Multi-managerFeb 1 2016

“The industry... has evolved and it’s more outcome-focused”

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Given the recent market volatility and the introduction of pension freedoms last year, it is hardly surprising that more investors are looking at ‘outcome-orientated’ investments.

In an increasingly crowded multi-asset marketplace, this may just represent an opportunity for smaller firms to make a name for themselves – provided, that is, they can differentiate their products.

Peter Askew, chief executive and senior fund manager at T Bailey Asset Management, explains: “Everyone likes to think they’re different, but I think we do look at the investment opportunity differently and come at it from the outcome that investors expect.

“We’re not starting off from the other side of the equation, ‘how much money can we run, what’s the product where we can go away and acquire assets?’ [It is] ‘how can we grow that and build a business that’s built on consistent investment performance that meets the objectives of investors?’”

Director and senior fund manager Elliot Farley says the development of the business has not been “one single event – it’s lots of marginal improvements and evolution”.

Mr Farley could be considered a T Bailey lifer. From being an accountant at Deloitte, he joined the firm in 2000 and worked his way up.

“The beauty of the job is it calls upon the mathematical training I had in university in being able to put some of that to test, but you learn so much about what’s happening in the world. Every day is different, it really keeps your interest, and continues to,” he says.

Starting off as a family office, T Bailey Asset Management broadened its remit to become a fund-of-funds investment boutique. Its first vehicle, the T Bailey Growth fund, launched in 1999, “allowing others to easily share in what we do”, says Mr Farley.

According to Mr Askew, in the post-RDR world the market has become more polarised, with consolidation in the industry and a greater focus on areas such as discretionary management and passive solutions making categorisation a little easier.

“The industry post-RDR has evolved and it’s becoming more outcome-focused. That’s got to be a good thing for the actual investor,” he says.

Mr Farley adds: “We’ve got products that really suit trying to deliver those outcomes to those investors. We run a global equity portfolio and a multi-asset diversified portfolio, which both have our best thinking in. And all investors – through from the family behind T Bailey, ourselves as managers, staff at T Bailey alongside advisers and direct investors – are sharing in the same pot of investments, so the alignment of interests is very strong.”

But with more firms adopting this approach, what sets the firm apart?

Mr Askew points out that in the investment industry, many big asset managers are rewarded for asset growth. If performance is bad for a year but assets double, the manager will be well paid. “Is that in the interests of investors?” he asks.

“What we are really looking at is tearing down the walls that guard the silos of asset allocation and what we call inappropriate labels. People bang on about emerging markets, but that’s such a broad label this days. Whether your money is in Brazil or India makes a massive difference and are there any people out there that have the skill set to manage the whole universe? Then you have companies like Samsung which is an emerging market stock just because its based in Korea, but it will be in most of the big global equity products,” he explains.

“So you need to say, these are convenient labels but do they really apply, and if they don’t apply, then let’s look at things differently. The old [asset-allocation] methodology is vertical, so geographies, asset classes, and so on, but it might be more appropriate to look at things horizontally. Pick the best places you want to be – be in the right themes where growth through demand exceeding supply is going to really support those themes and they’ll go across geographies.”

Mr Farley notes that the managers look at a number of things strategically and may develop a longer-term view from information available now, such as changing demographics, ageing populations, growing populations and what their needs are.

“That focuses our mind on what sort of growth themes should we be looking at through the long term and biasing the portfolios towards. That doesn’t really tally with a market cap approach to investing based on individual countries that is very much built on what has happened in the past 50 years,” he argues.

Mr Askew acknowledges there has been a “massive move towards unconstrained investing” but brings up something the team has always believed – that the market cap of a stock or debt market is “irrelevant to the investor. You have to be in the best opportunities, and the index or weighting of the index constituents are largely irrelevant.”

As part of a fund-of-funds house, the managers therefore tend to invest in funds and managers who invest using an unconstrained approach, as they want (in Mr Askew’s words) “people to have conviction in what they do”.

“It goes back to people who are less of an asset-gatherer and more driven by the performance that they generate consistently,” he says.

“That obviously makes them kindred spirits to how we think. We’re quite passionate about that sort of process.”

Mr Farley stresses that the investment process is very deliberate. While the team keep abreast of the markets and “how fickle they can be”, he says: “We don’t approach investment from that point of view in terms of trying to make a judgement call that’s any better than the general market.

“It’s really, can we put together in our funds a diverse collection of assets that have different growth and income characteristics and so fundamentally should have some difference in their return profile?” he adds.

“But do we have confidence in them then delivering over a medium time frame: the next three to five years? That to me is a more sensible approach to investing than always looking over your shoulder at what the market is up to.”

Looking ahead, the duo say the business will evolve by putting the investor first, ahead of the acquisition of assets.

Mr Askew describes the process as follows: “Growing by continuing to deliver the right outcomes through the appropriate products, avoiding product proliferation, making sure that what we’ve got meets investors’ needs and if we do deliver consistent investment performance, then money will come to us.

“It comes back to size, really. We invest in what we say are the best investors – that’s a very ambiguous word – but people that deliver consistent performance and that are not constrained by the size of their investment. So, buying companies that they really like and not buying into an index. People we have no real interest in investing with are people that say: ‘Apple is 10 per cent of the index, I hate the stock so I’ve got 5 per cent.’ Why own any of it? Put it into companies you like.”

Mr Farley says: “I don’t see 2016 being any less challenging than 2015. I don’t see anything fundamentally changing to the big economic picture, [so we’re] trying to look beyond that for themes and ideas that we’ve got conviction in for the next three to five years, themes that the world can’t escape from.”

His colleague goes further. “If you can focus on the themes and not get distracted by the noise of interest rate rises and things like that, then the demand for healthcare services and innovation to name but two [themes], are not going to go away.”

CV

Peter Askew

2013 – present

Chief executive and senior fund manager, T Bailey Asset Management

2011 – 2013

Owner, Peter Askew Consultancy Limited

2008 – 2013

Member of the investment committee, Salisbury Partners LLP

2010 – 2011

Head of hedge fund research, member of the Strategic Investment Group, Standard Life Investments

2002 – 2010

Director of hedge fund research, member of the investment committee, Aida Capital Limited

1986 – 2001

Various roles, including managing director, head of global fixed income, Flemings and associated companies

CV

Elliot Farley

2000 – present

Investment roles, then senior fund manager and director, T Bailey Asset Management

1996 – 2000

Associate Chartered Accountant, Deloitte & Touche

1996

BSc mathematics, University of Warwick