Firing line  

Terry Smith: How I built my £26bn fund

He says managing money for others means he must put in the infrastructure of a professional operation. He also works with Julian Robins, Fundsmith’s US-based head of research, and a person with whom the fund manager has worked across multiple businesses for more than 30 years. 

Smith says of their collaboration: “Sometimes when he writes up something very interesting about one of our companies or a market they operate in, at the end he will say, 'You gotta love this job!', and I do. People have said to me I changed their life; their retirements are secure because of Fundsmith. They tell me they were with someone else who didn’t really make them money for retirement and then Fundsmith did, and I am proud of that.”

Although he presently runs the largest retail fund in the UK market, Smith is in some ways an accidental fund manager. 

After graduating in history from Cardiff University, he began working for Barclays bank in the 1970s, and even managed the Pall Mall branch, before moving to the finance department and completing an MBA. 

While working as a financials analyst at Barclays BZW, Smith wrote a note advising that the clients should sell the shares of Barclays. 

Barclays could not be seen to remove him for it, but he left the business and became head of UK companies research at UBS Phillips and Drew in 1990.

Growing pains

When he joined UBS, the UK was in the teeth of a deep recession, and several high-profile businesses went bust. 

Smith was asked by clients and others how those businesses had failed, given that some had reported large profits shortly before going bust.

So Smith wrote a research report called “Accounting for growth”, to explain how some businesses were using dubious accounting methods to make it seem as though they were more profitable than they were.

The research paper became a book, legal action from UBS led to a wave of publicity and the book was propelled to the top of the best-seller list.

The problem was some of the corporate clients of UBS were upset and he was fired and sued by UBS after citing some of its clients in his book. 

As a result, he went from head of research at the large City institution, to holding the same title at a start-up firm called Collins Stewart, where his head of research title was something of a misnomer, as there were not, initially, any other researchers. 

Going solo

And so the germ of today's fund management business began. 

He says: “I started reading Warren Buffett’s annual letters in 1979 and went into stock broking a few years later. When I was at UBS, I was about to hire a fund manager who had a first [class degree] in maths to work with me to develop a quantitative research methodology to define two things: is it a good or bad company and do I want to own it? And is it a cheap or expensive share, so do I want to own it right now? But I was fired for writing a book exposing accounting fraud before I could hire him.