Meet an investment manager on the eve of an epic Africa holiday and you’re likely to find him in top form. This was the case with Psigma Investment Management’s managing director Darrell Mercer, who was not only preparing for a river cruise to South Africa from Botswana, but was also happily marking the first year of a new decade for the business, after seeing assets hit £1.4 billion.
The five-year plan is now to reach £3 billion – a figure that’s a far cry from the days when Psigma was trying to convince clients to bring their money to what Mercer described as ‘three men and a dog in a little office in Jermyn Street’.
Psigma grew out of a team of three big bank investment managers, John Howard-Smith, Adam Side and Mercer, who met while working for Credit Suisse.
The three moved together to James Capel – which was later acquired by HSBC – before they decided to go it alone.
Like many managers who chose to set up their own shop, Mercer had worked for a smaller, traditional business that found itself amalgamated into a giant conglomerate following its acquisition.
He found the culture at the big banks unsettling. ‘The reason we set this up was the big banks problem that was around at those times,’ he explains. ‘I don’t think the big bank culture was in the interests of clients.’
And nearly 10 years on, he says: ‘I think there’s still a problem.’
To hit the £3 billion target, Psigma is hoping to increase business with IFAs and, given the founders’ background at multinational banks, it’s no surprise they are still hoping to draw clients from the big guns.
‘We want to do that organically using our sales team to go out into the marketplace and win new business,’ Mercer says.
‘We know there are lots of clients in big investment banks that aren’t being looked after as well as we can look after them.’
While a plan to win business from IFAs sounds generic, he says the team have gone all-out in a bid to present their proposition as the best of the bunch.
‘We have probably gone from being bottom of the pack in terms of literature to top of the pack and that is all part of the strategy of now going out in the big wide IFA world post-retail distribution review (RDR).’
Psigma has invested heavily in sales and marketing over the last year and has just launched a Birmingham office, led by Toby Carpenter, a former head of private clients at Charles Stanley.
An Edinburgh office is also in the pipeline, and both new branches are part of a regional strategy that Mercer says is crucial because people in the regions want their money managed by local businesses.
Until recently, Psigma strongly preferred to hire people already known to the team, but as the business has reached a headcount of 62, including 15 on the investment side, this has become more difficult.
Perhaps the most successful example of this ethos of taking on acquaintances and helping them grow their career is that of Psigma’s most high-profile team member, chief investment officer Tom Becket.
Becket is the son of Mercer’s neighbour, and originally came to the firm on work experience following university, after his father asked for a favour during a neighbourly conversation over the garden fence.
From this, the energetic, garrulous Becket was offered a full-time job and has since spent his whole career at Psigma, becoming CIO and a regular investment commentator to trade and national press.
Although some businesses shy away from recruiting teams of managers, fearing it will be a struggle to integrate groups of people into an established business, Mercer has no such reservations. This is probably due as much to his own past moving between companies with colleagues, although he attributes it to the strength of Psigma’s culture.
‘We would consider taking on whole teams if their ethos is the same as ours. We are not just out there to buy assets but develop and grow with the right kind of people. I think we have a very disciplined investment process and people need to be happy that that is the case.’
Mercer is jolly with a wry sense of humour, and a huge sports fan. He studied economics and economic policy at Loughborough University, an institution known for its sporting community, and jokes he was offered a place there because he was a particularly good rugby player.
He remembers the time fondly.
‘I don’t think it is like that now, both my kids are at uni and appear to be doing a lot more work than I ever did.’
Going into the City ‘seemed like a natural progression’ from his degree so he joined a trainee scheme at City stockbroker Hoare Govett.
Following a rotation around the business he settled on private client management, and likes the demands of having to keep a broad knowledge base ‘as well as being a financial doctor’, he says.
His love of rugby has rubbed off on his sons and he coached a team from ages five to 12. With both children at university, he has time to indulge his love of travelling and celebrated his last milestone birthday with a string of trips to Thailand and Bermuda.
Back in the office, Mercer cites the demands of regulation as the biggest change he has seen and believes these eat up at least 10% of Psigma’s revenues.
While recent headlines and column inches have been filled by the Financial Services Authority’s efforts to clean up the sales culture and product pushing at the big providers, Mercer’s perception back then was that risk was the real problem at the banks.
‘Banks have a tendency to manage their own risk rather than the clients’ risk and the easiest way to manage their own risk is to put people in boxes and give them the same thing. That way the risks are massively reduced,’ he says.
‘They try to be more product pushers rather than sellers. And they turn service in to a product. But what they have done there in that risk space is create rigid models that then become a product, and clients aren’t getting service.’
In terms of the team’s investment approach, client portfolios have benefited from a move back in November to increase equity exposure, mainly through adding a 3% weighting to the Legal & General International tracker. This has been taken off following a 10% return.
Mercer has been looking at cyclical recovery and has bought both the River & Mercantile Long Term Recovery and the Investec Special Situations funds. ‘[They] are focusing on cyclical investments and both have done very well. We just think there is more value to be had.’
He has just bought into the Allianz China RCM Equity fund because ‘the dragon is back, at least in the short term’.
‘It hasn’t yet delivered for us but as a house we believe that we have seen the corner turn,’ he says.