Critics of financial short-termism, such as the Bank of England’s chief economist Andrew Haldane and London School of Economics professor John Kay, often root their message in the assumption that the problem is a recent phenomenon.
It is implied that while our investment forefathers pre-1980 were content to let their capital steadily appreciate with a longsighted view of the prize, contemporary MTV attention spans and an internet-damaged ability to defer reward has led to a rush for instant gratification.
David Cowell, director of Leeds-based discretionary manager Myddleton Croft, now in his 32nd year as an owner operator, does not quite see it that way. The field of providers who have rushed into his specialist sector of IFA asset management with knockdown pricing and equivalent service is redolent of every other ‘next big thing’ mania he has seen throughout his career.
‘A lot of silly money is trying to make bigger returns, and unless they can make that big money quickly they will not be sustainable,’ he says. ‘It’s been five or six years since the last crash and these things tend to go in six to eight-year cycles.
‘By 2017/18, I wouldn’t be surprised if a lot of businesses were finished. I don’t take any satisfaction in saying this but I don’t think a lot of the business being written today is sustainable for the long term; and I don’t think advisers who are signing up are managing their business for the long term.
‘It’s similar to how a mushroom grows: the top expands and eventually all the spores drop out to become new mushrooms. That has always happened in financial services and it always will. The market will get reduced but then the next correction will come and the big boys will suddenly want to get out and get rid of staff.
‘[At his previous company] our investment director had the same thing happen to him in the last market cycle: the bean counters came along and told him they were getting rid of half of his four staff. Big companies tend to rely on getting rid of people.
‘Some of those people will survive and some who aren’t particularly entrepreneurial won’t. I was in the business during the Armageddon of 1974, and I have been through every market cycle since. Everybody who has shareholders feels they have to look out for the short term, and perhaps they do.’
If that makes Cowell sound like he is railing in the wilderness, nothing could be further from the truth. Among the most genial and down-to-earth of any of Wealth Manager’s many coverstars, he is anything but fatalistic, much rather just realistic about human nature and the promise of getting rich quick.
Slightly deaf in his right ear after a lifetime of shooting – ‘I’ve never used ear defenders,’ he says – he is currently preparing to share out equity in the business and reflects on the broad age range in the company from himself down to a recent graduate recruit, but otherwise gives every impression of being in the business for the long term.
‘It takes time and investment to develop trust and that comes down to a personal relationship, which I still believe is how most IFAs prefer to work. It’s about becoming part of a client’s structure rather than being a totally different entity. Otherwise, it is just a commoditised service and most people prefer to deal with someone they know.
‘That is how we make money. What I always tell people is that if it is legal and profitable we will help you do it. We will come to terms with people and do not want to be totally static, so long as we can mutually benefit each other.’
Now eight years old, Myddleton Croft has enjoyed an appropriately steady rise, with direct assets under management of around £60 million. This fails to account for a recent major signing expected to deliver £30 million in bespoke assets and the same again to be managed as a model portfolio service.
‘We will also be providing fund selection for smaller clients,’ says Cowell, adding the company has a number of other deals in the offing.
Following the interview, the company’s head of marketing estimates a fair figure would be in the region of £100 million of assets under influence. The overwhelming majority of the company’s assets are in fully bespoke portfolios, within which just £5 million are run as models.
‘We aim to achieve £200 million in assets under management within three years and, more importantly, to be around when the continuing consolidation has substantially reduced consumers’ choice to plain vanilla, raspberry ripple or coffee cream,’ says Cowell.
‘Boutique managers will then be sought out to provide a true bespoke service to discerning investors. This will come from equally discerning advisers who know us and trust us to treat such introductions as a partnership, not a relinquishing of client control.’
From the end of 2007 through to July 2014, the MCIM Balanced portfolio has returned 31.47% versus a 25.09% return from the IMA 60/40 Mixed Asset index, being awarded the Defaqto top accolades for both direct discretionary and platform models in the process.
The bespoke service levies an all-in charge of 0.75%, with the MPS substantially lower, which Cowell believes is a fair reflection of sustainable business costs, rather than ‘pile it high’ discounting.
‘I would query what you are getting for 25 basis points. Most platforms will charge you 35 bps to 45 bps for dealing and custody, so it doesn’t seem like they are attributing a lot of value to their intellectual property.’
Appropriately given the above – though slightly frustrating in a magazine that makes much play out of fund picks – he declines to name the company’s favourite mandates. ‘It’s our intellectual property,’ he says.
‘Generally, a lot of other people will not invest in something below £50 million, which is exactly the sort of fund we are looking for. The last thing you want if you are seeking out small funds is to shout about it, and for other people to start piling into it.
‘Such funds are of a size that means we can make a material difference to their business, and they will let us know exactly what we are getting and are happy to show us their full list of holdings and so on.
‘With a larger fund, unless they particularly want to encourage people to get behind a particular stock they will only let you into their holding data once a month at the most, by which time the information may well be useless.’
Cowell is happy to talk about a couple of mainstays, however, saying the company has done very well from Citywire AA-rated Nick Train and A-rated Jeremy Lang. He is also happy to disclose a recently exited successful investment in AA-rated Gervais Williams’ CF Miton UK Smaller Companies fund.
‘We are currently in between deals. We made quite a lot of money on Miton Smaller Companies. We invested when it was about £6 million and it has returned around 100% since, meaning it became quite a substantial percentage of our assets.
‘It is now at £350 million, so Williams’ room for manoeuvre is slowing down a bit, though we would still put money behind him as a manager.
‘We took the top off it, which was fortunate because it was just as the small and mid cap correction was taking place. We know where the cash is going but with the current geopolitical situation we are biding our time.
‘The aim is to always be in a position where we can liquidise 95% of the portfolio in nine to 10 days, and the remaining 5% within six weeks – to account for the occasional holding in hedge funds that might only price monthly – and then have a two-week redemption period beyond that.’
Myddleton Croft runs with an average of 20 individual securities in its funds at any one time, which drops to 12 in its high conviction Tactical Growth portfolio.
Cowell himself handles the top-down macro with Patrick Toes, who joined the company in 2009 from the then Rensburg Sheppards handling security selection, supported by the previously mentioned recent graduate Robert Feather.
‘We find 20 holdings are sufficient to provide effective diversification without diluting returns. We tend to major on unrecognised value and stock/manager selection, and we are not afraid to either support small funds or act against emerging tail risk.
‘The median position for moderate risk portfolios is 50% equity and 50% non-equity, including cash. This can vary between 40% and 60%. Currently, we consider that equities will outperform other assets so we are nearer 60%.’