Firing line  

Punter Southall Wealth CIO: Growth in the UK will be slow

Liquidity is also central to his thoughts on fund selection. A feature of the asset management market in recent years has been increased consolidation, both among advice companies and asset management businesses. 

Mr Becket says the impact of this consolidation will be “fewer, but larger” funds in the market. 

When investment management companies merge and their AUM rise, the types of external funds into which they can invest often changes, with a requirement for funds to achieve a minimum size before they can be invested in. 

The impact of this on the asset management market is that only a comparatively small number of funds attract assets, and the total number of funds shrinks.

Mr Becket says: “This is something we expect to continue, there won’t be a lot of structural growth in the UK market in the years ahead, and there are simply too many funds – businesses are coming together as it is too difficult to grow in future. 

"But the impact of there being a smaller number of very large funds is that more portfolios will look the same, because the wealth managers will all own the same funds. And when that happens, all of the clients will get very similar outcomes, which may not be right for the client.”

He adds: “We want to do better than that. So we are quite happy to be the seed investors in new funds, or to create a new fund with a manager, such as a segregated mandate.

"Fundamentally we are in a people business, so we would always pay a lot of attention to the individual managing the money and the support they have within their firm.

"We would tend to prefer smaller funds, as they can be more liquid because they don’t have to own a huge percentage of each company they are invested in, like bigger funds. In recent times we have seen some funds get very large.

"But a fund like Fundsmith (which is the largest in the UK market) doesn’t invest in illiquid stocks, so it's fine. Though it might be getting to the stage where its good performance brings in new money, which then goes into buying more of the same stocks, which pushes the stock prices up; this boosts the performance of the fund, which causes more money to go into the fund, creating a sort of positive loop."

david.thorpe@t.com