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Hex appeal

Emerging markets specialist Hexam was the third start-up firm in Ignis Asset Management’s village of boutiques, with six individuals moving over from Barings in 2006.

The Hexam name reflected these six although two subsequently left the group, leaving Bryan Collings, Marina Akopian, Stuart Richards and Grant Shotter as the four partners.

Over the coming years, they expect to grow to six partners again, reforming the original hexagon.

On the leavers, John Payne was not part of the core Barings emerging team, running a global resources product, and opted to pursue other opportunities last year. Analyst Wilfred Willwong only had 1 per cent of equity and moved to Kiev for a lifestyle change.

Like the other Ignis joint ventures, Hexam is set up as a 50/50 partnership between the managers and parent, with the latter providing their finance, distribution, marketing and operational frame-work. Managing partner Collings says the team wanted to control its own destiny and run emerging market money in isolation rather than as part of a diversified global asset manager.

Following the boutique model, they also wanted to align their interests with those of investors and none of the partners are paid bonuses or salaries, stripping them of the comforts of accepted underperformance.

They are remunerated purely out of overall fee revenues and equity is split equally between the four to prevent any culture of greed or financial envy springing up.

Hexam has five funds in its range, one onshore and four offshore, although more launches are planned. The managers use a five-factor stock selection process, focusing on growth, liquidity, currency, management and valuation.

Collings runs the core global emerging markets portfolio, which has onshore and offshore versions, as a more concentrated vehicle than many of his competitors.

He says many of his 100-plus stock peers are diversifying their returns away and his fund has 30-50 holdings across various markets. He runs money on a medium to long-term basis, looking to build a 20-year track record of outperformance.

He says: “There is no one invested in this fund who does not understand exactly what we do, which is why we have continued to see inflows during recent markets.”

Other Hexam products include an emerging Europe mandate, plus long-short global resources and EMEA offerings. Richards heads the emerging Europe fund, having run a top-performing investment trust focusing on the region at Barings.

Akopian runs the EMEA absolute return vehicle while Shotter inherited global resources absolute return on Payne’s departure.

Self-styled emerging markets evangelist Collings sets out a convincing bull case for the region, dismissing many of the traditional rea-sons against investing there.

Foremost among these is volatility but Collings says the broad emerging markets index is less volatile than the UK and the level is gradually falling.

He says: “Simple price volatility is not a true reflection of fundamental risk. Emerging markets are susceptible to the liquidity in and outflows caused by foreign investors and domestic speculators and price volatility is the product of short-term shifts in sentiment rather than fundamental changes or risks.”

Other keys factors are largely demographic, with the region boasting high savings rates, little debt and a strong urbanisation theme, leading Collings to badge these markets a nuclear version of the US in the 1800s.

Despite all these factors, the average emerging allocation is 2.5 per cent in the US and 5 per cent at a push in the UK.

Collings attributes this to the bounded rationality affect, where investors tend to focus on their home market as they understand it better and know the companies involved first hand.

He says this also extends to many UK investment houses and their salesforces, who are reluctant to push the emerging story too hard as so much of their revenue comes from domestic equities.

Collings says: “When the Chinese government starts lobbying for a new reserve currency and worrying about the $2tn it has invested in the US, the rest of us need to reassess how safe we think devel-oped market investments are.

“Investors have long known the safest place to invest for the long term is where the capital reserves and savings are. For many, that means repositioning away from the savings and credit-starved developed world and investing in the growth potential of emerging markets.”


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