Top fund managers are regularly promoted to the more elevated role of head of their asset class, but how does this affect their day-to-day responsibilities and how do they cope with the change in role? James Phillipps spoke to Kames Capital’s new co-head of fixed income, Stephen Snowden (pictured), to find out more.
Stephen Snowden is in an ebullient mood when we meet, joking that 15 years on, he is still the ‘new kid on the block’ in an industry that appears reticent to promote youth.
Citywire AA-rated Snowden, one of the UK’s best known bond fund managers, has just been promoted to co-head of fixed income at Kames Capital following the shock departures of company stalwarts David Roberts, the previous department boss, and high yield star Phil Milburn last month.
So how does the company deal with the aftermath of big name departures?
‘We had a lot of client calls and I’ve come down to London [from Kames’s Edinburgh HQ] for a couple of days, but it’s pretty much business as usual. We’ve seen the majority of the people we need to speak to, but there are still people we need to see,’ Snowden said.
‘Thankfully, we’ve not had as many redemptions as I’d expected,’ he adds, although he admits that more could follow when Roberts and Milburn launch their funds at their new home Liontrust when they join early next year.
But despite the loss, Snowden is seeing the positives. Although highly respectful of his erstwhile colleagues, who were also friends, he has full confidence in the wider team.
‘Phil and Dave were huge names and a big loss, but they also cast a big shadow. The success of Kames’ fixed income franchise will be associated with Dave and Phil, but with them leaving it enables other people to step up,’ he said.
‘The process goes on and it will be fine. We have co-managers for a reason, to ensure continuity. Phil and David’s contribution was large and they will be a loss, but they didn’t do it all in isolation. I’m looking forward to the less publically known members of the team growing their voices.’
The new role
Snowden was adamant about what he wanted from the co-head role, which he shares with Adrian Hull, who joined in September 2014. Hull, whose career includes stints at ABN Amro, Nomura and Mizuho, has an investment banking background in a range of senior roles, but he has not actually run money since joining Kames.
The division of labour between the pair therefore feels natural, adding to the sense of continuity. And Snowden says that he does not expect his promotion to be detrimental to the commitment he has to running client assets.
‘The whole idea of having co-heads is that Adrian can do the business side and I can run money. We have had co-heads before. Being sole head of fixed income at Kames is a big job. You have business risk strategy meetings, Mifid II etc, and you’re continually being dragged away from the coalface to deal with these things,’ Snowden said.
‘I’ve always made it clear that I wanted to be running the money and that is only possible if someone is there to sit on these committee meetings. Every six weeks we have a two hour management meeting, so I lose half a day every six weeks.
‘We have a strategy in place to facilitate it. At the end of the day, we are in the business of running money and acting in our clients’ best interest. The clients have made it clear that they want me running money and that is what I want, and [CEO] Martin Davies wants me to be running the money, so we are all aligned.’
Snowden is lead manager on the group’s Investment Grade Bond, Investment Grade Global Bond and Absolute Return Bond funds. The first two have outperformed their peer groups over both three and
five years, while the latter has lagged over both periods.
Despite this, Snowden is sure that hiring an external head of fixed income, possibly someone with a name and following, would have been the worst possible outcome, following the recent changes. He believes that it would have resulted in the tinkering with an established investment process, while potentially unsettling the status quo on the desk.
For balance, it is only fair to recall that what was then Old Mutual Asset Management hired Snowden to replace star manager Richard Woolnough when he quit for M&G, back in 2003. Snowden spent eight years there before returning to Kames.
However, Snowden again stresses that promoting from within could be a better strategy and one the industry appears to be scared of.
‘Over the last 10 years, the average age of fund managers has just got 10 years older. The guys I competed against 15 years ago when I was 30 years old are still the guys I compete against now,’
‘Sooner or later there has to be some young talent coming through – I’m still the youth policy and the new kid on the block at 45.’
The need for new blood
Espousing the value of youth, Snowden points to a recent trading example, when the wisdom of a younger analyst overrode the outdated thoughts of older team members.
They were contemplating the merits of a pairs trade between retailers Tesco and Next. The former had rallied as the supermarket recovered, while the latter had underperformed, pushing their spreads to similar levels. In the end, the team flipped the planned trade on the basis of the younger team member’s insight.
‘We were discussing it with our retail analyst, who is a millennial, and asked whether it was where her mother shopped. She said it was where her grandmother shopped, not her mother,’ he said.
‘Young people are much more on the money when it comes to lifestyle and social trends. Experience is a good thing, but you need diversity of opinion. It was a timely reminder that if you solely rely on 50-year-olds running your money, it’s naïve, as the world moves on.
‘A 50 year old brings a lot to the table in terms of experience, but a 27 year old adds value too.’
Snowden accepts that hiring youth, or even bringing in veterans with a name from rival houses, always comes with a degree of risk. Ultimately, it all comes down to numbers – outperform and you will attract assets, underperform consistently and they will redeem. The same pressures that their former colleagues turned rivals will face at Liontrust.
‘One thing has not changed in the last 14 days [since Roberts and Milburn left]. From a fund management point of view, if a fund performs, good things happen, if it doesn’t, they won’t. That’s always been the lot of the fund manager,’ he said.
‘We have got a young, highly motivated team ready to step up, but time will tell. Dave and Phil will be worthy competitors, but they are no different from us – if their performance is good, they’ll raise assets.’
Snowden: ‘What if the clichés are right?’
So many of us have heard the same familiar lines trotted out, but what if we dismiss these views as the herd’s and they come true?
Snowden believes that ‘equities will grind higher and spreads will grind tighter, while government bond yields remain low,’ adding that investors are sat on large pots of cash that could be injected into the market at any point.
In his career, he has seen the Asia crisis, tech bubble, financial, then European sovereign debt crisis and all things in between. But will this continue?
‘It’s not ridiculous to think that after a period of extreme macro volatility, we might be in for a period of low macro volatility,’ Snowden said.
‘The most overused phrase is “it’s a stockpicker’s market” – we’ve heard it for years and years, but what happens if they are actually right now and we have a period of low macro volatility? It’s as likely as it is not.
‘If we do see this, we are better placed than most firms, given our smaller funds and focused approach.’
In terms of interest rate management, he warned that the nay-sayers that have been decrying the government bond market in recent years could yet be thwarted for years to come.
‘People have been saying that the bond bubble has burst for four or five years and they could be wrong for another five years. Bubbles only burst if growth flies and you’ve got an ageing population with a high debt burden.’