Smith & Williamson on taking crumbs from the big guys’ tables

After a year of preparation, Smith & Williamson’s head of funds reckons his team is ready and able to take on the behemoths with a core of actively managed ‘building block’ funds every allocator will need to use.

Ed Rosengarten

Preparation is the key to success, and that’s a motto Smith & Williamson’s head of funds business Ed Rosengarten appears to live by.

He has spent the year since he joined the firm preparing the fund management team, adding staff and tweaking strategies, and now he’s ready to take on the big guys.

His focus is on creating building block funds that need to be used by most allocators and presenting an alternative to the fund management giants that have billions in their portfolios.

“The theory is to create a core of actively managed funds in core areas, led by seasoned managers, with a capacity for growth,” says Rosengarten.

He worked through each fund management team and made changes where he considered they were needed. The UK equity growth team, run by Mark Boucher, was “very strong”, he says, with the manager running both a long and a long-short strategy of high-conviction funds, each with 40 to 45 stocks. Assets have almost doubled in the past year to £90m for the long-short fund and about £47m for the long-only version.

The long-only fund has outperformed the sector average over one, three and five years, delivering 17.38 per cent over the year to 31 May, compared with 10.32 per cent for the sector, FE data shows.

Also in the equity group, the equity income strategy is run by ex-Newton manager Tineke Frikkee, who came from running a £2.4bn fund at Newton. She started with about £8m in assets, which has grown to £46m, using its strong performance to help boost inflows, says Rosengarten. The fund returned 13.22 per cent over the year to May, against 10.69 per cent for the sector, FE data shows. Over five years, pre-dating Frikkee’s joining, the fund has underperformed, returning 76.54 per cent against the sector average of 83.27 per cent.

“It is not necessarily about growing the market, it’s about frankly taking a few crumbs from the behemoths’ tables.”

While Rosengarten doesn’t expect to see massive market growth in this space, he still thinks the funds can add value.

“It is not necessarily about growing the market, it’s about frankly taking a few crumbs from the behemoths’ tables. As Newton sees its equity income fund assets decline, I would hope and believe we have managed to pick up a very small amount of those assets that have been redeemed,” he says.

In the fixed income space there was an existing short-dated corporate bond fund, run by Ian Kenny, which has hit £500m in assets on its sixth anniversary.

“What we have consciously not done is gone down the all-singing, all-dancing strategy of corporate bonds,” Rosengarten says. “There are no derivatives or sub-investment grade and we have not gone overseas. We keep it very simple, and that has appealed.”

Kenny’s fund aims to beat the UK base rate, a currently low target, and has returned 1.6 per cent against 0.6 per cent for Libor over the past year. Its three-year performance is 3.3 per cent compared with 1.8 per cent for Libor.

Meanwhile, Rosengarten hired former JP Morgan and Gartmore manager John Anderson to run the fixed income trust, which has £40m in assets and has “plenty of capacity left”.

The multi-asset team was also in place when Rosengarten joined, but he has “refined” the team run by James Burns. The strategy focuses on investing in investment trusts, particularly the flagship Endurance multi-asset fund. “[James] can invest in more interesting eclectic asset classes in investment trust form and that again offers the client market something quite distinctive,” says Rosengarten.

The group then teamed up with Novia to create a range of model portfolios using the same approach, with the platform being able to host investment trusts.

But Rosengarten also made larger changes. Late last year he hired a new manager for the European growth team, Giles Worthington, previously M&G’s head of European equities.

Rosengarten brought in a team from Pictet Asset Management for the American trust and mid-ocean fund. Former co-leads of global equities at Pictet Tim Day and Chris Ford joined the group in May, completing “my review and the refinement of the investment capabilities,” says Rosengarten.

He does not rule out further fund launches, but says he doesn’t want any funds to become too specific, so says no funds will be launched with slants such as mid-cap or growth.

“We’ve got a team of very experienced and capable fund managers and I don’t want them too constrained.”

It’s these managers’ performance that Rosengarten is basing his business on, saying they are the “lifeblood of success of the fund management business”.

However, he acknowledges he has a large task in refreshing the Smith & Williamson brand and taking it back out to market.

“There is a sort of slight mismatch between, internally, the excellence of the company, the client centricity and the profile and visibility of the firm externally. The brand is high quality, but not very well known,” he says.

Rosengarten is boosting the sales team from four to six over the next year. “It’s so important that we are seen as open for business.”

FS 0715 Group Profile Graph 2

Click to enlarge

However, patience is essential, he says, citing the example of Pimco, which recently shuttered its plans for a big equity push, under the guardianship of Virginie Maisonneuve, who joined the firm last year.

“Patience here is absolutely critical. The Pimco announcement is a classic, that’s 18 months, but patience is absolutely key in building a high-quality, sustainable business. There is an enormous amount of patience here, it is long-term business.”

One aspect that Rosengarten thinks plays into Smith & Williamson’s hands is its ownership structure, of a partnership with no overarching company ownership or public listing. “I think that is emerging now as something meaningful in the minds of clients.”

The company

Smith & Williamson was founded more than a century ago in 1881 in Glasgow, being set up to run private client assets. The investment management business has more than £16bn of funds under management and advice. The company has 12 offices in the UK, Ireland and Jersey and employs around 1,500 people.

He is conscious of the challenge for active managers as discretionary fund managers and wealth managers increasingly move towards higher, or total, passive allocations. “They have taken the portfolio more to passive and are left with an active satellite, so that active satellite needs to be genuinely active; that bit needs to be sweated.”

His argument is that smaller funds are able to do that better, be more nimble and move between investment opportunities without capacity constraints.

However, he is up against an increasing trend for allocators to put their money with the largest managers. The hangover from the financial crisis means many allocators are wary of headline risk and fund manager wobbles, while centralised investment propositions are driving more money to the largest managers.

“Headline risk is a challenge. I think we are in a sweet spot; a well-established private client business of £16bn creates stability, which gives more confidence,” he says.

“We’ve begun to build a profile, but I’m not a fan of front running. I believe you do it and then tell people you’ve done it, rather then telling people you’re going to do it,” he says.

But he knows the timeline will not be short, and reckons it will take three to five years from now to truly establish the firm’s profile.

Independent views

Martin Bamford MM blogMartin Bamford, managing directorInformed Choice

Smith & Williamson is a firm we know primarily for its expertise on taxation. Wealth management is something it is working hard to become better known for in the intermediary sector. Its fund management arm offers a comprehensive range of solutions, from discretionary fund management to a suite of multi-manager funds. Given its tax background, the AIM portfolio for its inheritance tax plan is also a strength. The relatively recent addition of risk-graded model portfolios, offered through Novia, Ascentric and Verbatim, completes the range of investments.

David Hambidge 450David Hambidge, director of multi-asset funds, Premier Asset Management

Smith & Williamson is probably best known for its Short-dated Corporate Bond fund. The fund has a decent following although it is hard to see it do anything more than tread water (performance wise) while rates remain around current levels. However, there has been some interesting activity elsewhere, including the recent hire of a team from Pictet to take over the North American Trust. This fund has a good long-term track record but has struggled relative to peers over the past few years. Elsewhere, there is certainly the potential to grow the UK equity book under the stewardship of Mark Boucher while we like Tineke Frikkee’s growing income philosophy and flexible approach to running the UK Equity Income fund.

Lee Robertson 160Lee Robertson, chief executive, Investment Quorum

We are generally fans of Smith & Williamson and have always found them to be a very responsive, thoughtful group. While they offer discretionary portfolios as well as a fund range, we tend to concentrate on their fund range as we also have discretionary permissions. However, we have clients who have split mandates between us and Smith and Williamson which make for interesting valuation discussions. We particularly like the expertise and resources they deploy in-house for sensible stock-picking, their concentrated approach to a small number of well-run funds in core regions and their focus on risk-adjusted returns.   

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