Matthew, now you’ve become CEO of this new asset management business, talk me through the rationale behind setting it up in November last year?
The asset management industry is going to go through a huge amount of change. Someone referred to it as the “democratisation of asset management”, this idea that you can capture so much of what’s been done in the world as we understand more and more about markets and what drive markets.
It is clear to me that the end client, particularly in the retail market, is not really seeing the benefit of some of this democratisation.
The second point is that there was a massive consolidation post-2008 and there were these huge benefits to the industry right across the sector, about making the industry safer and ensuring you didn’t have a Lehman-type situation.
At the same time, the end client has been worried about safety and piled into all the big investors when they do not need to. Because now someone can get exactly the same regulatory structure and security and protections as the very large firm.
What made me think about starting a business was that incumbent models are massively structured, and there is an idea that companies can’t innovate because they’re an incumbent.
Graham Christian’s influential book on technology talks about how good management stops you innovating because it protects shareholders and it protects its incumbent model, which means it tends not to innovate, and so you reach this dilemma.
A lot of the technology gets invented but ends up being monetised by new firms. Many smaller companies have disrupted very large companies and there is no reason why that can’t happen in asset management, too.
People should not be worried about smaller companies because the regulatory framework is identical, whether you are big or small.
What does a name like Sir John Beckwith bring to
the business?
One other benefit for us is that we were also backed by a quasi-institutional business, which is putting its own money in the funds as well.
Sir John has done lots of this before, it’s a very successful business. They have got lots of employees, they started Liontrust, River & Mercantile and Thames River and they’ve done multi-asset and more idiosyncratic strategies before.
I have known Sir John and Mark Johnson for around eight years, just through the business, but Mark and John specifically approached us a couple of years ago.
They said they wanted to start another asset management business but primarily within Pacific, rather than setting up say Matt Lamb Asset Management or another Thames River or River & Mercantile.
We recognise it is tough to start an asset management business from scratch and therefore we just want to be a division of the group, to give people much greater benefits, so we use all the centralised resources, compliance, accounting and legal expertise that is already in place.
That is really important because it allows us to provide those efficiencies to the client.
Sir John also needed a place for some of his more liquid assets to be run. A lot of his investments are illiquid, such as real estate and his holdings in some asset managers, but he has day-to-day money that needs to be run in a sensible and cost-efficient way. Having that run upstairs is a good thing for him. He is based in the same building as us with around 60 employees.
He wanted to build really decent infrastructure because he knows where the world is going.
Pacific started to put the infrastructure together two years ago, so it has its own management company, with an Irish Ucits umbrella structure as well as a Cayman Islands domicile. We have a significant operational risk team, mostly ex-Man GLG, so much more of an institutional than retail infrastructure.
Sir John is very well connected. I have had numerous meetings with James Barham and Mike Faulkner, the CEOs of River & Mercantile. It has been a huge help to pick their brains and talk of some of the difficulties and things they have seen.
The multi-asset space is already well populated so why focus here initially, with a retail offering?
One reason is that the multi-asset space has become too homogenous.
The regulators insisted on risk profiling, which is excellent in that it means mis-selling is not going to happen. But people are now gravitating into a three, four, five or six profile, so this idea that anything can be massively overweighted and make a meaningful difference in the risk boundaries that are worked within, is overexaggerated. How we access that diversification is also very similar, through strategic asset allocation and manager or security selection.
I wanted to look at how to get efficiencies out of assets classes as the way to outperform the peer group. Why hasn’t everybody else focused on efficiency? Primarily because they have a model that is incumbent.
Rather than relying on fixed income as a diversifier, we wanted uncorrelated assets. We hired Louis Cuccinello, who ran the risk factor business at Deutsche Asset Management, as head of our diversifying assets team, which is all about capturing the non-directional risk premiums out there.
Louis works with Will Bartleet, former head of multi-asset at HSBC. Will says: “These are the factors driving my portfolio. What can I add to diversify?” We might add an FX value strategy or a momentum strategy, and we implement all of this directly within the portfolio.
