Few wealth managers would recommend day trading as an investment strategy, but that is precisely how Psigma Investment Management managing director Matthew Sharp funded his gap year travelling around the world.
That was back in the heady days of the tech boom and being a forced seller in late 1999 fortunately - given the looming crash around the corner - provided him with a smart lesson in the importance of locking in gains.
Brought up around a culture of investing, Sharp was an early adopter of online share dealing and destined for a career in the City from a young age.
‘It started when I was at school. A family friend was a retired broker and it was back in the days of “Sid” - the campaign advertising the privatisation of British Gas) and BT being privatised. He said “why don’t you buy stocks” and back in the 1990s they were only going in one direction,’ he recalls.
‘I knew the City was where I wanted to be, but I thought I would be working for 30-40 years, so went on a gap year. I did some work fruit picking in Australia, getting flies in my eyes. I did it for a day and reckoned that I had earned the equivalent of around 70 cents an hour.
‘So I set up an account and day traded around the world, buying S&P 500 options and individual shares. I was trading on dial-up internet, so it used to take 10 minutes and would keep freezing.
‘This was in 1999, so I was a forced seller to fund the trip and spent the millennium in Sydney.’
The gap year was reward for completing an undergraduate degree in economics and finance, followed by a masters in econometrics. At the latter, his thesis was on myopic loss aversion, looking at behavioural finance and how people feel losses more than they do gains. And this was to prove a greater influence on his investment approach than the day trading.
After returning to the UK, Sharp took up a position on HSBC Investment Bank’s graduate scheme, where he soon began working on the private client side. It was there that he met Psigma CEO John Howard-Smith and fellow managing directors Darrell Mercer and Adam Side.
The trio left the bank in 2001 to set up Psigma as part of the Punter Southall Group the following year and Sharp quickly moved over to be reunited with his former colleagues, initially joining as an investment manager.
Chief investment officer Tom Becket, a former Wealth Manager cover star, joined in 2004 and together with Sharp, set up the firm’s managed portfolio service (MPS).
The six-strong MPS range, which charges 50 basis points plus VAT, is distributed through financial advisers and targeted at smaller clients, with a minimum investment of £50,000. This sits alongside Psigma’s bespoke portfolio service, which has a minimum entry level of £250,000, with fees dependent on assets.
The MPS invests in third-party funds, while the bespoke service invests across funds plus direct equities, bonds and cash.
Both are underpinned by a common investment philosophy, which Sharp says ‘very much has inflation plus as its bedrock, rather than an index’. It is also agnostic on passive versus active, but Sharp points out: ‘We are favouring active management at the moment because in more volatile markets that’s where active managers really earn their crust’.
Sharp admits that some people, particularly those with little experience of investment, may not initially understand the difference between a company’s MPS and bespoke services. However, he says one of the main benefits of having a bespoke service is the additional value that can be added through tax planning.
‘People sometimes struggle to understand what the differentiation is between bespoke versus model portfolios.
‘One of the key elements is the tax planning, which adds a lot of value. A lot of MPS are just rebalanced quarterly and there is no focus on the tax implications of the timing of the trades,’ he says.
‘There needs to be a degree of consistency [between how bespoke portfolios and the MPS are managed], but there does also need to be a differentiator, because there is a cost.
‘Also, when we run portfolios for a family, we can do it at a group level, so they can combine their allowances. If you have got a couple and one spouse is a higher rate taxpayer and the other a basic rate taxpayer and they’ve both got Sipps and ISAs, you can rank their underlying investments by yield and put the highest yielding ones in ISAs. Growth holdings can go in the taxed element.’
Sharp points out that in a low return environment, ensuring clients’ portfolios are run in the most tax efficient way possible is more important than ever.
Sharp’s own client book is predominantly comprised of professional individuals, including directors of listed businesses, partners of law firms and private equity specialists. He describes them as ‘highly demanding, but rightly so’ and tending to favour a ‘20 minute concise meeting in business speak’.
Although Sharp was promoted to managing director in 2011, he continues to run a client book, saying it is important to keep working at the sharp end. It is also a company policy that all senior management continue to run client money.
Sharp’s client bank is part of the £1 billion his desk runs, with the London office having three desks in total. The other two desks oversee around the same amount apiece, with the firm having around £3 billion of assets under management (AUM) in total.
Psigma has been implementing a number of growth strategies, including building its presence in the regions and broadening its investment proposition with the launch of an inflation-plus ‘best of breed’ fixed interest portfolio in February, which aims to deliver a net annual return of 4-5%.
The company has also been beefing up its regional offices, with the firm having two outside of London. The Birmingham office was opened in 2013, while the branch in Edinburgh, led by Tim Wishart, went live in 2014. Both now run around £100 million each.
The second city hub beefed up its ranks this month with a double hire from Rathbones. Daniel Faulkner, who had co-founded Rathbones’ Birmingham office in 2008, joined as an investment director and will work alongside fellow investment director Toby Carpenter. Faulkner’s former colleague Jennifer Price also made the switch and will work in a support role.
Psigma also recruited Peter Seamer at the end of last year from Arbuthnot Latham for its London office. This followed a string of hires in 2016, including ex-UBS charity head Andrew Wauchope and Sanjeev Chopra from HSBC, also for the London team, plus a team of four in Edinburgh.
‘John [Howard-Smith] said he is keen to expand into regional offices, but we are not just looking for anyone. The benefit we have is that Punter Southall Group already has a presence in the regions, it’s about finding the right individuals. We are open to discussions, but not wedded to any particular region or area,’ Sharp says.
This investment in the business, which has also included increased spending on IT and ever rising regulatory costs, has in part been reflected in Psigma’s latest accounts,
The firm reported pre-tax profit of £3.53 million for the 12 months to the end of December 2016, down from £4.16 million in 2015. This was on revenue of £19.63 million, up only slightly from the £19.57 million recorded in 2015.
Administrative expenses rose year-on-year from £15.51 million to £16.13 million.
‘We’ve invested in the growth of the business and there is a bit of a lag between that and the pay-off. We have seen increased costs in regulation and Mifid II preparation,’ he says.
‘We are in a strong position and at the £3 billion level we’re not so big that we can’t be nimble, but big enough that we can absorb regulatory costs, which have been increasing generally, and invest in our technology, so it is a nice size.’
If coping with the spiralling regulatory burden and the other stresses of growing a business can at times feel like a mountain to climb, this is literally the challenge facing Sharp outside of the office. Despite admitting that his legs have only just recovered from cycling along the Normandy beaches route last year for the Psigma Foundation, he and his son have signed up to go to Tanzania to climb Mount Kilimanjaro later this year.
The money raised will be split between the Foundation and his son’s school’s nominated charity, and Sharp admits that although exciting, the prospect is somewhat daunting.
‘The biggest challenge will be the altitude sickness. It’s just under 6,000 metres and we’ll be on the mountain for six days. I’m looking forward to it and we are going up Snowdon for training.’
It remains to be seen how long it takes his legs to recover this time round, but Sharp is clearly not one to shirk a challenge.