James Smith Boutique View
Multi-manager veteran John Husselbee set up his North Investment Partners boutique in 2005, spotting a gap in the market for what he calls “IFA Oeics”.
Husselbee is among the most established names in the fund of funds market, with a decade each at Hendersons and Rothschild. When he left the former alongside colleagues Rebecca Murphy and Oliver Wallin four years back, they wanted to build a group focusing on the adviser relationship and support-side of multi-manager.
As a concept, he feels funds of funds has now become ingrained as an investment solution, after so many people struggled to perform following the bursting of the technology bubble.
“Many intermediaries enjoyed great success running their clients’ money in the bull markets of the 1990s, supported by a strong equity tailwind,” he says. “But as things turned and the regulatory burden increased, more and more have opted to outsource to professionals who have time to produce a properly diversified portfolio through asset allocation.”
Husselbee’s firm stresses the partnership angle, with North running the money but the adviser in charge of client relationship and distribution.
He adds: “Intermediaries want to take back control of distribution, mandate, client and the revenue streams of the business.”
“This system gives clients greater transparency and communication. It means they are not only on first name terms with their adviser but also with us as fund manager, and we offer quarterly updates to all investors.”
The group currently has eight clients – two asset managers in the form of City Financial and Way Group, plus six adviser firms.
North started out running the ex-Quilter funds for Neptune, giving the team a chance to establish their business before conducting a management buyout in October 2007.
At this stage, Neptune sold its multi-manager vehicles to City Financial – headed up by former Invesco Perpetual CEO Rob Hain – and North retained the management contract.
As Husselbee’s business has grown, the IFA Oeic side has come to dominate.
He says: “Intermediaries are evolving with the industry and need to find ways to move their business model forward.
“Most advisers will risk rate clients and if that comes out as cautious, for example, they are faced with a choice of almost 100 funds in the IMA’s cautious managed sector alone. The maximum equity content is 60 per cent but there are also funds with 100 per cent in bonds and the return profiles from these opposite ends of the spectrum are completely different.”
According to Husselbee, frustration with this bewildering choice and keeping to risk/reward targets is pushing more advisers down the IFA Oeic route.
This means they can set the risk tolerance at outset and be certain the manager will stick to it throughout, moving multi-manager back to its earliest routes.
“If advisers are buying funds off the shelf, they may be an important client to that company, but with us they are the only client,” adds Husselbee.
North currently runs funds under six separate brands – Sentinel, pH, Pennine, Nevis, Liberation and Discovery. The team is in talks with a further two IFA firms and expects to launch funds early next year.
Husselbee says the aim has always been a limited number of adviser partnerships, with no desire to rebuild a large multi-manager business.
While there is still scope to grow, he feels it is vital North chooses the right clients and, more importantly, the adviser firms are comfortable with the group’s business model.
He highlights opportunities in smaller pension funds and charities and believes there may be a fiduciary role for multi-managers in future, advising scheme trustees on suitable investments.
After four years, North has £330m under management and just four staff. Husselbee says the beauty of setting up an investment business now is the amount of non-core, non value-adding functions you can outsource, from admin through to compliance.
The group even uses a global strategist/economist on a consultancy basis, all of which allows it to offer a good service for a good price, says the team.
Their bespoke portfolios are based on client requirements, using a modular approach which combines asset allocation and fund selection.
In the secular conditions expected to dominate over the coming years, Husselbee expects tactical asset allocation will be the favoured route for adding value.