‘The key is having the philosophy and process’

After more than 30 years working in financial services, one of the things that Mark Thomas clearly enjoys is building businesses. As he nears his 10th year at River and Mercantile Asset Management (R&M), the managing director of wholesale distribution and co-founding partner is firmly settled in the role after a career of constructing asset management businesses on the sales and marketing side.

This ranged from a stint at Scottish Widows Investment Management, to joining the asset management arm of Credit Suisse in 1993 where he helped oversee the launch of the multi-manager business under Rob Burdett and Gary Potter, both now at BMO Global Asset Management.

The early gains we made as a business were predominantly in the institutional market, then that pendulum started to swing from 2009 as we gained momentum in the retail market Mark Thomas, R&M

When Mr Thomas joined Credit Suisse Asset Management it comprised “£60m of assets and a well-known manager called Bill Mott, but other than that it was a private client business with some funds. We were tasked with promoting those funds, and we took the business from £60m to £4.5bn of assets.”

But after 13 years, he notes: “It just got to that point with Credit Suisse [where] I was frustrated with the bureaucracy and senior management and felt it was time for a change. The opportunity came up at R&M, which was an old name but was going to be a new business.

“That was an easy decision: to be part of a new business in its infancy and to build something remained an exciting vision for me. I like challenges, I’m prepared to take risk.”

The first funds were launched in November 2006, with the UK Equity High Alpha and UK Equity Smaller Companies funds launching within days of each other.

Mr Thomas recalls: “By the end of 2006 it was a £49m business from nothing, no seed capital. By the end of the first quarter of 2007, with the launch of the UK Equity Unconstrained fund, we were at £96m. This was going really well, then from March 2007 the markets turned against us.”

After a strong first four months, the following two years were a tough market for new business. “It was battle hard, battle hard,” he says. “The early gains we made as a business were predominantly in the institutional market, then that pendulum started to swing from 2009 as we gained momentum in the retail market.”

This culminated in a merger with P-Solve in March 2014, followed by an initial public offering (IPO) on the London Stock Exchange three months later. Mr Thomas notes the merger provided a more diversified financial services business that included the equity solutions business of R&M, as well as pensions solutions, a derivatives business and a research division from P-Solve.

While the two companies were very different, there have been some synergies from the merger including the development of the R&M Dynamic Asset Allocation fund, which launched in September 2014. The multi-asset vehicle sits in the Investment Association Flexible Investment sector and is managed by the research and fund management team within P-Solve, with the equity portion managed by R&M.

Mr Thomas notes: “[P-Solve] never had that facility before as it didn’t have an equity team, so in the past it outsourced that part. [The fund is] still in its infancy and interest has predominantly come from pension clients. But that is something for us to look at as a business. It is not a Gars equivalent. We are starting to investigate how to sell [the fund] to the institutional and retail wholesale market. It’s about delivering the right solutions.”

As part of this strategy he highlights the importance of maintaining R&M’s potential, valuation and timing (PVT) investment philosophy and its ‘Moneypenny’ screening process.

“We need to make sure our clients understand what they’re getting. That’s the nub of success and that takes a long time. It is important because ultimately attrition in any asset management business is your weakness. If you’re losing more assets than you’re gaining, then what’s the point?”

The importance of this consistency was demonstrated in July 2013 when manager Richard Staveley left the firm to join Majedie, the first departure since the company’s launch.

Mr Thomas recalls: “We had to make decisions as Richard was responsible for the UK Equity Smaller Companies and UK Equity Income funds. We announced that Dan Hanbury would reassume responsibility for the UK Equity Smaller Companies fund, which he had previously run, and would also take on UK Equity Income.

“We did not lose a single penny [from the change], and in fact the Smaller Companies fund, which was £40m, ended the year around £120m. Not only did we not lose a client, we gained assets. The key is having the philosophy and process, and that summer we went to every client and presented PVT and Moneypenny, which is 90 per cent of what we do.”

The culture of the firm remains a key component in spite of the merger and IPO. Mr Thomas notes: “We still all have to work hard together. We run £2.5bn of assets and have 28 staff, but we have not lost anybody and we’ve brought people into the investment team.”

These hires include strengthening the analyst team and the appointment of Philip Rodrigs from Investec in 2014 to run the UK Equity Smaller Companies fund, along with his UK Micro Cap trust which launched in December 2014.

Any new additions have to make sense from the point of view of this close-knit attitude, he adds. “We used to say the bottom line for anybody we’ve ever interviewed for the business was do they fit? Can we work together? I think that remains the case today.”

The appointment of Mr Rodrigs reunited him with Mr Hanbury, with Mr Thomas calling it a “marriage made in heaven”.

“He used to work with [Mr Hanbury], who hired him at Investec. He already used a four-factor screening process [Moneypenny has four screens] – you couldn’t write that script. He’s been a terrific hire and a terrific addition to the team.”

Having built up the investment team, Mr Thomas points out R&M is still a small business with room to grow. It is well placed in the wealth manager, fund of funds and private client space, so the next steps are making sure “the story is getting out” to advisers and the broader-based retail market. Consequently, he has been working with platforms and ratings agencies to make more funds available, which he notes “has started to make an impact in the wider adviser market”.

However, for the time being the focus is on maximising the capacity of the firm’s existing funds, including the UK Equity Income, World Recovery and UK Equity Long Term Recovery strategies. A particular target is to build up Mr Rodrigs’ UK Dynamic Equity fund, which was renamed in January 2016.

Meanwhile, there is the possibility of more global products on the horizon. The team already has a global stock screen in place, which is used for Hugh Sergeant’s World Recovery fund, and R&M has recently won a couple of institutional global high-alpha mandates, which means the team is building up a track record in this space.

R&M previously had a global team, headed by Alex Stanic, which ran funds for the institutional market. But as demand for those products faded and institutional clients moved on in the wake of the IPO, the decision was made to draw a line under that business in 2014.

But Mr Thomas adds: “The strength that gave us was that we’ve got a system in place. World Recovery is doing well, Hugh has won a number of global mandates on Recovery, and now two high-alpha mandates. So this is part of our development going forward. We can either develop a global product ourselves by bringing in more analysts or other managers may arrive. But it comes back to this need to fit [in].

“But whatever products we do, and I don’t think there will be a long list, they will have the PVT and Moneypenny stamp on them.”