal politics.

Dr. Grabmaier: We have a passion for being entrepreneurs. We are happy that we can share this passion with a growing number of colleagues – executive board members and key employees in our companies, as well as longstanding business partners – and that we have formed deep friendships and partnerships in the process. This applies, in particular, to our most important capital partner, the Silvia Quandt family, which also holds an interest in a number of our companies. In the end, it is always the interpersonal relationships that give value to life, and this includes, in particular, one’s professional life.

And what was your biggest mistake?

Brumm: Let me first give a positive answer to this. We have always taken care only to pursue projects and make investments whose failure, while perhaps painful, would never have seriously endangered the entire group or even a portion of it. In this respect, we are very risk averse, and this has saved us from committing serious errors quite often in the last ten years, regardless of how favourable and enticing a transaction might have appeared at the start.

Dr. Grabmaier: We have naturally made quite a few mistakes over the last ten years, but never a “big one”. If we did a mistake, often the core of the problem invariably had to do with an incorrect personal assessment. It is, after all, the people involved who represent the crucial factor in converting an idea into success. We invested in a number of promising companies that had a good idea, but lacked the management needed to realise its potential. However, we also invested in companies whose business idea turned out in retrospect not to be as viable as we had originally thought, but whose management nevertheless, through determination, creativity and entrepreneurial spirit, made it a success. As was said previously, it is people who give value to life.

There are just few comparable owner-managed companies in the financial industry. What do you think is the reason for this?

Angermayer: The financial industry is not an industry where one normally starts his own company. Instead, it is actually very “non-”entrepreneurial. For more than 100 years, the industry has developed in a way that has pushed family and owner-managed banks to the sidelines, replacing them with large corporations that are led by managers and are generally stock-exchange listed. I believe that this is also one of the more deeply-rooted reasons for the current desolate state of our industry. We personally firmly believe that the best decisions are made when risk and return form a meaningful unit, that is, when the person receiving the return also bears the corresponding risk. This individual will then think through all of the consequences of his decisions. This was no longer the case for many companies lacking entrepreneurially active shareholders. It was possible for managers to receive high returns in the form of bonuses, without having to bear the corresponding risk. Simply stated, the situation gave them an invitation to gamble according to classical “agency theory”. I would venture to say that the banks would have behaved differently if they had still been traditional partnerships, where the responsible parties also personally would have to bear any losses. There is a reason why, for example, the owner-managed banks in Switzerland are still in very good condition.

Do you think there is a danger that the concept of free market economy and enterprise has been harmed by the financial crisis?

Brumm: Unfortunately, yes. And everyone, politicians, entrepreneurs and bankers, must now work against this. So far, the market economy has basically always learned from previous crises and become better as a result. Although it is the best economic model that we have, it is also far from being perfect. The failure of all of the other models has proven to be far more impressive, with significantly more painful consequences. This will also be the case this time. Progress is basically learning through crisis. In addition, politicians should never forget that a free market economy is one of the foundations of democracy. I would even go so far as to say that a market economy is a precondition for democracy, although, as successfully shown by China to date, the Western form of democracy is not a precondition for a market economy. Do you think there is a danger that the concept of free market economy and enterprise has been harmed by the financial crisis?

What, in particular, must change in order to avoid a recurrence of such a crisis?

Konrad: In previous years, when liquidity was plentiful and, above all, cheap, many investors failed to remember a number of classical principles, and assumed risks that were too large. This needs to be prevented in the future. We feel, however, that stricter regulations will not be sufficient on their own. Instead, as we previously discussed, this can only happen if risk and return are aligned. The financial industry needs more entrepreneurs again.

Your German private equity division also makes you one of the major investors in German small and medium-sized companies. How is this division managing during the crisis?

Lange: We feel that the worst is still to come in the real economy. In the end, “cash is king” will apply in 2009. This naturally does not rule out selective acquisitions that now offer strong companies an outstanding opportunity to expand their market position.

Angermayer: That is one of the main reasons that we can realistically expect to emerge from the crisis as a winner. We have accumulated a great deal of liquidity over the past 12 to 18 months, both at the corporate level, that is, ABL, Altira, Aragon, etc., as well as the level of most of the funds managed by Altira, and can now use these funds for selective purchases. In the case of Altira alone, this is more than EUR 27 million. In addition, all of our companies are highly profitable and will remain so even in a variety of stress scenarios.

Konrad: We also see our operational business as a major beneficiary of the crisis, particularly our two asset management firms, Altira and CH2. Once the dust has settled, investors will ask themselves whether they really want to continue investing in complex derivatives, or would prefer to invest in real assets. We expect alternative asset managers that were able to build up a good track record during the crisis to experience a boom. And the consolidation process that has already started for fi nancial sales companies will also reach a new high in 2009. These are the best possible conditions for Aragon, which specialises in acquisitions.

Your group is also experiencing strong international expansion. In addition to your main offices in Germany, London and Switzerland, you also have a presence in Eastern Europe, Asia and Africa. Why the urge to move so far afield?

Angermayer: First of all, we believe that a local team of specialists is needed for investments of any type. Most of the international locations outside of Europe are therefore also locations for Altira’s private equity teams. Strategically speaking, however, we also believe that the political and, therefore, economic world of tomorrow will no longer be uni- or bipolar, but will instead have a variety of different centres of power. We feel that it is important for the interests of our investors and clients that we also develop economic and personal relations with these new centres. In addition, a great deal of our success is also due to our international network.

Brumm: Balance is also important here. Our focus will continue to be on Germany and German-speaking countries, as these are the places where we can make the best use of our expertise. Germany is also a country with enormous and often underestimated growth potential. The central core of the German economy consists not only of internationally well-known blue chip companies, but also many profitable small and medium-sized companies and young technology firms that not infrequently occupy leading positions in global markets. We look for the big opportunities that these companies and entrepreneurs have worldwide with their outstandingly qualified employees and high quality products, and want to open the door to international contacts for some of them. At times, it is truly depressing to see the high standing that Germany and German companies enjoy in many countries of Asia and Africa, for example, and how little German small and medium-sized companies and German politicians make of this major asset.

You state that one of your strategic objectives is to fulfil your social responsibility. What does this mean to you?

Dr. Grabmaier: Money is not an end in itself, but exists to promote human welfare. Therefore, successful entrepreneurs who use part of their wealth for good ends are important role models for us, and we also support a number of social projects that are within our means. The road to Hell, however, is paved with good intentions. There are many “benefactors” in the world who would like to help others with social benefits, often with “other people’s money” that they do not have to earn themselves. This can, however, have devastating effects on the living conditions and attitude to life on the part of the beneficiary, who may quickly adjust to a new diet or lose the basic means to earn a self-directed, independent livelihood as a result of the aid itself. This effect shows unmistakeably in the “success” that followed decades of development aid to Africa. In the end, well intentioned grain deliveries made farming unprofitable in many regions, thereby adding many more people to those unable to provide for their own subsistence. The effects of a minimum wage follow a similar pattern. For us, it is therefore much more important that our entrepreneurial activities create high quality long-term jobs that allow people to enter or remain in the workforce. This applies equally to Germany and our investments in developing regions.

Angermayer: In most cases, purely charitable donations are also a one-way street. The money is paid out and never comes back. If, on the other hand, the money were to be invested in a socially active company satisfying the criteria of sustainability, it would remain in circulation and achieve a great deal more, since it would be used in accordance with market criteria and would therefore develop a certain market power. Therefore, when we make investments in Africa and Asia, we always ensure that we do not appear as a donor, but as investors who treat their local partners as equals and support their efforts to generate returns. The jobs that are created contribute directly to the economic development of the region and create not only the power to consume, but also the most important effect, namely the professional training and advanced training of individual employees and managers, and the development of know-how clusters. We believe that this is the most effective way to lay the foundation for future well-being.