The pair, who co-run the F&C multi-manager range at BMO Global Asset Management, were brought together at Rothschild in April 1996 where they became co-heads of a newly launched fund of funds service.
Mr Burdett says: “A lot of joint head positions such as ours are [a result of] somebody not being able to make a decision about who should be in charge. Ours was a bit like that, but nobody told us when we joined that we were anything other than joint heads.
“We ended up going down the pub and saying, ‘do you think you’re in charge of me or has anyone told you anything?’ and we had a good old chat. We had already realised we had a lot of common ground in our philosophy of picking funds. Then we went back and said we’d like to be joint heads, paid the same, treated the same, and they said ‘yes’ thankfully and it’s been the same ever since. We’ve been very lucky.”
After taking the fund of funds business at Rothschild from £110m to more than £1bn, the duo moved to Credit Suisse to set up their UK fund of fund business from scratch. After building up assets to around £1.3bn, Thames River came knocking with a business model using a joint venture limited liability partnership [LLP] structure, which the managers saw “as a way to insulate us from corporate change”.
Mr Burdett says: “To us there has been no change since that LLP foundation in August 2007. That has provided stability [as] we’ve gone through two takeovers. We are in a company that is expanding its asset management commitments, but even if it wasn’t the LLP gives us and our clients a lot of certainty around what we do.
“In essence, it means that we and our team are only incentivised on the products that we run. Obviously we want the rest of BMO to be highly successful, but it is down to us in terms of our own financial security and future.”
Mr Potter adds: “When we left Rothschild we had built up a huge number of clients. We left to join Credit Suisse, then left to go to Thames River. Financial advisers and their clients trusted us twice, and to earn their trust for a third time at Thames River we had to make sure we could put something in place that would mean that whatever happened corporately we would be relatively stable.”
For the managers, the team and its culture are important aspects of the business. The pair have built up a team of nine, including themselves, with many of them former colleagues who have rejoined the fray.
Mr Burdett says: “It’s a cliche to say it’s a people business, but it really is. [From] contacts with [adviser] clients that go back to 1996, to our team, to the fund managers and the representatives that promote funds to us, they are all important links in the chain. The consistency of the team and culture that we’ve had is really what has allowed us to build three £1bn-plus businesses.”
In terms of delivering performance, he explains: “We have always understood its important we do well in the peer group tables to allow advisers to confirm their choice in us relative to alternatives. But the real job is looking after people’s savings. In many cases those savings might be committed to a fund like ours on one day, so we need to be consistent to reduce the timing impact of investments, [and be] useful to advisers this month, next month, [in] good markets and bad markets.”
Mr Potter adds: “If we can reduce the volatility by diversifying the portfolio into very good quality people or managers, that’s going to help reduce the accident of timing as to when clients join the market. If we can do that in a very steady and consistent fashion, advisers can trust we are reliable. We are still here 20 years on and that’s what it’s all about.”
Of course it is easy to say you want to be consistent, but to help achieve it the managers emphasise their experience, analysis and philosophy.
“We say we invest with principles and not rules, because no matter what rule you have, the market will break it at some point,” Mr Potter says.
“The principle is if the manager is very good and we can attest to their ability, we will use them even if it’s at the start of that new fund. We say we like to be invested with a fund that’s building a track record not living off it. We think we have ability among the team to find investment talent earlier than most and use it across our portfolios.”
The duo were early adopters of tools such as style research software and recognise the importance of portfolio construction, especially when building diversified funds of more than 20 managers.
Mr Burdett says: “Diversification helps with consistency. We don’t think core/satellite works in multi-manager. It is much better to have a larger number of smaller positions in individually exciting portfolios. It’s not being a decathlete, its being the best 100-metre sprinter; the best of each discipline. In the Olympics, that means you’re generally 10-20 per cent better at whatever it might be, and I think that analogy does work.”
Mr Potter continues: “The industry seems to be hell-bent on suggesting this is a science where if you put into a machine all the funds and you set your risk parameters, out spits 30 funds at the end that meet the criteria and those are the ones you should use. But most of those are bound to go wrong. At the end of the day we are buying people: you need to understand the people and you won’t get that out of a machine.”
Mr Burdett adds: “We have a squad system: we have the managers on the pitch in our portfolios and we have the reserves so we can make changes when we need to. We hate selling funds in less than a year – it’s incredibly rare, and primarily if it does happen its because the manager has left, as we will almost always sell in that situation.
“It might sound a little mercenary, but those substitutes are there and untainted by manager change. It’s not our money, it’s people’s savings. The wait-and-see approach might seem easier, but that’s not what we do – it has to be the best team on the pitch at all times.”
As part of this mantra Mr Potter points out they are always “trying to find the next generation of really good people, or where the fund industry will be looking in five years’ time”.
“That is the best bit of the job – finding the next one before anybody else. It’s hard, but when you find them it’s incredibly rewarding.”
Looking ahead Mr Potter says: “Markets evolve but they don’t really change. The asset classes you can invest in and the types of things you can do evolve. But when you boil it down, keep it simple. The fundamentals of picking the right manager from the right company with the right fund at the right time are massively more important than moving a bit of money from Asia to Europe. The right funds at the right time can really kick-start a portfolio.”
Mr Burdett adds: “We have a reputation for being innovators. There are always going to be new areas that advisers can look at to outsource their investment management – multi-manager is a key one for them. We are growing and we need to be relevant relative to all these other areas and choices. We can’t be complacent; we have a couple of ideas that we’re not doing at the moment. We don’t have any imminent plans, but we may find some other ideas.”
Mr Potter concludes: “Advisers and clients are blessed with a greater choice than ever before, [and] ivory towers don’t build businesses. [You] learn pretty quickly that if you dare become complacent or arrogant, the market will sort you out. We have to earn the right to run that money. We have to go and connect with the advisory market.”
