Asset Allocator’s bedtime reading involves a nightly perusal of factsheets, press releases, and the occasional DFM blog.
Last week we read with interest a piece by Ben Mackie, senior fund manager at Hawksmoor, who argued against the conventional wisdom that allocators should wait three years before investing in a fund.
This interested us because it reminded us of our recent coverage of how DFMs are addressing the cost pressures they are facing.
So we sat down with him to hear about his approach to fund selection and the qualities he seeks in a potential manager.
“When we're speaking to a fund manager, we want to make sure that they're motivated by performance and not by asset gathering, and that involves an interrogation of the structure of the firm,” he said.
Mackie referred to the “dirty secret” within the asset management industry, which he says is the conflicting interest between shareholders of the company and investors in the fund. The former want to see revenue and earnings growth, which is typically achieved via maximising AUM. Such asset growth comes at the detriment of investors, Mackie said.
“Who are the shareholders? Are they under any external pressure to grow assets beyond what they're comfortable running with? That's a really important element and we often will invest in founder-owned one-fund boutiques because they've probably made their money by now, they've set out on their own to prove their reputation, and they want to be able to stand by their performance numbers – not necessarily grow assets to an astronomical level.”
A modest approach
So what sort of fund manager does Hawksmoor look for?
“We look for people with a degree of humility,” he said. “I think humility is probably one of the least appreciated things within our industry. We want people who've got a process which accepts the fact that this job is really about making quite complex judgments in a world of uncertainty, and someone who accepts their own kind of shortcoming.”
Mackie is open to dealing with those in charge of managing a fund for the first time, though he acknowledges the greater risk around this approach. But he cited Downing Small & Mid-Cap Income as an offering with a young manager that Hawksmoor have invested in.
Josh McCathie has led this fund since April 2021 and had previously been an analyst on it since 2018, giving Mackie that conviction in absence of, say, a 15-year career in the industry.
He name-checked two other funds in which Hawksmoor had been an early investor: Man GLG High Yield Opportunities and Gresham House UK Multi Cap Income.
Both were invested in within a few months of launch and remain part of Hawksmoor's portfolios.
Though Mackie added that when meeting with every fund, he makes “copious notes” on managers’ future capacity: in essence, how much money they can run before it impairs their ability to move freely when implementing their original philosophy and process.
