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Cornelian Asset Managers: the Scottish boutique proving its worth across the UK

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Cornelian Asset Managers: the Scottish boutique proving its worth across the UK

Many cities in the UK vie to be the second largest or most significant financial hub outside of London and Edinburgh is in the running to take this accolade.

Talking to Hector Kilpatrick and Marcus Brooks of Cornelian Asset Managers at our Citywire Scotland event, they can list reams of asset managers and wealth managers alike all based in the city.

Baillie Gifford, Aberdeen Asset Management, Standard Life Investments, BlackRock, Aegon, Artemis Fund Managers, Aberforth Partners all roll off the tongue quicker than I can write them down.

Looking at Edinburgh from a discretionary fund manager (DFM) point of view, Brooks, director at the firm, reveals: ‘On the last count, which was admittedly some time ago, there were 28 separate managers that I could name – other firms similar to ours offering wealth management services in Edinburgh.

It’s very broad, very competitive and I’d be surprised if there were more in any other city outside London.’

Whilst here at Citywire we champion all regions, the vast number of players in the Scottish capital help make the city a regional heavyweight.

Cornelian Asset Managers has proved itself as a boutique in a ring competing against a high number of branches of the UK’s national DFMs who have a presence in Edinburgh.

Founded in 1992 by current CEO Jeremy Richardson, the firm has gone from strength to strength and today has substantial assets under management of £1.2 billion as of 31st May 2017.

CIO Kilpatrick is pleased with their trajectory. ‘We’ve nice good steady growth, which is accelerating.’

Most recently growth has come from offering their global multi-asset risk managed fund range to the IFA space, which is where they have had most traction. The risk-managed fund range is 7 years old. ‘We’ve caught the move of IFAs towards outsourcing their investment solution or proposition’, Kilpatrick explained.

They have been supported by some 450 adviser firms, predominantly through their funds on platforms. There is a team of intermediary relationship managers covering the entire UK building relationships with IFAs and also getting referrals for the discretionary business as well.

Kilpatrick is responsible for leading the global, multi-asset investment team as well as the investment performance of all their mandates. He also manages and develops their investment process which has an unconstrained, active approach. ‘Our proposition where we manage risk through the cycle and we can de-risk quite substantially should we wish to resonates with a lot of people, particularly at this stage in the investment cycle.’

At the tail end of last year they launched the passive version of their risk-managed fund range. It’s been a soft launch so they have not gone out and told people about it.

‘We’re looking to build the track record but that has the potential to be quite interesting we think,’ Kilpatrick mused. They will have a year’s performance in November.

For the next few years, opportunities in the IFA market are going to be positive.

‘What we’ve found is that IFAs are, generally, using risk managed fund solutions for their smaller clients’, Kilpatrick explained. ‘I think once they get used to using  global, multi-asset, risk managed funds we may well as an industry see IFAs using this solution for their larger clients. This could become another growth driver over the next five or more years.’

Whilst the industry has seen a swathe of model portfolio services rolled out across the board in recent years, Kilpatrick doesn’t feel these will stand the test of time.

‘I think there are inherent problems with model portfolio solutions on platforms’, he said. ‘I think once these become more apparent, both risk managed funds and discretionary fund management should take market share.’

Kilpatrick, feeling that we are quite late on in the investment cycle, told me how their funds are positioned at the moment.

‘We are quite prepared to be full risk on when we think it is right to be so, but at this moment in time we feel that’s not sensible.’

However, there is some time to go before they need to do anything too radical.

‘We haven’t taken risk right off the table, because high valuations don’t trigger bear markets by themselves. Just because markets are expensive, doesn’t mean they are going to underperform. Whilst we’re cautious we’ve yet to run for the hills,’ continued Kilpatrick. Sitting in front of Kilpatrick and Brooks, who are both relaxed and showing a logical mind-set, it’s hard to imagine that scenario taking place.

Their investment approach has also kept them ahead in market movements.

‘We keep our ears very close to the ground, particularly at the stock level. And that’s something that differentiates us from our peers, many of whom are just straight asset allocators’, Kilpatrick outlined before going into further detail.

‘Because we invest directly in UK equities, we believe we get an insight into market psychology and the play off between fear and greed.

‘One of the bottom up indicators that has helped us in the past when determining whether to add or reduce risk at the portfolio level has been interpreting the investor reaction to companies’ trading updates. We’ve used it to our advantage on numerous occasions throughout the cycle,’ he said.

So have they found what they’re searching for?

‘We’re currently looking for early signals that market psychology is shifting from greed to fear, but as yet we’re not seeing it.’

Conversation turns to clients, another facet where Brooks was on hand to highlight how Cornelian makes its mark as a national firm.

‘The core of our business has always been Scotland because that’s where we’re physically located. But we have clients situated from the South coast of England to the North coast of Scotland.’

Looking more closely at client demographic, Brooks pinpointed some of the types of clients they work with.

‘We probably see more entrepreneurs, professionals - from legal firms, accountancy firms, private equity directors – people who have made their money more recently’, he described. ‘We perhaps don’t have as much older money as some of our longer established competitors.’

As well as private clients, charities make up an important part of their business. Of their total assets under management, £530 million is in discretionary portfolios. This includes charity portfolios, and private clients where they have a relationship with the client, some of which have been referrals from financial advisers.

The balance is formed by investors advised by financial advisers accessing their risk managed funds through platforms.

As well as growing their client bank, Brooks told me they are keen to grow their people on both sides of the business: dedicated investment and portfolio management and also client services and business development.

Kilpatrick enthusiastically jumped in: ‘I’m delighted that a trainee I recruited 5 years ago is now heading up fund selection, which is testament to both his qualities and the training he’s had. There is progression in our business, and it’s good that our employees can see this happen.’

So with team numbers, AUM and their client bank on the rise, what does the future hold? The answer is a simple one for Kilpatrick: ‘In 10 years’ time we hope to see Cornelian substantially bigger than we are now.’

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