Stockholm (HedgeNordic) – Pareto Total, a long-biased equity long/short fund managed by Bård Johannessen and Oddmund Nicolaisen Enæs out of Oslo, is celebrating its approaching ten-year anniversary with its best annual performance since inception. Pareto Total secured a return of 31.4 percent in 2023, earning the top spot among Nordic hedge funds listed in the Nordic Hedge Index.
Johannessen and Enæs started Pareto Total in 2014 with an initial investment of just over one billion Norwegian kroner from the Pareto group’s own capital. From the outset, the fund set out to operate without traditional industry constraints. “We wanted to make an active choice about geographical exposure, concentrate capital around the best opportunities and vary risk (exposure) to some extent,” notes Enæs (pictured left).
“We wanted to make an active choice about geographical exposure, concentrate capital around the best opportunities and vary risk (exposure) to some extent.”
This approach allowed the team to take a broader perspective and invest freely based on their convictions, avoiding ties to specific indices or target figures. As a result, Pareto Total has achieved an annualized return of 11.8 percent since its inception in mid-January 2014 and has grown into one of the largest hedge funds in the Nordics with around NOK 8 billion under management, equivalent to over €700 million.
Enæs reflects on the fund’s journey, stating, “Although we have not moved in a straight line, we are happy with the interim period after the first ten years.” The duo’s key insight over the decade is the importance of allocating “a lot of capital (large positions) to companies that can reinvest profits at a high return.” Pareto Total focuses on investing in high-quality global businesses across various market-cap categories at reasonable valuations. The fund typically maintains between 15 to 25 long positions and zero to a few short positions, running at an average net market exposure between 90 and 125 percent.
“Although we have not moved in a straight line, we are happy with the interim period after the first ten years.”
Pareto Total’s solid track record so far reflects its concentrated approach of investing in high-quality companies that reinvest profits at high rates of return to foster further growth. “’Everyone’ could have told us this ten years ago,” emphasizes Enæs. “The real challenge lies in implementation,” he continues. “The freedom to invest according to our own convictions has been exercised,” says Pareto Total’s portfolio manager. The team has invested in Norway, Sweden, South Korea and the United States, among many other countries. The fund has invested in shares, high-yield and investment-grade bonds, and has engaged in short selling. The team has judiciously taken out loans when they identified sufficiently attractive opportunities.
Pareto Total currently owns 23 companies and maintains three short positions in the portfolio. The long portfolio comprises carefully selected quality companies, including Roche, Novo Nordisk, Meta Platforms, and Adobe Systems, among others. “The portfolio has an average P/E multiple of 17. The average camouflages a large spread in the portfolio,” according to Enæs. The company with the highest multiple is traded at around 35 (Adobe), while the company with the lowest multiple (BMW) is traded at only six times the current year’s earnings. Enæs highlights the fund’s focus on companies with strong market positions, often operating in oligopolies or resembling monopolies, benefiting from clear competitive advantages that protect future earnings and enjoying financial flexibility to exploit future opportunities.
“We will continue to invest freely according to our own convictions without being tied to particular indices or target figures.”
“We will continue to invest freely according to our own convictions without being tied to particular indices or target figures,” concludes Enæs. “Although this is different from traditional fund products, we believe it is a safe path to good value creation over time,” he emphasizes. “We own shares in companies over several years and our value creation in the next ten years depends much more on the underlying economic development in the companies we own than the direction of the stock market.”