Ardevora’s Jeremy Lang and Bill Pattisson have set the new firm the steep target of running £10bn of assets within the next 10 to 15 years as they look to replicate their success at Liontrust.
The pair set up Ardevora in January last year and recruited their former colleague Rob Page from Ignis in April while Jon Garland, former head of discretionary sales at Ignis, followed in May.
Ardevora has been set up as a partnership, with Lang and Pattisson owning a third each and five other partners jointly owning the other third. The firm has no sleeping partners. “Everyone who contributes to the partnership works for it. This removes incentive to behave recklessly as you are invested in it,” says Lang.
Pattisson says Ardevora was set up differently to other LLPs in that the partners will not receive any capital gain from selling their equity share, which he says will remove the incentive to sell the business in the future. “They will not make more money than they paid to get into the business. We do not want the business to be sold,” he says.
The pair are prepared to make bold predictions about the firm’s future success. Lang says: “In 10 to 15 years time, we could run a business with £10bn assets under management. Everyone would be happy and not have the desire to grow much more.”
Lang says the duo do not want to run over £2bn in the UK despite running in excess of £5bn in UK assets at Liontrust. “It is more difficult to do a good job, the more money you run. You start to move share prices against you because of how much you need to buy if you are running too much.”
He says scale is not an issue with global funds, which is where he predicts the majority of the firm’s assets under management will be invested.
The firm has three funds – UK equity, UK equity income and global equity. Both equity funds are long/short funds. The £10m total in the funds is seed money from Lang and Pattisson.
So far, the business has been targeting discretionary fund managers and investment specialist IFAs and is in discussions with Cofunds, Transact and Allfunds on distribution.
Lang says they would like to have an even split between retail and institutional assets. He says: “There is a convergence between retail and institutional in the defined-contribution pension market, as people are being encouraged to take more and more responsibility for their pensions.”
At Liontrust, the focus of the income fund was to exploit areas where other fund managers were overly pessimistic and the growth fund focused on over-optimism shown by analysts.
Lang says his new approach at Ardevora looks at a third factor as well. He says: “The third group we are focusing on is the company management – those who support the share price. It is about stitching those three together. By becoming more multi-dimensional, we have become more risk-averse and much more picky, so we end up with a lot fewer stocks.”
In Liontrust, there was 60 stocks in the growth fund and 80 in the income fund. Now they are running 52 stocks in the UK equity fund and 37 stocks in the UK equity income fund.
This risk-aversion comes through in sector opinions. Lang says: “Retail is crap and it is a difficult industry at the moment and things are more likely to get worse than better, so as the cliché goes you have to trend carefully.” Burberry and Next make up approximately a 5.5 per cent weighting in retail in the two funds.
Pattisson says: “The pharmaceutical industry faces some tough challenges with rising research and development costs, fewer new drug approvals and unprecedented loss of revenues from patent expiry. We believe that AstraZeneca is the most unloved of all the major pharmas but is also the best buy. It is no secret that the whole pharmaceutical industry faces ’a patent cliff’ and the cliff looks the steepest for AstraZeneca. Cliffs usually cause anxiety but we suspect that investors are over-reacting to this one.”
AstraZeneca is a 4.6 per cent position in the UK equity income fund.
Ardevora says it makes it very clear to investors that its two equity funds are not absolute return vehicles. Lang says: “In our world, absolute return means that you do not want to lose any money in any given month. There are one in three months where we will look risky. I frame absolute return as inflation plus 5 per cent over five years.
“Investment is about riskabsolute return funds back-end load their risk. There is a confusion between what absolute return means and what it is sold like – as low-risk and no negative months.”
Lang says the sector should be defined by annualised turnover. “Funds that have a high turnover are typically trading funds, so they should arguably be rated as higher risk. Splitting up the sector by using turnover as a proxy for risk might work. There is a enormous variations of strategies in the sector.”
On a 10-year view, the firm plans to stay as an equity specialist and Lang says they do not intend to bring in fixed-income expertise.
He says multi-managers and IFAs are looking to boutiques for specialist skills. “Where we sit, it is important for us to be small, nimble and have a concentration of talent.”
The pair say the firm’s name is a clue to the type of culture they are trying create at Ardevora. It is a Cornish word for a clearing in the woods by a river and has a personal meaning for them both.
For Pattisson, Ardevora was the name of the farm in the Roseland peninsula belonging to a woman who they both started working for in 1986 at James Lapel. For Lang, it was the name of the boat that he sailed for four years with this woman and her husband in the early 1990s.
Lang says: “For both of us, it is a happy place. We are trying to create a happy place for us to work.”