Organic planet

1 February 2010 8:00 am

When Neptune started grabbing attention with the stunning performance of its China and Russia funds a few years back, many wondered whether the investment boutique would turn out to be a flash in the pan.

Cynics questioned if such strong returns were sustainable and felt that too many new funds were being added to the range too quickly.

While planetary connections neatly allowed the media to position New Star and Jupiter as rivals, Neptune distanced itself from its competitors.

Claiming it did not embrace the cult of individual star managers, the manager based bonuses on three factors - performance, profitability and, unusually, teamwork.

Since mid-2000, Neptune’s astronomic rise has continued - it now has more than £5bn under management. And there seems no sign of a let-up as the Isa season approaches. For starters, hardly an article on American funds goes by without IFAs touting its US alpha fund.
But whether Neptune likes it or not, comparisons with New Star can be made.

New Star began with just three funds but it was not long before more funds were added to the range and it gradually began to lose its aura. Lacking a personal touch, New Star became just another big asset manager on the acquisition trail. In no time at all, the Knightsbridge-based outfit had billions under manage- ment and a range of funds bursting at the seams.

Neptune has 24 funds to date, having added 10 since 2007. Such rapid expansion is why some advisers question if it needs that many funds, half of which are less than £16m in size.

Neptune founder Robin Geffen insists the aim is to grow the business “organically” and that he has no intention of repeating the mistakes of other rivals, such as marketing a fund at the top of the market. He points to his latest, a China equity income fund, as a case in point.

Geffen says the fund is being kept deliberately quiet, so as not to arouse too much attention - although this has not prevented him from sharing the news with a vocal IFA and the odd journalist or two.

Build up a track record before doing any publicity, is the Geffen mantra. He says: “The fund management industry has not done itself any favours in the past. It often aims new funds at the public when they are at their most vulnerable because the area the fund is focused on has done really well but is peaking out.”

A glance at the performance tables show very few Neptune funds have underperformed while a significant number remain in the top quartile over one, three and five years.

It is why it is worth taking Geffen’s views seriously. Not that they will fill you with much joy. Just like Neil Woodford, Geffen fears the UK economy is far from out of the woods, and suggests that “walking-dead stocks” will come a cropper when interest rates are raised towards the end of the year.

All those companies that have cut costs to the bone and have been kept afloat by low interest rates will be in the mire, he tells me. More job losses and insolvencies are inevitable, he adds. This is why property, construction and engineering stocks are off Geffen’s radar, as are most stocks outside the FTSE 100.

So far, Geffen has kept to his word on soft fund launches and organic growth and he continues to prove his doubters wrong on performance. As long as we do not see an advert enticing income-starved British investors to invest in China any day soon, the cynics might have to concede that he intends to stick his guns.

Paul Farrow is digital personal finance editor at the Telegraph Media Group

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