Robin Geffen has written to clients announcing that Neptune is undergoing a comprehensive restructure in a bid to return to delivering strong performance, Investment Adviser can reveal.
The “reboot” includes fund closures that amount to a third of the group’s product range, many of which have already been announced, in recognition of the fact that boutiques need to focus on offering a smaller range of key funds in the post-RDR world.
The group has revised its recruitment policies to focus on hiring experienced analysts rather than graduates, with 95 per cent of funds at the firm now run by a manager named for at least six years.
The firm said it was aiming to make “a number of senior hires in the coming months” for its investment teams, and it is scrapping its previous focus on appointing talented junior analysts to full fund-manager positions.
“But they will be properly remunerated for vital analyst and sector portfolio roles,” the letter states.
Two thirds of all hires will from now be of experienced individuals.
Neptune also aims to invest in its technology to improve the risk-management frameworks on its funds, and has purchased the SunGard Enterprise system to provide detailed exposure analysis.
“We are also re-plumbing our internal reporting to enhance the dissemination of information between fund managers, the risk team and senior management,” the letter states.
On the research side, the group is shifting to a format in which senior sector specialists run model portfolios on a global sector basis.
Sector specialists will be incentivised based on the performance of their model portfolios. The group has abolished its use of ‘hold’ recommendations on research notes, and stocks will now have to be rated as buy, outperform, underperform or sell.
“Models will include the key bellwether stocks with global influence, as well as ideas that have emerged from sector research,” the document states.
“The models will be measured against bespoke benchmarks, designed to ensure analysts cover all the key stocks across the fund range.”
The restructure comes after Mr Geffen initiated strategic reviews in the fourth quarter of last year.
“Since I founded Neptune, I have constantly worked to improve our investment process in order to deliver the performance our clients deserve, and stay true to our investment philosophy as the team has grown,” Mr Geffen said in a statement accompanying the client letter.
“I believe these latest initiatives will help our fund managers achieve exceptional performance in the years ahead. They will also equip our business to retain investment research talent in an era of highly focused fund flows – when it is not always possible to give bright young individuals their own funds to manage.
“We have had many successful years at Neptune and as such have shown our clients the level of success I expect from the fund managers here.
“When we have more challenging years, we look closely at ourselves and ask what we can do better. These changes are the fruit of that effort and I believe leave us well placed to thrive in the years ahead.
“In a fund market that looks ever more homogenous and grey, we believe we will continue to add colour to your portfolios in the years ahead.”
The letter also claims that the firm’s assets under management stabilised last year, following sharp outflows in 2012 and 2013. The firm’s key funds have already seen a return to outperformance, the letter states, adding that the group still believes it can “do better across our fund range”.
It hails the group’s high-conviction investing approach, adding that the firm wans to ensure that “fund managers are incentivised to run high-conviction portfolios”.
“Stock and sector research should always be placed in the right real-time economic framework,” the letter states.
“Analysts should work closely with fund managers to ensure they fully understand the role their recommendations play in a broader portfolio.
“Investment freedom offered to fund managers in a boutique environment should be married with an institutional quality investment process and team-based research effort.”
