A great fund manager is really easy to spot, says Mike Webb, chief executive of Rathbones Unit Trust Management, and a man who has worked with some of the biggest names in asset management throughout his career.
He joined Rathbones’ fund management arm in 2010, then in 2013 also took on the role of group executive director of Rathbone Brothers.
Over the following years, he used his experience of harnessing what he describes as the great talent within the company to turn it around, after it had fallen on harder times following the financial crisis of 2007-08.
The unit trust business was hit by net outflows of £234 million and combined with the slump in stock markets, its assets under management (AUM) fell 46% to £1.03 billion in 2008.
During this period, Webb was working as head of business development at Hermes Fund Managers, after previously holding a series of executive positions across the industry.
He started his career in finance, after a stint as a stand-up comedian, at Hambros Fund Managers in 1986. He spent five years there and then left to join Prolific Financial Management, which he calls a ‘darling of the 1980s’.
There he was tasked with rebuilding the business, alongside a young management team, before the firm was subsequently sold to Scottish Provident. After six months, another business ‘which had lost its way’ called on Webb and he went over to GT Global – then the home of Nick Train - as the CEO of its retail business.
‘We were very successful in rebuilding the brand around Nick Train and our Asian office. But the parent, LGT, wanted to separate that business. They had to decide between investing in their private client or their asset management business. They decided to back the wealth management business, so they sold GT to Invesco.’
Prior to becoming the chief executive of the retail business at Invesco, he was charged with integrating GT. At that time, the company had around £1.8 billion in assets under management, which significantly increased to a little under £10 billion over the next three to four years, following the acquisition of Perpetual.
‘One thing I learned is a really great fund manager is easy to spot. Having worked with some of the best, it’s been a real privilege,’ he says.
So what makes a really great fund manager? Webb lists a number of characteristics that set them apart.
‘First is a really clear exposition of their philosophy and process, and absolute determination not to stray from that path. Because there is so much noise out there, they have to accept they like a business but are not sure when the value will be recognised. That may mean short terms of underperformance. Being able to stick with something is very important,’ he explains.
In contrast, being able to sell something if the story changes is also crucial. ‘To be fairly cold and unemotional,’ he says.
‘Generally it means that most [portfolios] will be fairly low turnover. Guys like Nick Train and Neil Woodford were very good at doing that.’
He also highlights some lessons he has learnt during his time in management.
‘It’s okay to make a mistake, just don’t do it again. Short-term gain is rarely good for business, you should always be thinking long term. If it looks too good to be true, it probably is.’
Some of these lessons were learnt during his time at Invesco, where he worked from 1998 until 2004.
‘We really grew its presence focusing on wholesale markets in the UK, to a point where we were the number one player in the financial adviser market. And the business had really grown significantly, I felt I needed a rest.’
So he took 18 months out of the industry, going on different adventures, including whale watching and scuba diving. When he came back it was with Hermes, on the institutional side, and after five years there, spent working on transforming the business into the multi-asset boutique it is today, he was approached by Andy Pomfret – then chief executive of Rathbones.
‘I joined in April 2010 and the AUM in the following three months fell to about £750 million within the fund side. And my role was to try and consolidate and build that business,’ he says.
‘We started investing back in the business, ensuring we had right remuneration schemes and had the right marketing, trying to create a clear strategy around being a focused boutique and not trying to be all things to all men.’
Highlighting how he found ‘incredible fund managers with great loyalty to the business’ at Rathbones, he also says it was at this time he recognised the ‘latent potential’ in David Coombs and his team. They had just started running what Webb describes as ‘the next generation of multi-asset’ propositions, so he brought Coombs over to the funds side from the private client division.
With a clear vision of re-establishing Rathbones’ UK position, Webb set out to revamp the company’s funds arm, rallying behind the fund managers and ‘providing confidence that we were not about to go under. We were going to invest for the long term and if they put money with us we will be here in 10 years, 10 years and so on’.
And he did just that, raising assets under management to around £4.1 billion over 2016 and pre-tax profit to £8.5 million, up from £6.4 million the previous year, on revenue of £31 million.
Webb is a believer of having a focused fund range and Rathbones’ current line-up includes two fixed income funds, run by Bryn Jones, five equity mandates run by A-rated James Thomson, + rated Carl Stick, Alexandra Jackson, Joanne Rands and Alan Dobbie, and the four multi-asset strategies under AAA-rated Coombs.
‘We have great momentum behind the business and we think we have a very appropriate product range for the future. We are definitely active managers and we will stay that way. We realise that we may have capacity constraints in some of the funds. We’re nowhere near them yet, but we wouldn’t hesitate to shut them,’ Webb says.
He adds that remaining relevant to the marketplace is key and if Rathbones is to add another fund to its range, it would be an extension of the firm’s existing capabilities, rather than jumping into a new product area.
Keeping this in mind, following the roll out of its unitised portfolio service under Rathbone Investment Management, it recently launched the managed portfolio service giving clients with £15,000 upwards access to Coombs’ funds.
The MPS had already seen around £4 million of inflows in May after launching in March. In response to the question of why now, Webb replies: ‘Because we were finding that we really liked the multi-asset funds, and we didn’t want the bureaucracy of us doing suitability and the adviser doing suitability as well.
‘At the same time, I looked at what the alternatives were and you can see the explosive growth in third party MPS. We just kept looking at them and kept thinking they’re not as good a product as we can design. What is more, it’s quite a low margin business. They’re all fund-of-funds pretty much. They’re not managed day to day and not particularly sophisticated.
‘We felt there was enough interest in MPS-type products, but we could design something better from an investment standpoint.’
Rathbones’ MPS has an ongoing charges figure of 1.04%, which is lower than most other model portfolios found on platforms, he points out. This moves the conversation on to the regulator’s increased focus on fees and providing value for money.
‘Regulation is going to fundamentally change the way financial services works. The FCA so far has looked at the asset management industry, it hasn’t turned to look at platforms and financial planning yet. They need to get it through the whole chain and understand benefits to underlying investors.’
While he admits that some of the regulator’s proposals are ‘incredibly sensible’, he questions the introduction of a single fee.
‘A single fee is dangerous because it doesn’t recognise the difference between explicit costs and implicit costs. I’m in favour of disclosing both, but they should be disclosed separately.’
On some firms’ advocacy for performance fees he adds: ‘Unless you have capital backers who are willing to pay for people’s salaries the first thing you create is a highly substantial instability in the business.
‘Looking at what is good for the customer has to be about more than just cost. To do that, you have to have a revenue base to attract and retain the best talent and for them to remain committed in a very competitive market place,’ he says.
‘I think that’s an extraordinarily dangerous business model to pursue because there will be times when they will underperform, as we will. It wouldn’t take long for you to run out of cash or indeed people.
‘[Value for money] is actually incredibly difficult to define, but we are going to give it a good go. But I am a big subscriber to the belief that if you pay peanuts you get monkeys.’