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Profile: CHI's bond supremo on liquidity and bond risk management

Profile: CHI's bond supremo on liquidity and bond risk management

Despite its Mayfair address and the City pedigree of its senior staff, Church House Investment has always seemed rooted as much in the English shires as in the mercantile hustle of finance.

While the investment team has been based in London since its incorporation in 1997, the cultural roots of the business in a Yeovil solicitor’s office servicing the local gentry run deep.

Despite the sale of parent business Church House Trust and its coveted banking licence to Richard Branson in 2010 – and the management buyout of CHI that immediately followed – its administrative team is still housed just over the county line in Dorset.

The firm’s functional office space in London – sublet from Weatherbys Bank and just across the road from the Royal Academy – admittedly remind one less of a mythological countrified England of inglenooks, half-timbering and hounds than a budget-conscious 21st century financial service business.

But scratch the surface and the company’s ethos of unshowy due diligence and quiet modesty reflect the values of a business closer to Thomas Hardy than City traders - for both good and bad.


When Wealth Manager interviewed company chief executive James Mahon back in 2012, he made it clear that CHI’s reserved self-effacement might be a luxury it could no longer afford and some brash promotion might do justice to its client services and family of funds.

Nearly three years down the line, the light is beginning to peek out from beneath the bushel, says Jeremy Wharton, director, manager of the company’s Investment Grade Fixed Interest fund and co-manager of its Tenax Absolute Return Strategies fund, alongside Mahon.

The business has added £200 million in net inflows over that time, taking total assets under management to £700 million, with private client accounts comprising £500 million of the total.

‘We have gained some very good investors [for the fixed income fund] – people who I would be very happy to invest my own money with,’ says Wharton.

‘We always knew that we had a very good offering but we had traditionally been very private-client focused – which we still are, but we have taken a rather more visible role in promotion rather than doing it all via word of mouth. We are now looking to do the same across the [six-strong] fund range.’


While Church House has made headway with institutional allocators and fund buyers, the next stage in its development is in the opposite direction, registering its funds and model portfolios – which it has operated for internal client purposes since 1999 – for sale to adviser clients.

Central to this has been the hire in February last year of Sam Liddle as sales director and head of distribution.

‘We are still on only a small number of platforms. Sam has done a lot of the leg work preparing share classes [for platform distribution],’ says Wharton.

‘He has been great at raising our profile and has already made a lot of difference. He understands the mechanics of distribution, which wasn’t really part of what we have done previously, [and] he has got a lot of contacts among advisers which we didn’t have.’

The company recently signed off on an office of its own on nearby Grosvenor Street, which will give existing staff more room to spread out and provide desk space for further recruits.

Wharton says while the company’s five packaged-fund managers, two client portfolio managers and six client reps are more than capable of handling a step up in capital, the company’s investor-visa client team, which has grown rapidly in recent years, will be able to take on more staff.


‘That has been a very good source of growth but we don’t want to spread ourselves too thin. Obviously it takes an enormous amount of due diligence to properly vet candidates. [Longer-term] we will obviously be able expand the fund management side and client portfolio side. I can see us needing to add [personnel] in future.’

Pitching the company’s investment grade fund has also been made easier recently. The concentration of fixed income liquidity risks in a handful of giant mandates with compromised ability to place trades has driven investors’ attention toward smaller mandates.

The fund’s cautious mandate makes it an awkward fit for the IA Sterling Corporate Bond sector and having sat out much of the sovereign rally, the fund lags its peer average over shorter timeframes but performs well on a broader range of indicators that include volatility and risk/reward metrics. 

Over three years, the fund has returned 17.68% versus the peer average IA Sterling Corp Bond return of 20.64%, and over 10 years 77.79% versus 59.34%.

Lipper’s internal ranking system assigns the fund its highest possible rating on capital preservation however, while Citywire’s internal ratings put the fund just outside the top decile over one and three years for total risk and maximum drawdown. 


Those principles read across to the company’s blended private client portfolios. The company’s CH Risk 5 profile has returned 28.9% over three years versus the FTSE WMA Stock Market Balanced benchmark return of 31.9% but has got there with volatility 150 basis points lower, at 6.1% versus 7.6%.

Wharton has sharply derisked the Investment Grade fund in recent months as benchmark sovereign gilt markets have hit record levels of volatility, and markets processed the likelihood that 2015 will experience the first increase in US interest rates in almost 10 years. 

‘It has helped that we have been able to encourage to people to allocate to the fund, not as a fixed income strategy as such but as an allocation of risk. We have had a number of people speak to us recently who were thinking along similar lines,’ he says.

‘We were recently asked to model a 100% liquidation of the fund – which would obviously never actually happen as it is about 40% [composed of] internal client assets – but the results were very encouraging and able to offer some reassurance.

‘I remember what market liquidity was like in 2008, when thankfully I was not a forced seller, but because some people were, you had good, senior issues trading at 82 cents on the dollar. We were well away from those sort of figures.’


The fund currently has a third of its assets in AAA-rated issuers and a third in near-maturity floating rate notes as a hedge against short rate volatility, giving a modified net duration of 3.74 years.

‘Everyone is talking about liquidity. Having previously been on the sell-side, this is quite right – the market structure has changed since 2008 – the amount of money invested in funds has changed dramatically and that is a concern for the bigger asset managers,’ says Wharton.

‘And a lot of market participants don’t have a track record of managing duration or investing through a period of rising rates. A lot of people have just never managed money through a period of monetary normalisation. If you talk to them about what happened in 1994, they look at you blankly.   

‘I have built in as much rate protection as I can and taken duration as short as I can without compromising the yield or liquidity. Some people have been extremely complacent about rate rise risk. Myself, I wish they would just get on with it.’

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