A move towards centralised investment processes driven by more stringent regulation has been bemoaned by a number of private client investment managers.
Duncan Lawrie research head and director Edward Bland takes a different view. He says it is ‘not before time’ and welcomes a more professional, regulated and disciplined sector.
‘What has happened, it seems to me, is the industry has bulked up a lot and the old stockbroking firms don’t dominate private clients – or they might do but in different guises, with much more professionalism and research applied. People just can’t go off on their own as they have done,’ he says.
‘There is no place for people who use old practices that are not properly processed. They are creative, talented people and that is a shame, but I think the whole business has become much better researched and disciplined,’ he reflects.
Bland has worked hard over the past nine years to build a robust process and research function at Duncan Lawrie. He joined after DDY, a small privately owned investment management company he worked for, was taken over by the private bank.
‘I think it [DDY] was a good purchase. It was below the radar screen as it was not a big asset management business. It was one they believed they could integrate quite easily, and I suppose what is most important when it comes to mergers, particularly with smallish companies, is if the chemistry works,’ he says.
‘This was the overriding influence – that the cultures were not dissimilar – and that has proved to be true.’
When asked how things have changed over the years, Bland says: ‘The business has become very much more disciplined than it was at the outset. Every year we become more disciplined because you have to have good discipline as you build the asset base. We have much more focus now.’
Bland moved into private client investment management at DDY late in his career after carving out a reputation in institutional fund management during stints at Barclays, Standard Chartered and Jupiter.
At the time, the latter had more of an institutional tilt and as mandates changed and became more specialist, Bland recalls that his role as manager of Jupiter’s balanced funds became ‘more or less redundant’. He decided to take a risk and move into private clients.
‘I was 52 and I thought “I have got to get this step right”. I wanted longevity in my career and thought private client wealth management was what I wanted to go into. I felt I had a reasonably personable character,’ he says.
‘Perhaps this is an arrogant thing to say, but I felt private clients had really been short-changed when it came to getting the same depth of investment research and advice that institutional and retail fund managers gave.’
Taking on board the words of wisdom imparted by John Duffield, with whom he worked closely at Jupiter, he says: ‘It is like having in an orchestra and being the conductor of an orchestra. You have so many people in the orchestra and you have to get them all to work together, so they synchronise and mesh in together.
‘I think that is a great exaggeration but I do know what he means. We have now reached a stage which I think is optimal in our process.’
Bland describes his six-strong research team as highly integrated.
The private bank uses a top-down approach that is guided by an asset allocation committee, which meets quarterly and includes himself, an external chairman, Anthony Grier, as well as the bank’s head of client services and head of asset management. Decisions are made by a sub-committee, which meets monthly and mainly comprises the research team, and are then signed off by the asset allocation committee.
Individual managers are given set risk and asset allocation parameters for each risk profile and buy from a central recommended list, which covers direct securities and funds.
Clients with a minimum of £250,000 tend to have collective-based portfolios, while larger clients can have exposure to direct equities and/or funds. It is down to the relationship manager to decide and construct the portfolio from guidance from the research team and committees.
Direct equity investment tends to be in FTSE 100 stocks, where businesses with strong management, leading or unique products or services in industries with high barriers to entry are favoured.
A typical medium high risk portfolio is currently overweight the US with a 19% allocation, 40% in UK equities, 7% in European equities, 7% in developed market equities, 3% in Japan and 14% in fixed interest and cash. This is largely allocated to strategic bond funds – a shift introduced in the middle of last year, while the balance of the model lies in alternatives.
Bland anticipates that equities will remain the favoured asset class, although he says the headwinds facing markets should not be underestimated. ‘The imponderables are the strength of the global economy and the pick-up there, inflation and interest rates. I get bothered when there seems to be a complacency that equities are going to continue to perform,’ he says.
‘One thing I can confidently say is they are not going to perform as well as they did last year. Two, I believe there will be more volatility in the market. And three, I think that, on balance, equities probably will be the place to be still, but nothing would surprise me.
‘Once we get to the end of this year, investors are going to be more sensitive to interest rises and there are political considerations to take into account in our own market.’
Bland expects interest rates will remain low for longer than some forecast. He argues there is a shadow of deflation hanging over Europe, where there are little to no input price cost pressures. Unemployment remains high across a number of countries, taking out labour cost inflation, while commodity prices remain lower than they have been for the past few years.
‘At the moment our house view is that an interest rate rise is a long way out, but we may have to swallow our words. That is part of this business, it is dynamic and ever-changing. You have to sense that and act accordingly and with conviction,’ he says.
‘It is interesting to note that I can’t remember a time when everyone has been so absorbed by economic data.’
He describes a move over the past year into Japan, via an exchange traded fund, as one play that has paid off.
He also expects emerging markets to have a better year than last and believes the growth story remains in place for those willing to take a long-term view. However, over the short term challenges remain – not least the vagaries of capital flows.
Duncan Lawrie’s medium high risk model has posted a 26.4% return over the three years to the end of 2013, with an 18.3% rise over the year to the end of December.
The company has quietly built its asset base over the past nine years, with growth from £150 million before the DDY acquisition in 2005 to a discretionary client base of around £800 million at the end of 2013.
So, what lies ahead for Duncan Lawrie’s UK private banking business?
Bland is particularly positive about the funding the bank has received from its parent company Camellia, which has varied interests around the world and still manages tea estates, which form a part of the company’s heritage. This has enabled Duncan Lawrie to build its profile over the past two years, which is no bad thing given the ongoing negative headlines that have hit some of the larger institutions.
While most new clients have come in through the private banking route, Bland points out that this creates opportunities to pick up investment management mandates as well.
‘On the asset management business, we have every ambition to grow the business organically. I feel the name is better known now, the franchise is recognised as a good one and it takes time. Our remuneration and profits depend on growing the asset base, so clearly we want to, every way we can,’ he says.
He hopes communicating the service, culture and values of the organisation will ultimately power growth and win back the trust of potentially disillusioned clients.
‘It might sound corny, but it is actually true. I have the benefit of having worked at Barclays, Standard Chartered, RBS and Jupiter and the one thing that stands out is that we have a very happy culture,’ he says. ‘The people here have the time to give a proper personalised service, even if it means being woken up at one o’clock on a Sunday morning. I can give you an example of that.
‘It is a very caring company and there is a loyalty between the employer and staff, and that feeds through to clients, staff and the relationship managers,’ he adds.