InvestmentsMar 7 2016

“They didn’t have a unitised fund business and we did”

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Alan Durrant does not hold back in his criticism of the financial services industry – specifically companies’ “serial habit of finding places to cause both themselves and their clients quite a lot of mischief”.

Certainly the industry as a whole has a history of making headlines for all the wrong reasons.

So when it came to the acquisition of discretionary fund manager (DFM) Wellian Investment Solutions by Mr Durrant’s Harwood Multi Manager in May 2015, he explains he was careful to look for a pure fund-based business that was not involved in the kind of products which have a tendency to “blow up”.

Harwood has been on the acquisition trail since Mr Durrant and his colleague Richard Philbin sat down three years ago to discuss where regulation and market forces were going to take the industry.

“We said it was very clear to us that there was a significant and chronic movement towards the outsourcing of investment management, and particularly into the multi-manager/fund-of-fund space,” he recalls. “Richard and I have both got 20-year backgrounds in exactly this space. We’ve both done a number of things, but they tend to revolve around building multi-manager-focused businesses.”

Rather than take an organic approach they opted for a buyout strategy so they could move quickly. Since then they have made a number of acquisitions, with Mr Durrant emphasising the importance of finding a good DFM in the form of Wellian. Unusually, it is the Wellian name that is being given more prominence following the acquisition, with the Harwood name taking a back seat.

“Touching first on what we liked about it, they had excellent performance, they had a very sensible product range that really didn’t need a great deal of either expansion or trimming, and the investment team was a stable one – the guy who started the business, Chris Mayo, had been there from day one and was still the investment director, so there was a great deal of continuity in the business,” Mr Durrant confirms.

“It was available on most of the platforms we could have wanted, there was already a groundswell of external advisers that were using them, the asset base of nearly £200m was at critical mass.”

He admits there were holes in the business that they themselves recognised. “They didn’t have a unitised fund business and we did. So we had a fund business and not a DFM, they had a DFM and not a fund business. Put the two together, there was very little overlap,” he adds.

To avoid any confusion, the new company has only “one centre of investment excellence”, Wellian Investment Solutions. Since the deal completed they have been moving a number of their existing clients onto the Wellian platform.

The combined business today has about £250m assets under management, and over the past nine months work has been done to ensure readiness for the next stage of growth.

He says: “Really it’s been about making sure that as we move forward we’ve got a business we know works like a Swiss clock, and that’s now what we’ve got. We have a business where we can say, we can add another £2bn, £3bn, £4bn to this platform and it doesn’t really need any more investment in it.”

Those figures suggest some rather ambitious plans are afoot, but he insists he will not pursue expansion for expansion’s sake. Wellian has been largely based in the South-East, but the business intends to open offices further afield.

Mr Durrant cautions: “For us, there has to be genuine demand for it. We’ve been picking up clients in the South-West, in the Midlands. We’ve got no desire to go and just compete on price with people who are already established in a particular market. Unless someone can actually see something different in us there are plenty of other choices in the market they can legitimately take, so we don’t want to go and open in new areas just to say we are there.”

But he believes there is a “receptive audience” in regions outside the South-East, where advisers have told him they feel like “a cog in a wheel”, rather than part of a relationship with the investment side.

Although he is quick to say the term “partnership” is overused in the industry, he clearly feels there is something to be offered here. “And our message is very much we want to be in partnership with people where partnership means something,” he continues.

“Where if something goes wrong, and inevitably things do go wrong in our industry, whether it be due to stockmarkets or whatever it may be, at that point they don’t get sent through to the call centre, they don’t get sent through to the junior, it is one of the most senior people in the business who picks up the phone or gets in the car and goes and says, ‘I hear you, I hear your concern, you matter and here’s what we’re doing about it’.”

Turning to the regulatory environment in which the industry finds itself, Mr Durrant emphasises the FCA has been extending its reach to the whole of the DFM market.

He notes: “The FCA quite rightly is now focusing a lot of its attention on the relationship between advice and DFM. And a lot of it is going to come down to the old-fashioned principle of being able to communicate clearly with clients so there is an audit trail. That if you start to become concerned about the increase in volatility you document it, you tell clients about it, you tell advisers about it so they know what’s happening, they know what we’re thinking about it; even if we’re choosing to do nothing, that’s okay.”

He notes the largely unbroken bull markets of the past five years have been a boon for investors. “Most clients are happy just because, whether they’ve done particularly well or not, they will have made money in most things over that period.”

But he warns: “As markets become more choppy, that’s when the complaints start going in. We’ve already seen quite a movement in terms of the claims management companies toward our industry.”

Mr Durrant sees the need for increased regulation, though, saying the industry has had enough scares in the past to warrant it.

CV - Alan Durrant

2015 – present - Chief executive, Wellian Investment Solutions

2013 – present - Chief executive, Harwood Multi Manager

2009 – 2013 - Group chief investment officer, National Bank of Abu Dhabi

2007 – 2009 - Head of asset management, Gulf Finance House

2004 – 2007 - Chief investment officer, Skandia Investment Group

1993 – 2004 - Investment director, Hargreaves Lansdown

One asset class he voices concerns about is fixed income, acknowledging the prices at which fixed income trades in thin markets can become “quite alarming”.

“In some ways it’s more akin to eBay than a regulated market,” he suggests. “It is really just a case of, ‘I’ve got some stock I want to sell, does anyone give me 100, what about 98, what about 96?’ So when you’re trying to identify where the price can be, that can be a problem.”

He adds: “We’re just starting to see the first signs of some stickiness in high yield and in emerging market debt. It’s by no means a panic at the moment, but you don’t want to start doing your due diligence when there’s a panic. Because at the point where it’s all over the newspapers that fixed income has become illiquid, it’s possibly too late to do anything.”

But taking a step back from markets, as Mr Durrant’s role necessitates, does reveal growth opportunities, according to the chief executive.

He confirms: “I think from an industry perspective a lot of the things I talked about are long-term factors. So I can’t see anything this year which is going to reverse the trend towards more need for advice and management of pensions, I don’t see a change in terms of the number of businesses that are going to look to exit, and will therefore be looking for people to acquire them.

“I don’t see any change in the need for people to avoid the landmines our industry always steps on. I don’t see there’s going to be any change in the need for multi-manager and for the outsourcing of investment solutions.”