The history of Dalton Strategic Partnership has largely been built on the foundation of strong personalities understood as having a certain amount in common: highly erudite, larger than life, conservative with a large but not necessarily a small c, and possessed of a generous helping of old-fashioned bonhomie.
It is one the reasons that Dalton’s death in March last year following a sudden heart attack was felt as such a loss at the company: the impression given by staff is that he had not so much recruited a team as curated a group of people and personalities he enjoyed, and whose company and intelligence he valued.
Profiled by Wealth Manager in February 2010, Caldecott explained the results of this process: ‘Private wealth management is a combination of three things: art, science and common sense. Since it’s unlikely that you will have a monopoly on all three, you have to keep your eyes open and the good investment decisions are a result of distilment.’
Partner Andrea Di Nisio says: ‘Andrew was certainly larger than life, particularly among his clients. That human element is key – absolutely key – both Andrew and Magnus [Spence, co-founder and current managing partner and chief executive] had selected people culturally similar. We get on very well and that has had a meaningful impact on how the company has grown. We have a very good collection of quality people and a very open culture.’
As much as he was a linchpin for the company, Dalton was also crucial to the development of its asset allocation strategy – both Di Nisio and portfolio manager Neill Blanks credit him with the decisiveness to shelve ordinary process in response to extraordinary events, such as rapidly winding equity back from fully invested to zero exposure over the six months from October 2007.
Blanks notes that his spirit lives on however, citing the decision to pull back equity exposure from 100% of its usual allocation to 35% in the second quarter of last year.
‘It is important to say that we did this in Andrew’s absence – it’s the result of intense debate among [the investment committee members].’
While Dalton’s family is still working on a long-term plan on how close they will remain to the day-to-day running of the company, there is a daily representation of continuity, with Andrew’s son Fred recently joining the company as a junior analyst on the US equity team.
‘Magnus Spence is taking on more of the day-to-day management and the partners are now becoming more involved from an equity perspective,’ says Di Nisio, carefully.
Now approaching its 10th anniversary, Dalton and Spence founded the company having worked together at Mercury Asset Management, where Dalton played a key part in building the company into the phenomenal success story which it became.
The business currently manages approximately £2.4 billion across the private client division and its Melchior range of funds. Approximately £500 million of this is managed by the private client team on behalf of around 75 international family groups.
The fund management division had an accretive 2010, adding around £400 million. The company’s long/short Melchior European fund had a particularly successful time during the crisis and generated a lot of buzz up to hard closing in October last year, including picking up an industry benchmark award.
Private client assets have been broadly flat in recent years, but have also been largely stable. Although few clients have chosen to put much new capital into the markets, neither has there been significant attrition.
While there is a certain generational shift underway in the company’s management structures, the business is also recalibrating itself along more structured lines, formalising and standardising its fee structures on a flat basis.
‘Although it is important to note that we have never double charged at portfolio and fund level and never accepted any retrocessions or kick backs,’ says Di Nisio.
He joined the company in 2009, having spent much of the previous 10 years working alongside Caldecott at both Shroders and Cazenove Capital – two names that figure large in the CVs of Dalton Strategic’s employees.
Born in Italy and educated at the Luiss University in Rome, where he studied economics, Di Nisio joined Schroders’ Milan branch in 1996, transferring to London before moving to Cazenove, in 2002, and Merrill Lynch before rejoining Caldecott.
Blanks meanwhile took the now-unusual route of joining Schroders on a traineeship straight out of school in 1996 before returning to education to sit an economics degree at Warwick, rejoining the company in 2001, where he served on the Asian equity desk.
Both men take a role in the investment committee, although Di Nisio tends to sit further back from the table, spending more time on the road meeting clients.
Besides the nine-strong committee, Blanks says there are ‘no walls’ between the private client team and the funds team, who are able to provide a more specialised and focused perspective on sectors such as Japan and North America.
Having moved almost as decisively back into equity in 2009 as it moved out in 2007/08 (one of the factors noted in Dalton’s obituaries was the optimism that shaped him as a fundamental equity bull), the company had largely continued to run at the upper end of risk exposure until 2011.
Having started 2011 with a straight split between equities and cash and equivalents weighted 69.5% and 30.5% in the company’s balanced portfolios, the most recent update reflects the more complex, nuanced and uncertain outlook.
In the balanced mandate, equity exposure stands at 36%, bonds at 29.5% and cash and equivalents at 38%. A recently introduced allocation to hedge funds stands at 6.5%.
‘We have introduced a selected few low-volatility hedge funds,’ says Blanks. ‘They are very dependent on specific relationships that we have – we would never hold a New York hedge fund, for instance.’
Equity is typically held collectively and fixed income directly, other than for specialist strategies such as emerging debt. With a diverse selection of nationalities and domiciles represented among the firm’s client base, currency exposure is a key consideration.
‘The common factor among all our clients is that first they don’t want to lose money,’ says Di Nisio. ‘The second is that they want some excess return on top of the rate of inflation.’
The investment process is driven by five principal factors: liquidity aggregated across 92 central banks; interest rates; earnings momentum compared at both a global and localised level; valuation; and intra-asset class volatility.
‘We have been generally ahead of the curve when it comes to avoiding risk assets,’ adds Blanks. ‘The cautious mind set means that we have been ahead of the crowd. And at the end of the day, we make sure that we remain flexible, so long as we stay well within risk tolerance.
‘Where we see opportunity at the moment: developed markets will struggle against their headwinds. The US has seen some improvement but there is still too much risk that Europe will have a big impact.
‘[Globally] there are too many unknowns [to take on much risk]. But many of these unknowns are less dependent on domestic economies and more on global trade – it is still possible to find localised opportunities such as Indonesia, which are less geared to global factors,’ he says. ‘[Or] places like India, which has largely self-inflicted problems, but where the interest rate cycle is peaking and we can find long/short opportunities in the things which are driving markets.’
He mentions Taiwan and the Philippines as examples of nations that display their own internal growth dynamic without taking on excessively levels of global economic risk exposure. Heading into the end of last year, the firm was also responding to rapidly improving economic news from the US by increasing allocation from low levels, although not yet being ready to jump in heavily.
Chinese exposure has been chopped, and excised as much as possible from local regional exposure. The company doesn’t have a firmly held view on the pace or severity of China’s domestic slowdown, said Blanks, but simply doesn’t believe that local equity is worth the risk embedded in it.
‘[In] China, property remains the big unknown – that and how much local government debt has been disclosed. The government in China is obviously quite opaque,’ he says.