From a degree in theoretical physics to teaching, then becoming one of the youngest chief investment officers in the UK, Kevin Doran has certainly had an interesting career. And now, at his new home AJ Bell, he has ambitious plans to ‘change the industry’.
‘I think there are better ways of doing asset management. I don’t want to be someone who just participates in that change, but I want to be the catalyst for that change,’ he says.
‘How do you deliver an intelligent, low cost solution for the adviser community in particular? It’s very easy to do passive low cost investment solutions. Passive almost outsources all investment management decisions to index providers. I don’t think that’s the right way to do it.’
While he believes that passive vehicles have been helpful in driving lower costs across the industry, now it is time to introduce ‘intelligence’ back into the process.
Doran joined AJ Bell in November 2017 as managing director for its investment arm, and oversees a team of 13, which uses big data and artificial intelligence (AI) techniques to improve their investment management process.
AJ Bell as a group has £42 billion of assets under management (AUM) across 172,000 clients. The managed portfolio service and risk-rated funds that Doran is responsible for have so far attracted £200 million and are seeing around £3 million to £4 million of inflows a week.
The company already had a passive fund of funds range, but after Doran’s appointment, also launched active versions of these. It also introduced four targeted income portfolios earlier this year, expanding the range further.
Doran explains that thanks to its big data and AI-based investment process and AJ Bell’s already established distribution channels, the costs of running portfolios are lower for the business and, therefore, this can be returned to investors in the form of lower fees.
‘We made the move and made a statement on this: any product you buy from AJ Bell, whether it is managed, actively, passively or a fund, the fee you pay will be 15 basis points.’
The change to AJ Bell’s fees was made at the start of the year, when it announced that it would cut charges by 40% from 0.25%.
He adds: ‘We want to help catalyse the transition from high cost asset management to low cost, intelligent asset management. We think that can be done profitably.’
Doran says he wants to lead the market on three things: choice, cost and communication. ‘We don’t think it’s our job as asset managers to tell advisers how they invest their money. We should be able to offer different solutions.
‘We never forget whose money it is. I think we’re in a hugely privileged position of being the custodian and trustees for other peoples’ money. I think for far too long in our industry you heard people saying “let’s take a bet on this”. That’s someone else’s money!’
That is why he believes communication with clients should be open, honest and transparent, and importantly, written in plain English.
These plans were not just developed on the fly, but during an eight-month sailing trip Doran decided to take when he turned 40, towards the end of 2016.
‘On that trip, I couldn’t totally switch off from this industry. There were two things on my mind. One was how do you do research effectively in a Mifid II environment, and the other thing was, what does a 21st century asset management business look like?’ he explains.
‘I was particularly aware of the FCA’s asset management market study. How would you tick the boxes that the FCA is looking for? How do we deliver value for money, lower costs, and better communication and how do we pass the benefit of scale, not to the asset management industry, but to customers?’
So how did Doran, who started out as a teacher, get into finance in the first place?
After graduating with a degree in maths and theoretical physics from the University of Liverpool, Doran became a teacher, but quickly realised that he had to do something else. Following a long Easter weekend, which consisted of sending almost every stockbroker in the UK his CV, he was hired by Henry Cook Lumsden. A company he says was known ‘as the Cazenove of the North’ back in the 1990s.
That was the beginning for him, going from teaching 140 kids GCSE maths to working as a desk assistant for five fund managers.
‘Very early on, on day three I think, one of the fund managers did a trade and asked me to report it. He got out three sheets of paper and carbon paper, and started writing up the trade ticket by hand. I thought it was an initiation test or something and laughed in his face,’ Doran recalls.
But that manager was deadly serious, and told Doran that they just used the computer to do all their typing on, not much else.
This was in 1998. The surprise he felt at this ancient process prompted him to start writing software for trade reporting. Step by step, he developed that into a portfolio management system, which evolved into a reporting system, then all-encompassing software.
When Brown Shipley bought the company, Doran moved over and so began his 18-year career at the wealth management and private banking firm.
There, he became an analyst covering technology stocks, recommending the purchase of Vodafone and ARM Holdings, among other names. ‘We did really well with those stocks, which wasn’t really hard, you just had to pick something in those sectors [at the time].’
While Doran is well-known for his tenure as a fixed income manager, his first foray into fund management was through the company’s technology fund, launched in 2000.
Although performance of the fund suffered alongside the rest of the market, he says he successfully navigated the end of the dotcom bubble, but his world view as a mathematician and a physicist was driving him towards a different path.
‘In physics, we are taught that everything happens for a reason. And your job is to understand what it is and create a model. But you couldn’t model what was going to happen to tech stocks. That didn’t sit well with me as someone who likes to understand how models work,’ he says.
‘I got myself closer and closer to the head of fixed income, until eventually in August 2001 the inevitable came and he wasn’t in a position to carry on commuting [from Scotland to Manchester].
‘I camped outside the CIO’s office and begged to manage the fixed income portfolios. It appealed to my mathematical view of the world.’
He adds: ‘The beautiful thing about bonds is that it didn’t matter what everyone else thought, because there was always a date in the future when you were either right or you were wrong.’
He took over the company’s fixed income fund in September 2001 and says that, until the end of 2013, he only had one company in the portfolio default: Anglo Irish Bank, which was the subject of a hidden loans controversy, leading to the imprisonment of three of its executives.
It was the start of the multi-asset portfolio boom in 2003, and Doran began thinking about ways to use statistical techniques to quantitatively filter down his investment universe.
The multi-manager offering that Brown Shipley built, branded the Solus range at the time, was launched and quickly raised £150 million. Two years later, in 2005, he became one of the youngest CIOs in the country, at 28.
Between 2005 and 2014 a number of changes took place, which saw Doran step down as CIO following the financial crisis to focus on the credit portfolios, before taking up the mantle again in 2014.
Then he was tasked with rebuilding and harmonising the research function within Brown Shipley and its parent company KBL.
‘We knew Mifid II was coming, so we needed a clear strategy on what we were going to do post-Mifid II. We were running a hybrid model at that time. We had five separate research functions around Europe in different countries.
‘The route we went down was instead of having the different research functions, we would bring them together, to form a single pan-European function.’
During this process, the June 2016 European Union referendum in the UK marked a breaking point.
‘I was the guy from the UK travelling all around Europe saying “wouldn’t it be great if we all work together”,’ he explains.
‘Post-Brexit, when you realise the British don’t want to do that, it didn’t feel tenable that the guy who harmonised the European function came from the UK. So I resigned.’
That is when he got a skipper’s licence and took off to sail down the coast of Italy. However, it was not that long before a pivotal lunch with Andy Bell brought him in to AJ Bell. He was hired within a week of that meeting.
‘That’s what I love about AJ Bell, the speed and cadence at which decisions are made. It’s a business that operates at a certain pace and has the energy to allow things to happen, and not just that but making things happen.’