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Unfashionable

At the start of this year, I read a weekend edition of the FT and in particular an item in the Lex column which talked about unfashionable profits, the demise of some business models, indeed some that might have become obsolete yet haven’t such as travel agents and fund of funds.
The weekend FT is a regular active manager basher and indeed the media likes to focus on cost. One of the better financial market journos recently put up a list of active funds’ ongoing charges figure (OCF) but with no other data and no performance. As I pointed out to him, he was telling only half the story. Surely there should be mention of the active managers’ performance after fees to give the article context?!
Input vs Outcome
One of the problems of our industry is that it is still driven by input investing when the customer or end client is concerned with outcomes. We are still asked how much we have in the US or Europe, which managers do we choose? Why? To make good copy? In a post RDR world how many advisers have the expertise or time to devote to sourcing the right managers, to constructing the appropriate asset allocation? Fewer and fewer would be our experience. Can they navigate the choppy waters of ‘emerging markets’, indeed just this morning there is a leading competitor stating that he is going overweight emerging market equities, really? All of them? Where you put your money in the developing world is key as 2015 has just demonstrated. Another has ‘upped’ his alternative exposure. Alternative is such a broad heading that you would have little clue about what exposure that person actually has. The problem is that all the talk and copy is about inputs when looking and thinking laterally to deliver the appropriate investment solution renders old-fashioned geographic breakdowns less relevant today. And what does over/underweight mean? To us it has little relevance as the index or peer group to which that refers is unlikely to reflect the objectives of the end client.
Size Matters
Going back to the FT momentarily, they frequently tell us that active management doesn’t work but as we have pointed out before, they start at the wrong point. If you are not trying to run as much money as possible and therefore not constrained by size – too big to succeed – and you are not a slave to an index, there’s no reason why you shouldn’t outperform the larger asset gatherers. However if you need, for a commercial or share price perspective to be running as much money as possible and charge a fee for it, it might be difficult to be active and not look like an index clone. We know that large pools of money are going into passives but the reason isn’t that active management doesn’t work, as we have demonstrated, it does – in unfashionable portfolio construction methodology and AFTER fees! It’s that it is difficult for large scale investors (and we’re talking about multi-billions) to deploy such quantities of assets effectively without resorting to some use of passives
Size really does matter. Investors had looked to hedge funds such as BlueCrest and Brevan Howard for more stable returns with an asymmetrically positive bias and were prepared to pay high fees to get it. But Mike Platt and Alan Howard have found it difficult in today’s market to deploy several billions effectively given liquidity, opportunity and hiring constraints. Mike Platt has returned capital to outside investors and is just running his and his partners own money.
 
You Get What You Pay For – It Needn’t be Expensive
 
DFMs have become popular in the retail and wealth sector. We are a DFM (discretionary fund manager) but where opaqueness is replaced by transparency under a UCITS structure as both our funds are.
 
Our approach – unfashionable? Possibly but, if you’ll excuse the self-assessment – fit for purpose? Definitely. If size, being too big as an asset manager or a large pension fund, isn’t a constraint, then it is possible to deliver investment outcomes AFTER fees that investors can relate too – above inflation thus preserving their wealth in real terms and versus our peers. Transparent delivery of a desired outcome.
 
As part of our delivery investors get asset allocation in absolute terms not against an index which should only be used as a reference point not a portfolio construction tool! Good asset allocators need skill and experience – it isn’t an off-the-shelf product. Experience is important as it teaches you to know what you don’t know, that some of your better investment decisions are the ones you declined because you worked hard to find a flaw in amongst the hype.
 
Why?
 
It perplexes us that if you’re not a £multi-billion pension fund, sovereign wealth fund or asset manager, why you want to constrain yourself with their handicap – having too much money to put to work. As we continue to demonstrate, digging beyond the household name, large investment houses to find investors with the same mantra as ourselves – consistent performance over asset gathering, unconstrained by indices is a service that should be worth paying for as it delivers the investment objective AFTER fees.
 
At What Cost?
 
If cost was the driving force in our lives then when you look out of the window all you would see would be Dacia (part of Renault by the way, built in Romania) Sanderos. However as the real world demonstrates, car owners also take into account performance and efficiency among a number of factors. Why aren’t there more on the road?!
 
Anecdote
 
I recently had the opportunity to spend some quality time with my 90 year old mother after the passing of her husband, my stepfather. One of her daily rituals was to do the Daily Telegraph crossword. Each day there is a small advertisement for a Womenswear company called David Nieper under the crossword. In Ladies fashion but not a household name, yet with a focus on quality that ignores fads.
 
Established in 1961, it has weathered a number of economic storms over the past 50 plus years and the exodus of most of the UK’s clothing manufacturing to lower cost manufacturers abroad yet it thrives today in Alfreton, Derbyshire employing 230 people under Managing Director, Christopher Nieper who I had the pleasure to meet at last year’s excellent Great British Family Business Conference run by Paul Andrews’ Family Business United. David Nieper has endured periods of being unfashionable but through sound management, a focus on quality and not being too big to succeed, remains a thriving commercial family run business.
 
Peter Askew

January 2016
 

FOR INVESTMENT PROFESSIONALS ONLY
 
This document has been produced for information only. It should not be construed as investment advice. Every effort is taken to ensure the accuracy of the data used in this document but no warranties are given.
 
Past performance is not a reliable indicator of future results.
 
Issued by T. Bailey Asset Management Limited. T. Bailey Asset Management Limited is authorised and regulated by the Financial Conduct Authority No. 190291 and is a member of the Investment Management Association. Please note that T. Bailey Fund Managers Limited and T. Bailey Asset Management Limited do not provide financial advice to private individuals. Registered in England & Wales No. 3720372. Registered Address 64 St. James’s Street, Nottingham, NG1 6FJ.
 
www.tbaileyam.co.uk
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