'Having learnt all about ESG I'm a little uneasy about going full on for clients'

The discretionary fund manager embarked on a business overhaul in 2018, readying itself to become B Corp certified, and signing up to international sustainability charters such as the UN-supported Principles for Responsible Investment network and UK SIF.

Chief executive Paul Denley himself enrolled for the CFA environmental, social and governance module, among others, and did a Harvard course on sustainable business. "We really embraced it," says Denley.

But the result was not entirely what he expected, Denley notes, as it made him question the power of ESG investing, though he still believes in the merits of having B Corp status.

"Having learnt all about [sustainable investing] I'm a little uneasy about presenting that or going full on for clients in that respect," he says.

"I feel that as a boutique you have limited ability to make an impact and you then think, well what is it about?"

Oakham does not invest in oil and gas because most of the firms in the sector do not meet its other screening criteria in place.

It prioritises investments around the themes of clean energy, sustainable agriculture, water and waste management, healthy living and nutrition, but Denley says to really have an impact it would have to invest in green infrastructure projects, which are often too illiquid for his clients.

He says banks are in a better position to have an impact if they restrict their lending to bad actors. But as for investments, just because they are excluded from a portfolio does not mean they will not still be going on, he adds.

In a moment of self-reflection he says ESG is an area where goalposts are constantly moving, so "we just have to be careful what claim we are making. I wouldn't want to be held out for not fulfilling a claim or just not being as good as we should be."

Because some of Oakham's partners and growth areas are not in ESG, he says the firm is considering whether to remain a signatory to the UN PRI.

"There'll be a point where everything will be sustainable and at the margins on the outside you have these bad actors and unsustainable investment, which will still go on but it won't be within the retail investment sphere," he adds.

In the meantime "we need to be doing the right thing for our clients and exactly what they want".

Our investment ethos has always been to invest in what we call quality...as distinct from growth or value.

Oakham Wealth Management was founded in 2004 by Denley and a former colleague at one of his earlier jobs at Berry Asset Management, now Bordier UK.

The firm initially catered for private clients and ran managed funds, but when Denley took over the helm in 2014 he decided he wanted further diversification and brought in managed portfolio services for IFAs.

"The pressure on private client fees, plus I'm not really a salesman, that was one [reason we launched this service]. Since I've taken over it's been more about strategic connections that we've got, rather than trying to sort of leverage personal networks, you know, which I think is a salesman's bread and butter.

"A managed portfolio service meant that we were interacting with other corporates, and it's a much more straightforward conversation, I find, a more technical conversation, so it kind of plays into my skills more."

Denley, a graduate of applied economics at Exeter University, started his investment career with Henderson as a unit trust analyst, then landed a role at Berry.

When at some point he realised it would be difficult for him to progress in the way he wanted to, namely in investment analysis, he took on a job as an airlines analyst – then 9/11 happened.

"[I have] very clear memories of that," he says. "I'm being told don't pick up the phone because obviously the press wanted a comment. 

"And, you know, there's nothing you can say at that time that would make sense in the morning."

It was not long after that that he decided to set up Oakham with his former colleague. 

A predictable strategy

Denley says the firm had a good run into the financial crisis as it was well diversified, but nevertheless the pair ended up wanting to go down different routes, eventually leading to Denley taking over the firm in 2014.

Oakham caters to the wealthy, with minimum wealth requirements of £1mn per client, though Denley admits "the average client size is going up every year".

He points to a "sweet spot" of client size, "which is in the tens of millions", saying Oakham's service and fee structure were more suited to those than larger clients, who were also "quite hard to manage".

"There is a sense that clients over that size (£25mn) tend to want more, whether it's more advice or just different levels of holistic advice, that sort of thing."

Instead, Oakham has a number of strategic partnerships which together hold under £1bn in assets under management. The firm is still a boutique, as Denley likes to point out.

It has nine staff and outsources "absolutely everything that is not client relationships and investment management", deeming this to be the easier, more straightforward way to manage the business.

When it comes to managing clients' investments Denley makes sure the strategy is kept "fairly predictable and understandable and straightforward", at least when it comes to the backbone of their investment management – the discretionary part.

If they want to do something more interesting it tends to be execution only, he adds.

He likes to ensure clients are not exposed to big swings in investment markets, which is why Kwasi Kwarteng's "mini"-Budget in 2022 kept him up at night.

"That really hit at the wrong end of the risk curve. You expect to be able to protect clients' assets and specifically those who are more risk averse, protect them even more, and that sort of thing causes some real dismay."

Yet, Oakham had already diversified into things like infrastructure projects and stable equities, having second-guessed the fixed income market would at some point have a "dislocation".

"Our investment ethos has always been to invest in what we call quality...as distinct from growth or value."

He explains: "Quality really is about firms that are stable, well managed, [have a] strong balance sheet, low debt, tend to be asset light businesses and, you know, they tend to have an economic moat, so they tend to have a competitive advantage.

"So those firms are pretty stable when it comes to almost anything you throw at them. Whereas growth and value tend to come in and out of style, quality tends to go through the middle.

"It's those sort of companies that we feel are the right companies for clients to hold for the long term."

Overhaul

Oakham is a B Corp, which means the business had to be optimised in terms of its ESG footprints.

This meant, for instance, changing its articles of association to reflect that it would consider all stakeholders, not just shareholders in its decision making.

It meant bringing in a consultant who looked at every aspect of the business and a restructure to give staff options if they want to buy shares.

As part of its B Corp status the firm also does pro bono work with charities, women and athletes, providing free financial guidance.

For Denley this process could only be a good thing, especially when it comes to succession.

"Whatever you want to do with the firm next, you should be viewed in a different light by the other entity...it shows that you've had a tooth comb go through your business and look for any gremlins and try and work them out and try and put everything on a positive foot rather than [just letting it evolve].

"It's a much more satisfying and much more easy life to do a good job and to know that your house is in order, than [just] making the money."

Financial advisers have in the past criticised DFMs for being too expensive and somewhat unnecessary, or at worst, out to steal their clients.

But Denley says "there's no way" he would try to steal clients. "It's much more likely, in our experience, that actually they would take a client from us because some IFAs have moved into the DFM world. 

"We don't do the IFA work so we are somewhat dependent on IFAs."

He also does not think his services are expensive, especially relative to an IFA's service. Direct clients pay 1 per cent but for the MPS it is about a quarter of that, he says.

"Those fees have been under pressure in our world but they haven't really been under pressure the same in the IFA world," he says.

"I think there's a place for each of us. If an IFA isn't keen on the cost of an investment manager I'm sure they'll change or work out how to do it themselves, and plenty do, to varying success.

"I still think there's a place for a specialist investment manager."

carmen.reichman@ft.com