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Wealth Manager: Quilter explains how it has kept continuity through changing hands

Wealth Manager: Quilter explains how it has kept continuity through changing hands

Although Quilter has seen its ownership change hands several times, the investment management business has retained clear continuity among its staff.

Charles Hepworth, head of the firm’s managed portfolio service (MPS), and Ben Mountain, head of investment fund research, are a testimony to this, having been at the firm for 17 and 12 years respectively.

‘There is a very long service for the majority of the staff here because it is a very stable offering,’ Hepworth says.

Mountain says: ‘Also, the culture here is very good. I have been allowed to grow in my role and develop. I report to the CIO [Duncan Gwyther]. He is very hands off – but hands on when he needs to be – and he allows us to explore our own avenues of research. If it is not in keeping with what he feels is suitable for the firm as a whole, we won’t pursue something, but it is not as dogmatic as “we are only covering this”. It is quite flexible in that sense.

‘My management style is to allow my team to express their views and look outside the box to find new attractive ideas. It may not always come to something, but giving people the freedom to develop is important. As we are looking at multiple asset classes and geographies, something is happening all the time. New managers are always coming up.’

Preserving a firm’s culture following an ownership change represents a significant challenge in UK financial services, yet Hepworth says Quilter’s core senior management team has achieved just this.

While Quilter can trace its heritage back to 1777, its parent company has changed a number of times. Most recently, after two years under the parentage of Citigroup between 2006 and 2008, the firm is now owned by the Morgan Stanley Smith Barney joint venture.

‘There was always a fear that some of the owners would try and put their stamp on it, but we have retained our own culture ever since I have been here,’ says Hepworth.

He joined Quilter’s Birmingham office in 1994 from regional stockbroker Albert E Sharp alongside current chief executive Martin Baines, who had been recruited to grow the office. He joined as a private client manager, but later moved into broker fund management.

‘Between 1994-95 to 1997-98 there was a huge requirement for IFAs to offload discretionary management to authorised investment managers. They were getting pressure from the regulator to do that, which is not dissimilar to now,’ Hepworth recalls. ‘We took on quite a lot of monies in the broker fund market relatively quickly. Eventually they were shut down through the regulator’s decision to actively close them, so we needed another route of assets to grow. In 2001, I took over the managed portfolio service.’


At the time, the MPS catered for clients with between £25,000 and £100,000 in assets through three core strategies – active, balanced and cautious managed – and had around £15 million in assets under management. A decade later, the service has proved a clear beneficiary of investment outsourcing among advisers, with around £650 million under management and a growth rate of around 25% a year, Hepworth estimates.

The number of risk-rated strategies on offer has increased to seven, while the upper investment maximum has risen to £200,000 over the period. Clients with assets above this level can opt for Quilter’s bespoke discretionary service.

Moving the team down to London two years after taking over the MPS has proved integral to its success, Hepworth says. ‘We were running it from Birmingham for two years. Then it was clear that to gain both credibility and probably market share it needed to be centralised through London, so the decision was we would move back to London, which was certainly the right choice for the business.’

Growing assets in the MPS to £650 million has been no easy feat, yet Hepworth remains focused on the opportunities ahead, particularly with less than one year until the retail distribution review comes into force, and advisers continue to look to outsource investment management.

While the discretionary outsourcing space is becoming saturated with new entrants, Quilter can describe itself as one of the early movers in the market. With a 10-year track record for its MPS, Hepworth says 99% of new business for the service now comes from advisers.

Likewise, having made its strategies accessible to advisers through most of the major platforms since 2009, he highlights this as another major avenue of growth for the firm.

‘We are clearly at that growth spurt phase and I would expect this to continue for the next few years. When you think about the market place, there is around £180-odd billion on platforms. A lot of it is legacy business, which needs to be managed on a much more professional basis than it might be at the moment.’

Mountain’s team and responsibilities have also grown alongside the trend towards buying collectives over the past 10 years.

He first worked for Quilter during his sandwich year at Aston University, rejoining the Birmingham office after graduating as an assistant in the private client team. Two years later, he took the opportunity to move to the firm’s fund research team as an analyst and has since progressed within the team and moved down to London.


As head of Quilter’s five-strong fund research team, Mountain views his key client base as the individual investment managers at the firm. They broadly invest across his team’s recommended buy list, which comprises around 80 open-ended strategies and 40 closed-ended funds. And with around £4 billion of the firm’s £7.6 billion under management allocated to collectives, Mountain acknowledges that being answerable to more than 100 investment managers keeps him on his toes.

‘In my mind, my clients are the investment managers of the firm because we are a central resource for the firm. My clients are the investment managers and the firm’s end-clients are managed by the investment managers, so we are challenged on a daily basis by investment professionals,’ he says.

The team carries out quantitative and qualitative analysis on potential funds and uses Style Research extensively to drill down into individual holdings in portfolios, he says.

Potential funds are approved by Quilter’s fund selection committee, which meets monthly and comprises of Mountain’s team, CIO Gwyther, Hepworth’s MPS team and a swathe of managers from regional offices who have a bias towards owning collectives.

Mountain’s team also communicates with the rest of the firm daily via the Quilter morning meeting, which every investment manager dials into to hear the views of Gwyther, the company’s equity analysts, while Mountain’s team discusses the views and positioning of fund managers they have been meeting with. The team visits branches regularly and also updates investment managers on its research and thinking monthly.

‘We would not do a search at the request of an investment manager. We need to have buy-in across the firm. Generally speaking, the minimum amount we would want to see invested in a short space of time would be at least £5 million,’ Mountain says.

‘My team has been expanding but ultimately we want to make sure not only that the initial due diligence warrants a meaningful investment amount during the early days but also the ongoing monitoring and due diligence, which is absolutely as important whether we have £100,000 or £10 million invested in a fund. Our responsibility is still to monitor these managers to the same level, so we do want good buy-in across the firm,’ he explains.

Within equities, his team allocates towards core managers, funds that are income-orientated, with the rest of the universe divided into two buckets: high conviction and satellite.

In fixed income the team does not generally buy strategic bond funds, preferring to have control over its allocation across sovereigns, inflation-linked, investment grade, high yield, emerging market debt and more regional plays.


‘We are not prescriptive from a research point of view. There is sufficient scope for investment managers to deliver a bespoke portfolio to clients,’ Mountain adds.

Neither does the team tend to invest in structured products, as he prefers products that are fully protected and says most of those he comes across have an element of capital at risk.

Over the past 12 months, amid volatile markets, Hepworth says manager selection has helped to drive performance of the MPS’s Balanced model.

‘Our European managers did reasonably well against their index – for example, the Henderson European Special Situations fund. Richard Pease did well in his market cap range, as he was investing into in a market that was haemorrhaging, plummeting. It was not really a market investors wanted so he did well to outperform. Cazenove European did very well for us as well,’ he says.

‘I am much more comfortable with the way the portfolio is set up now. There will be a resolution at some point on Europe; what form that takes who knows. I think where the portfolio is positioned, which is slightly more risk-on than it has been in the past, it should be a clear beneficiary to getting some strong excess return,’ Hepworth says.

‘We could go back to the days of 2009-10 where we were outperforming by 6%-10% on both of those years. That was clear alpha generation we were getting from managers.’

Over the 12 months to the end of December the MPS’s balanced strategy has posted a 5.4% fall, while the Apcims Balanced index was up 0.2%. Hepworth attributes this underperformance to the team’s decision to underweight conventional gilts during the second half of last year and although it hurt performance, it is a call he stands by this year. 

Over the past three years the model has fared better, with a 34.7% rise while the index rose 31.7% over the same period.

‘Gilts are extremely expensive and there is clearly pressure to keep yields where they are from governments around the world. It is cheap borrowing for them. I don’t know how long this can carry on for, but it has that smell of a very inflated asset which could come back down to earth very quickly,’ he says.

Likewise, being overweight emerging markets during the first two quarters of last year also hurt 12-month performance, but looking ahead, Hepworth highlights emerging market and Far Eastern stock markets as potential beneficiaries of increased investor risk appetite.

Meanwhile, Mountain singles out US short duration high yield as an area that currently looks attractive from a risk-reward perspective.

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