'You have to be ruthless,’ admits Polar Capital CEO Gavin Rochussen on the challenges of running an asset management business.
The former JO Hambro Capital Management (JOHCM) boss has now been in situ for three months and devised a strategy to keep the company in growth mode for the next five to 10 years.
The company is in rude health, having passed £10 billion in assets under management (AUM) earlier this year and just recorded its second highest ever quarterly performance fees.
But Rochussen (pictured) is under no illusions about what it takes to remain successful, particularly given the company’s model of acquiring teams to run specialist niche mandates.
‘Polar is a very focused business, whereas JOHCM was more diverse and difficult to manage. I knew the business quite well before I joined and there have been no surprises, I’m happy to report,’ he said.
‘I’m thinking about the next five to 10 years and what we do with sales and operations. We have capacity constraints on our funds, to enhance and defend our performance. Nothing hurts performance like volume. What that implies is that we will keep growing assets by adding funds to our existing range. Most of my time is spent looking for talent.’
Polar currently has 12 teams, including its high profile tech and biotech franchises, alongside its more recently launched UK value strategy after the firm poached Georgina Hamilton and George Godber from Miton last year.
They all operate autonomously, with the company providing the back office and oversight function, along with sales and distribution.
While eyeing up potential new teams, Rochussen is also conscious of the need to ensure that the existing ones are delivering, likening his role to that of a fund selector.
‘You’ve got to continue monitoring your existing teams. If you start harbouring an underperforming team, it affects the other teams. They ask what they are still doing here,’ he said.
‘Running Polar is almost like running a fund of funds and from time to time, you need to let the bottom performers go – you have to be ruthless.’
Delivery and rewards
But teams that do deliver the goods will be rewarded and Rochussen is clear about both what he is looking for and what Polar can offer.
He said it is ‘very seldom’ that he cannot get access to a good fund manager and when he does, there are three key areas he focuses on, which are what he believes makes Polar such an attractive proposition.
‘There are three main reasons that a good fund manager will leave a company. Transparency of earnings – they can’t work out what they’ll be paid, [secondly] they’re being forced to run too much money – all they’ve got in their career is their track record, or [thirdly] a lack of investment autonomy – they’re true stock pickers but they have to follow the house view.’
He has a very specific profile in mind when hiring talent, saying the ideal target would be a team in their late 30s to mid-40s, who are experienced enough to have built a strong track record, while being young enough to see a strategy through its life cycle.
Rochussen admits the proposition is not for everyone, as realistically they may have to accept a reduction in their remuneration in the early days, while their strategy builds up its assets, with performance obviously being key to this.
‘Each team sees everyone’s performance and they compete for the sales team.
‘A lot of managers will think they can manage much more than they can. Are they really focused on performance or making money short-term? If the focus is on outperformance, they will get to the rewards.’
‘Individuals also need to have a very well defined investment process which they can articulate. If they can’t convince me, I can’t take them on, even if their performance is good.’
Rochussen and Polar’s performance analysis team will scrutinise managers’ track records closely and he stresses that he would rather see periods of underperformance in their history when their strategy falls out of favour, than style drift. ‘Style tells you what conviction they have, any good manager will have periods of underperformance.’
While he recognises that in reality there is a limit on the number of teams the firm can house, owing to constraints on his time and infrastructure capacity, Rochussen puts a higher figure on this upper limit than his predecessor.
‘We’ve got 12 teams. [Previous CEO] Tim Woolley previously said 15 was the maximum, I think we can go higher, but in reality, if you get to 25 or more, then it gets difficult to manage.’
With the business’s asset flows around 95% Europe-centric and a similar percentage retail sales, there are clear opportunities to both grow its AUM in the US and institutional markets.
‘We could have a separate US business, which could almost run as a parallel boutique in a different location,’ he said.
‘It’s about making sure I don’t do too much. It’s very easy to jump at a lot of things and end up with mediocrity.’