R&M boutique sets out its stall

The firm’s UK equity high alpha fund, to be run by Hugh Sergeant, launches on November 28 and its UK equity smaller companies vehicle will open two days later. It will be managed by Daniel Hanbury and Richard Staveley, who will also be second on the high alpha portfolio.

Early next year, the group plans to bring out an unconstrained UK equity fund and a core UK equity vehicle, with plans for Hanbury and Staveley to head the former fund while the core UK equity vehicle will be a team fund, with Hanbury lead manager. The group also plans to set up equity income fund.

Director for retail distribution Mark Thomas says that looking ahead to 2007/08, the aim is to have three divisions established – UK equities, global equities and specialist, the latter of which “could be anything” at this stage.

Thomas says River & Mercantile will be looking to recruit a global team probably later next year or in 2008 but it will have 12 staff by the time the first fund launches in November.

Sergeant and Staveley both joined from SG Asset Management while Hanbury moves over from Investec on October 23. At Investec, he ran the UK smaller caps and UK alpha funds.

Sergeant co-managed both the group’s UK growth and UK special opportunities portfolios at SG. Over both three-year and five-year periods to September 4, UK growth is ranked in the second quartile in the IMA’s UK all-companies sector. UK opportunities, which was launched in 2002, is also ranked in the second quartile over three years.

Hanbury ran the Investec UK alpha fund for two years and the Investec UK smaller companies trust since January 2001, the latter holding a top-quartile position over three and five years in the UK smaller companies sector. He stopped managing both funds in May.

River & Mercantile bosses will introduce a quants approach to its operations to make up for any lack of analyst support but Hargreaves Lansdown head of research Mark Dampier says he is not concerned by quant processes or lack of analysts.

Dampier says: “Invesco Perpetual’s Neil Woodford does not have a team of 300 analysts and is one of the best fund managers in the UK. What you want is small, tight teams and at River & Mercantile, they have laid out the office in a way in which the fund managers can communicate well with each other.”

Plan Invest joint managing director Michael Owen says he likes the recruits but adds that just because a manager performed well at one institution does not mean it is a necessarily a given that they will do well wherever they go.

Owen says: “I would imagine River & Mercantile has done its homework. The firm has to make IFAs sit up and take notice, they have to find a unique proposition.”

Baigrie Davis financial planner Amanda Davidson says: “Different groups can have vastly different cultures. There is a huge choice for investors in the UK in what they can invest in so they are competing against other very established fund managers and River & Mercantile funds have no track records.”

Davidson says River & Mercantile has attracted some considerable managers and she likes the fact that it appears prepared to give the managers plenty of independence to allow their flair come to through.

She says: “I think that is very important and what investors are paying their annual management charge for. We may well support this when it comes out.”

Dampier says the success of River & Mercantile will, of course, largely depend on its performance and he says that while some advisers will put money in quite early, others will wait three years for a track record and as a result perhaps miss out on good performance.

Owens says multi-managers will feel more comfortable than IFAs buying sooner rather than later.

He says: “IFAs are thinking very much about clients. We will typically wait a year or two before considering whether or not to put a fund on our list but if a manager has the credentials, we might move in early.”

But the biggest risk for the any investment boutique starting off is the need to get in assets and build scale quickly.

River & Mercantile is no exception to this but Thomas, who left Credit Suisse earlier this year, says the group has a confident backer in entrepeneur Sir John Beckwith and a boss with an enviable track record of building businesses in the sector.

Thomas will oversee retail sales while directors James Barham and Adam Hayes-Newington, both from Liontrust, will be in charge of institutional sales.

Thomas says the firm will use a top-down base in terms of client segmentation and the target audience includes, as well as advisers, fund of funds managers, private wealth managers and private banks.

Thomas says: “For us, it all comes down to the three Ps – people, process and performance. I believe we have the right people. It is key as a boutique that we have a unique and transparent fund management process to achieve risk-adjusted returns consistently over long time horizons and our managers have processes in their own rights but we will have systems and a very transparent philosophy and process.

“The most obvious worry for any new investment boutique is in six to 12 months time when people start to examine performance. Then it is critical that figures are there because if they are not, you have nothing else to offer.”

With the talent in place on the fund management side and the pedigree in the boardroom, it would be a brave man that backs against the firm firmly establishing itself as a successful boutique in the next couple of years.