At a time when the asset management industry is in retreat, with redundancies announced and mergers contemplated, Tom Caddick is hoping to capitalise on the turmoil to grow his firm.
Caddick, UK managing director of Nedgroup Investments, says when he sees a merger happening somewhere, "my eyes light up", due to the opportunities he feels it presents to poach disaffected staff.
Nedgroup Investments, an outfit that is seeking to grow within the UK adviser space, is a division of a South African bank.
While they have a range of multi-asset funds, the bulk of the UK operation is in what he calls “best-of-breed funds”, where Nedgroup appoints an asset management company to run money for its clients, but the funds are branded Nedgroup and only Nedgroup clients can access the funds.
Typically the asset management firm that wins this contract must agree the product they create for Nedgroup is exclusive to Nedgroup in Europe.
But one area where he is trying to grow is the hiring of individual fund managers, often disaffected employees of other firms, to launch funds within Nedgroup; he says it is for this reason that when he sees a merger, he believes there is an opportunity to hire staff unhappy with their lot.
As part of their push into the UK market, a sales team is being built out.
Next generation
The first internally managed fund to be launched is a bond product run by former Liontrust and Kames manager David Roberts and former Artemis manager Alexandra Ralph.
He expects more such hires, saying that many of what he regards as the best managers will be attracted to working at Nedgroup because all of the remuneration earned by managers is linked solely to the funds they run, rather than to the performance of the wider business.
Caddick says many eminent fund managers would, in previous decades, have desired to set up their own businesses, but now find the regulatory burden too onerous to make that viable for most, and so he sees an opportunity to hire those people as employees.
Despite his positive view of individual active fund managers, Caddick says there are too many active funds, and too many fund managers content to underperform for short periods on the basis that over an unspecified longer period of time they will be proved right.
Caddick says such views represent "intellectual arrogance, of which there is a lot in our industry. Too many people use language and terminology designed to reinforce their own view of their own intellect, but that doesn’t really help clients.
"There are too many active funds and it gives active fund management a bad name. A lot of active products are basically zombie funds, they haven’t grown to the right scale and don’t perform very well and so are dragging down the average for active funds in general."
Caddick says that when professional investors talk about 'spreads and curves' in relation to bonds, this does not help the end client, as their reason for investing in the first place is more outcome-focused.
His entire career has been spent at the task of picking fund managers, usually running fund-of-fund strategies.
That is a type of product which has fallen from favour with advisers and their clients in recent years, largely supplanted by model portfolio services.
He says multi-manager strategies have suffered from having fee structures that were deemed expensive, but also not aligned enough with the risk profiles of clients.
Caddick began his career as a fund buyer at a private client wealth management firm, before taking roles at F&C, Santander and LV Asset Management.
At the latter he helped set up the retail investment management business from scratch, and left when it was sold.
He joined Nedgroup as head of investments in 2021, and became the managing director in 2023. Nedgroup regards itself as a start-up within the UK market.
He says a key reason for wanting to join Nedgroup was the opportunity to build up a business, having immediately prior to that worked at Santander, a division of a very large bank, which at the time he left had assets under management of £22bn.
In terms of where he sees the growth coming from for his current operation, he says it will be a mixture of hiring individual managers and outsourcing to third-party firms, though he expects the hiring of individual managers to be a particularly strong source of growth.
Pieces of the pie
Caddick says the skill of a fund manager contributes only 1 per cent to 2 per cent of the total return available to an investor, with the rest coming simply from the returns generated by individual asset classes.
In such a world, how does he feel a new entrant can compete with established incumbents? He believes the key to this may come from the way the market has changed.
Caddick says that, over the decade he has worked within the industry, the gap in terms of sophistication and investment knowledge between the institutional, the retail and advised clients has narrowed, with the latter client group becoming more sophisticated.
We have to keep evolving how we speak with clients, and we have to be humble about how we do it.This may represent an opportunity for newer firms, he says, because it means a larger number of potential clients, even for smaller firms, as clients will be more open to investment strategies run by lesser known firms rather than in thrall to big brands.
He says: “We put out video content, which we hope is quite snappy, for clients to see, and there are more clients now willing and able to engage with that sort of content. That means we have to keep evolving how we speak with clients, and we have to be humble about how we do it.”
Nedgroup is embarking on a journey to grow from boutique to established player, a route many have attempted and not all have navigated; if Caddick’s outfit does succeed on that journey, then it will increase the range of options available to advisers.
David Thorpe is investment editor at FT Adviser
