EquityOct 13 2016

Interview: Graham Campbell

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Interview: Graham Campbell

For some fund managers, the most important part of the job is the buying and selling of stocks or securities. But for Graham Campbell, chief executive of Saracen Fund Managers, the analysis and research is equally if not more important. 

“We think analysts are the most senior job,” he says. “They are the person that has to understand the business, understand the industry, and it is important to be able to think for yourself.” 

The business of buying and selling attracts a more sceptical comment: “We shouldn’t forget the objective of brokers is to make fund managers trade, and for clients trading is a cost.” 

Having started his career as a trainee analyst at a stockbroking firm in Glasgow, it is perhaps not surprising that Mr Campbell takes this view. It is one that is shared by the whole business, indicative of how the chief executive has sought to  create a unified culture at the boutique. 

He explains: “We have a very long-term approach. It is wholly owned by staff, and clients like that alignment. By having an environment that is focused on investments and clients, we spend the vast majority of time analysing businesses, meeting management, building financial models and testing them. 

“We also believe it is very important to meet clients. We make sure every client has the opportunity to meet the fund manager at least twice a year. There is also no barrier between us and the client – they can pick up the phone and call us directly.” 

In terms of the team dynamic, Mr Campbell, who co-manages the Saracen Global Income and Growth fund alongside David Keir, notes: “We do that old-fashioned thing of talking to each other.” 

The team screens companies globally to find new ideas and then has regular meetings to ensure their three funds – Global Income and Growth, UK Alpha and the recently launched Saracen UK Income strategy – hold the best suggestions. “There is no point doing all this research if they’re not in the portfolio,” he points out. 

“We just talk to each other. It’s the hardest thing in any business. If people are working the same way and there are no barriers or hierarchy. If someone has an idea they can say it, and then we say: ‘great, go and do it’. My job is not just hiring good people, but allowing them to do their best work without distraction or bureaucracy.” 

Mr Campbell joined Saracen in 2011 following stints at Edinburgh Partners, Scottish Widows Investment Partnership and Edinburgh Fund Managers, and launched the Global Income and Growth fund shortly after. The vehicle recently reached its fifth anniversary as a result. 

After seven years at Edinburgh Partners he took some time out before joining Saracen, which at the time was “a very under-resourced business in Glasgow, with little time spent talking to clients, but very thoughtful on how they invested”. 

Since then the business has recruited “high-quality, thoughtful people who are dedicated to what they’re doing, but also frustrated working for bigger companies and spending less time doing what they wanted to do”. 

But while the team has expanded and the fund range has increased from just one fund – Saracen Growth, renamed UK Alpha as of July 1 2016 – to three, the tenets of the business are unchanged. 

Mr Campbell says: “We felt we had a good foundation of strong compliance and a good back-office approach, but felt there was a real need for income and that hasn’t disappeared. There are a lot of interesting opportunities in global businesses that will be paying dividends over the next five to 10 years. We try and find them, then construct a portfolio to reduce risk.” 

He notes the biggest risk the team can take when analysing a business is making over-optimistic assumptions. “We have what we think will occur, then [develop] a reasonable worst-case [scenario]. We do this for every business,” he says.

“No matter how attractive the central case, if the worst case is too adverse or too likely then we won’t invest. It is also a very useful early warning [system].” 

The long-term view is also important to the firm’s investment philosophy, focusing on a period of at least five years, which the manager quips is “four years and 364 days longer than everybody else”. 

“The hardest thing is to be patient. People often say [they are] looking for a turning point. We don’t believe we can add any value on timing, but [we] don’t hold on to expensive shares. Just because we sell them it doesn’t mean they go down, they can carry on [moving higher], but we look for cheaper shares that can go up,” he adds. 

“We don’t mind taking a contrary view. Craig [Yeaman] and Scott [McKenzie]’s funds [UK Alpha and UK Income] look nothing like an index. [They] have a large tracking error, and active share is 90-plus per cent. They really have a portfolio driven by interesting businesses. There are so many funds in the UK where they all look very similar [and the] top five is often the same.” 

But the chief executive acknowledges the biggest challenge for the business is to get this across to clients, particularly those who require a certain length or track record or a certain size. 

“We spend time talking to clients about our process. It is a long-term relationship and hopefully we build some understanding so they can see the value of it,” he says. 

Meanwhile, the biggest highlight is the people of Saracen, with Mr Campbell noting: “I have worked in larger companies where there are so many distractions or conflicts. [Here] the motivation is always constructive.” 

Therefore, new hires have to fit the culture, with each member of staff able to issue a veto if they don’t think a potential employee will fit in. “Everyone has a voice and they are all shareholders. With a smaller business and limited resources, [you] have to pull in the same direction. To have someone who was on a different approach would be disruptive to those working around them, but also confusing for clients.” 

Looking ahead Mr Campbell says: “We’ve no plans to launch any more funds. Our approach is always to persevere and the challenge for us is to grow the funds. A lot of that is awareness, but also getting past the [buyer] lists, [so] we are spending time at the offices of wealth managers.” 

With the result of the European referendum in June causing increased volatility, particularly in UK markets, the manager points out a strong investment process is key: “Clients are very nervous; nobody wants to be on the wrong side of a trade. But there is lots of cash out there and I think there is a huge opportunity to invest in equities. 

“When I started, equities were a very large part of the market, but now they are squeezed into a little corner and there are huge bond teams.” 

He points out the continual turnover of employees in the industry means many have only experienced these unusual market conditions. “Things normalise in some form over time – the question is how much and when. But to assume things will stay as they are is a false assumption.” 

He continues: “With volatile markets, if you have a strong process you are able to take opportunities and buy things that have never been this cheap. We’ve been doing that, though the hard part is waiting to prove you’re right. We’re aware there is nothing we can do in the short term, but if we are right in the medium to long term we’ll make quite a lot of money.”