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The external factor

IM Asset Management is gearing up to relaunch its product range as it seeks external investors beyond the group’s core client base of personal injury claimants.

IM is a wholly owned subsidiary of Irwin Mitchell, the UK’s fourth-biggest law firm with a major presence in cities including Sheffield, Leeds and Manchester.

The firm focuses on personal injury cases, typically road traffic accidents and clinical negligence, establishing an investment advice and management arm for clients winning settlements.

Many need to pay care fees and will never work again and Irwin Mitchell was keen to retain the relationship rather than referring the client to external advisers.

Key to building the investment arm was the recruitment of chief executive and CIO Richard Potts, who brought with him the firm’s momentum-based relative strength trends (Rest) process. Potts boasts a strong investment CV, joining from HSBC where he was responsible for UK and international private unit trust investments.

Before that, he also had a three-year stint at Cazenove, leading the UK investment process, and was head of US equities during a six-year spell at Phillips & Drew in the 1990s. Potts reorganised IM’s private client business, establishing a range of Oeics in 2005 and setting up IM Asset Management under a separate brand to meet capital-adequacy requirements.

Through the internal personal injury client base, the firm has built up around £200m under management but acknowledges the potential for major growth lies in the external market.

While the firm believes it has the process to attract these investors, it feels a rebrand is necessary – with the name yet to be signed off – plus a rejig of the existing products.

IM has also brought in Simon Hebb as business development manager to sell the range into the external market, on both the retail and institutional sides.

At present, the group has four funds run by Potts and team, although only two are onshore and FSA-recognised – the multi-asset portfolio fund, which Hebb admits had an extremely difficult 2008, and global strategy, an equity product launched last June.

Offshore are the group’s UK equity-based growth fund and a bond product and IM is planning to move the former onshore as part of its external push.

As part of this, it will also convert the Oeic umbrella from Nurs to Ucits, further enhancing accessibility. The bond fund is likely to remain as it is as the group basically set it up as a high-yielding alternative to the national high-interest bank account for personal injury payouts.

Potts’s Rest process follows trends in the market with a focus on relative strength – the best-performing countries, sectors and stocks.

This strategy is well known in the hedge fund sector but little used in retail fund management, with IM highlighting several famous trend-
following investors such as Jesse Livermore, Gerald Loeb and, more recently, George Soros.

Hebb says the quantitative nature of the process means the group is typically able to predict what it should do, although the team ran into
problems during the extreme volatility of 2008.

By definition, a trend-following strategy will struggle to perform in essentially trendless markets and the group was also forced to suspend its stop losses as stock prices were moving around so much.

These are now back in place, with controlling and limiting downside risk another key part of the IM system.

Trend-following is very much about size and liquidity, which is why it has struggled to gain traction with bigger retail houses.

Flexibility is required to follow markets accurately, and many larger funds are simply too unwieldy to buy stocks and sectors in the required proportions.

Bearing this in mind, IM plans to be an investment orientated, rather than asset- gathering, house.

It will soft-close funds in the £1bn-£2bn range and already runs the money as if the funds were this size, not wanting to account for too much of any stock’s daily liquidity.

Looking ahead, Hebb says the aim is to showcase Potts’s long track record in running institutional money, seeking mandates too big for private client stockbrokers and too small for larger institutions.

He also notes the organisation’s position as one of the few experienced institutional managers outside the usual financial centres of Edinburgh and London.

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