Sixteen years ago, Gavin Rochussen was playing golf and preparing to spend a leisurely year sailing when he received a phone call that caused him to immediately abandon those plans.
It was a decision that started him on a road to being an asset management chief executive, where he has spent the past 15 years, the last five of those at Polar Capital, trying to manage boutique firms at a time when fees have been falling and the share of client assets moving to passive products is constantly rising.
That call was an offer to become chief executive at JO Hambro Capital Management, a fund management business with a strong presence in private equity and property, but a desire to launch mutual funds in the standard asset classes.
But the looming global financial crisis in 2007 made it a tough time to try to expand an asset management firm.
We think performance leads to inflows, so focus on that.He says: “I had been working very happily at Fleming Family & Partners, a firm which had started as a family office and which became a multi-family office investment firm.
"When Northern Rock collapsed in 2007 I thought a crisis was coming. And the Fleming family said to me: ‘It’s time to batten down the hatches [and prepare the firm for the crisis],' but the thing with me is, I am better at building businesses than maintaining them. So battening down the hatches wouldn’t really suit me.
"With the global crisis coming, I thought I would leave Flemings and take a year off to go sailing until the crisis passed, and then buy a share in a business and try to build it up.”
The phone call was from Christopher Mills, one of the two co-founders of JO Hambro Capital Management, and part of the offer was that Rochussen could acquire a stake in the business.
His role then, similar to his current role at Polar Capital, was heavily focused on poaching and hiring fund managers from other firms to develop JO Hambro's product range.
Rochussen says this approach was particularly effective then because “the crisis meant there were lots of talented managers in quite distressed businesses that we could hire”.
An accidental asset manager
That he would become a career chief executive is probably not a surprise to the very focused Rochussen, but his involvement in asset management was an accident.
Rochussen trained as an accountant in South Africa, running his own practice advising mostly small businesses, and then became chief financial officer at an electronics company, where he was also chairman of the pension fund, and so actively involved in choosing fund managers.
Now, as chief executive at Polar Capital, a firm with £20bn of assets under management, he says he spends “around half” his time trying to identify and poach fund managers to join his firm.
Polar is run on what he calls a “multi-boutique basis”; in practice, this means each lead fund manager has a great deal of autonomy and their bonus is much more closely linked to the performance of their own funds, and much less to the performance of the wider Polar business.
Rochussen says this means managers have less incentive to grow the assets in their funds to ever higher levels, and instead are better off trying to make the funds perform better.
He says: “Each of the fund managers has a clear size in mind for how big their fund can get before it would stop performing. It is Polar’s view that volume destroys performance when it comes to fund management.
"Our current assets under management is £20bn, we believe that the combined capacity for the strategies we have is £60bn, but we think performance leads to inflows, so focus on that.”
In terms of what he looks for when recruiting a fund manager, Rochussen says: “All of the lead managers on all our strategies have at least a 10-year track record, and all were hired from other firms. So track record is important. All of the partners know what the others earn, so there are no egos; we don’t believe in star fund managers.”
One criticism market participants have of Polar’s business model is that it relies very heavily on performance fees, while the funds for which it is best known are in the technology and healthcare sectors, and so are growth equities.
Rochussen acknowledges this leaves the firm vulnerable when market sentiment changes, as it did in 2022, but says this is always made clear to clients. “We would usually say that we are probably not the core fund that people should have in their portfolio. Other funds can be the core, and we are the satellites around that.
"My job is to find the exceptional managers within those themes.“
It was while advising the Fleming family (one of their ancestors is the creator of James Bond) that Rochussen was invited to relocate to the UK from his native South Africa to help set up and grow the Fleming’s family office.
A feature of the asset management landscape in recent decades has been the disruption to the old City firms of the arrival of large US and European firms.
Rochussen is probably unusual in having worked for two of the old established city families, the Flemings, and the Hambros, whose City credentials can be traced back to 1839.
He says his South African roots made this easier because “they wouldn’t recognise the name of my school or university because those were abroad, so it sort of never came up”.
When JO Hambro was sold in the early 2000s, one of its founders offered to back Rochussen to launch a start-up firm, but instead he joined Polar, where the founders were looking to retire.
He says: “I was in my 50s by then, and I felt I had one more business building project left in me. The appeal of Polar was that it is quite similar to JO Hambro, it needed me to launch new products and find new fund managers.
"Some of the larger firms are closer to distribution businesses, distributing funds as much as they can, whereas Polar is a firm that is investment-led – all of the lead fund managers are partners and shareholders in the firm.”
Polar’s most recent set of accounts, which covered the year to the end of March 2022, showed a profit of £166mn – an increase of £15mn on the prior year.
Of that 2022 turnover, £14mn came from performance fees, compared with £43mn in the prior year.
As interest rates rise and markets fall, all asset managers struggle for profitability. Rochussen is adamant luck has played a role in his personal career progress to date – and amid market turmoil will be hoping it will hold into 2023 as he tries to grow the business.
David Thorpe is investment editor at FTAdviser
