With the retail distribution review now in force, wealth managers are turning their attention to the next regulatory challenge on the horizon: the US Foreign Account Tax Compliance Act (Fatca).
London & Capital has been aiming to stay ahead of the pack by preparing its business for the upcoming legislation, and has been developing an expertise for clients who may be struggling.
As awareness of Fatca grows, chief investment officer Pau Morilla-Giner says asset growth over the past year has been strongest in this area of the business.
‘The US team has been doing really well on the back of changing legislation,’ he says.
‘A lot of asset managers can’t take care of US clients any more because of the reporting that they need to do. We now have an immigration division that is doing well.’
The firm celebrated its 25th anniversary last year, having grown from start-up to a company with 12 investment staff and a total of 90 employees.
Assets now stand at $3.7 billion (£2.33 billion), spread across 600 family clients, and this hefty sum is now under the watchful eye of Morilla-Giner, who took over as CIO last year from Ashok Shah as he scaled back his commitments ahead of retirement.
Morilla-Giner has a background in alternative investment and he is a keen supporter of hedge funds – so it’s no surprise that hedgies are the only third-party funds to feature in the firm’s bespoke portfolios. It invests in third party funds through its managed portfolio service but the only pooled investments that clients of the bespoke service will be exposed to are hedge funds.
Hedged strategies have fallen out of favour with some investors, and despite the best attempts to market them as low volatility strategies, they remain associated with the kind of risk-taking most investors hope to avoid. However, Morilla-Giner believes this is unfair.
He argues that the most liquid and stable hedge funds remain an excellent option for clients.
He says he became interested in the sector because he ‘just wanted to understand what the best people in the world have done or wanted to do. Funds he likes include US-based Autonomy which, as a very macro-focused fund, sits well with his own top-down investment philosophy.
‘They have a good understanding of the implications of policy making and global macro trends. It’s highly diversified with a very, very strong team and an emphasis on absolute return,’ he explains.
He doesn’t hold Brevan Howard’s flagship Master fund but likes Bluebay Macro. ‘They are a good team, quite narrow-minded, almost paranoid about losing money. I like paranoid; it’s not unhealthy to be paranoid
Morilla-Giner is playing the recovery in the US consumer through the Tiger Consumer Management fund and the success of UK small caps, with a holding in Maga Smaller Companies, which is run by another specialist. ‘All our managers have a very good understanding of what could go wrong,’ he says.
Many investment managers see third party funds as a form of outsourcing, recognising they cannot have the expertise in-house to analyse stocks from across the globe, they pay specialists to do the job for them.
However, Morilla-Giner says his team has got it all covered. ‘We think we can do a better job at allocating capital and, most importantly, managing risk for clients and translating that in to our ability to perform when it matters most.’
He rejects the suggestion it is overly ambitious to select equities from across the globe entirely in-house.
‘I’m a very realistic person. We only do what we think we understand, so the team needs to be senior enough, and it needs to be large enough.’
He believes doing everything in-house makes him more comfortable than he would be trusting it to an external fund manager.
‘When it comes to allocating within the fixed income space, say investment grade bonds, I get an exponentially higher amount of comfort in knowing that we have control over the kind of work that we do on the names.’
The notion of control appears to be something of a preoccupation for Morilla-Giner. There’s a sense that this avowedly ambitious man has got where he has by retaining oversight of everything, and he just prefers it this way. He is so confident in his team he believes the existing managers would be able to cope with a doubling in assets under management, and as such has no current plans to take on new staff.
‘I am very happy with the people on the desk… The managing director Daniel asked me, if we were to double assets under management next year – which we won’t, of course – would we be able to cope? I said “absolutely”.’
The only area Morilla-Giner feels London & Capital could improve on is its South American coverage. Although both he and a colleague are Spanish speakers and regularly travel to the region, this is one area where he may recruit.
‘Maybe I would like to bring in talent to tap into the Latin American growth story,’ he said. ‘I think we might want to tap into that as an expertise.’
Born in Barcelona to schoolteacher parents, Morilla-Giner studied economics at university. He enjoyed looking at behavioural patterns and the interconnectedness of human action and markets, and with an inkling that investment was the path to follow, he started his career as an investment analyst at JP Morgan in Spain.
‘Frankly, I didn’t have anyone at home to say “this is what you like, this is the area you should go to”,’ he says. ‘Only when I did my masters did I realise, “I think I want to manage money”.’
Even allowing for this early uncertainty, Morilla-Giner got his first big break in managing real money at the age of 25, with a role investing proprietary funds at Omega Capital, a job he remembers as ‘exciting and very appealing’.
It’s clear he has given a lot of thought to every aspect of his life and career. He never errs when questioned and makes several jokes during our conversation, but he also says he’s ‘not the most open person, I don’t really enjoy talking to a lot of people’.
While he does make standard fund manager statements such as ‘I’m not exactly impulsive when it comes to making decisions’, he speaks so methodically, it’s easy to believe.
Wanting to get ahead in his career, Morilla-Giner had his sights set on moving to London – ‘one wants to test oneself where arguably the talent is; if you are a footballer you want to work in a better league’ – and even tried to convince his Omega bosses that it would be a good move to have an office in the City.
At the time they declined, but his call turned out to be right, as the business opened a London branch several years later and tried to lure him back.
Equities and commodities were his focus during his first two jobs, until he moved into alternative investing at Pragma Wealth Management. He was attracted by the firm’s use of sophisticated derivatives, and it was also his chance to build a team around him to support his investment process.
He was approached by London & Capital in 2008 to join as a senior portfolio manager, and now he has risen to chief investment officer he says his goal is simply to ‘get better’.
‘That’s my ambition, to be able to achieve the impossible, to try and understand the way the world works. We never will and that’s why it’s interesting.’