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Good groundwork

Rob Hain and Andrew Williams swapped top roles at the UK’s largest fund house for a small start-up three years ago, wanting to build their business from the ground up.

The pair had worked together across several parts of the Invesco Trimark business in Canada and the UK, ending up as CEO and head of distribution at Invesco Perpetual. In 2005, they took the decision to set out on their own and bought the small City Financial from Capita.

Williams describes the acquisition as like a shoebox of assets, with a long-standing name in retail finance but no real personality or brand.

When they bought the firm it had two small funds with weekly valuations, both quasi-dormant. Run by Robin Geffen’s Neptune Investment Management, global health was managed by now star US manager Felix Wintle and the global bond by Derek Bartlett.

Hain and Williams restructured the portfolios, converting them to Ucits III. Global health turned into the multi-asset diversified absolute return fund run by multi-manager John Husselbee and the bond fund was outsourced to fixed income specialist Mark Astley at Millennium Global Investors.

Key to the City Financial approach is creating access to strong fund managers without a retail presence.

The link to the $15bn bond house Millennium is a key example of this strategy, with the group well-known in the UK for employing renowned economist Roger Nightingale.

City Financial has continued to grow via acquisition, buying two funds from benevolent society Foresters in late 2006 and then Neptune’s multi-manager business the following year.

They again converted the Foresters UK equity product into a multi-manager offering and passed the mandate to Husselbee at his North boutique.

The other ex-Foresters portfolio was a gilt fund, which remains outsourced to Ian Williams at Charteris.

With the third deal, the multi-manager funds were already run by Husselbee who had MBO’d his North firm from Neptune in September 2007.

Having worked at dominant equity income house Invesco Perpetual, Hain and Williams were keen to provide opportunities for advisers in less popular sectors of the market, such as gilts.

They chose to go down the outsourcing route to leave the managers free to run money out of their own firms.

After three deals in 21 months, the group grew its assets to around £150m and has managed to hold at that level despite recent market turbulence. Hain and Williams attribute this to the balanced nature of the range.

Of the fixed interest funds, strategic global bond is a super-conservative vehicle focusing on AAA-rated sovereign debt, designed to minimise drawdowns and volatility. Meanwhile, the gilt offering has proved popular as markets have flitted between inflation and deflation.

Williams highlights an artificial divide in the Government bond space between inflation and non-inflation-linked debt and the gilt portfolio takes those decisions out of the hands of investors.

Again, a key element of the process is reducing volatility, with the manger writing options on the underlying portfolio to enhance the total risk-adjusted return.

On the multi-manager side, Husselbee runs four portfolios designed to provide a toolkit for advisers. In addition to diversified absolute return and UK select alpha, he also heads up income and growth offerings.

The group has a dual growth strategy and is looking to boost the existing funds via a wholesale platform presence while also adding to the range through acquisition.

The plan is to pick up funds not considered as strategic by their current owners, but City Financial’s Williams said it has been tough to get deals done in recent conditions – buyers are worried about how much they are paying and sellers about divesting at the bottom of the market.

He feels this logjam is now starting to break, however, and expects further purchases in due course.

City Financial is a privately owned company, largely controlled by Hain and Williams, with eight staff in total.

Taking advantage of the Capita link, the firm’s back office is outsourced to the specialist provider.

On the sales side, they have worked with Graham Hooper, previously of AWD Chase de Vere and Charcol Holden Meehan, plus specialist distribution consultancy Harrington Cooper. The latter is run by former Axa IM head of sales Patrick Cooper.



Structured argument


Chris Taylor, CEO of Blue Sky Asset Management

The funny thing about structured investments is that they seem to attract most criticism from those who know least about them. This lack of working knowledge is usually the result of nothing more complicated than a failure to engage with the leading providers in order to develop a detailed understanding of today’s industry. Much of the criticism directed towards structured products is often simplistic, outdated and misguided.

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