Why Fiduciary Trust? Chief investment officer Sheila Hartnett-Devlin has very definite views about the market position of this mid-sized New York-based manager.
“One of our strengths is our size - we are large enough to be important to all of ‘The Street’, so we get significant research coverage and we have company managements through our doors on a regular basis. But we are small enough that when we are in the markets positioning portfolios for clients, we are not moving prices, which is very important for their long-term performance.”
The firm has clients dating back to the 1950s and 60s, she points out, which demonstratres “our process can go through the test of market cycles”. She sees the longterm performance record as a another strength that should stand them in good stead when dealing with trustees and consultants outside the US. “Here lack of name recognition will be a challenge,” she adds.
But the biggest challenge of all is at the heart of the business: “Our greatest one is to add resources to the research side to enable us to be on top of information, analyse it efficiently and so keep the edge on the competition.” Technology enables Fiduciary to do things a company of its size would not have been able to do five years ago. “We also need to keep our small team structure in place to get information through the firm very quickly.”
But research nowadays is both internal and external, again thanks to technology. “Clients are much more in tune with how managers are running their portfolios, largely because technology has created efficiencies in giving information to clients,” says Hartnett-Devlin. “There is a lot more pressure on managers as to how they go about achieving their returns, being much more sensitive to risk management.” In the next two years over $26m is being put into mainly internet spending so that clients can manipulate their information set, she says.
“We are going to be adding a great deal more in database, adding strategy information, all of our policy minutes for both US and global investments, model portfolios, and details of companies we are folowing. So clients will know the strategies that will impact on their portfolios over the next three to six months.”
A deliberate tactic is to employ former consultants as product managers, as they understand what clients want from a manager. “This means our clients will get what they want that bit sooner.”
Clients are looking for more specialised portfolios, a path that Fiduciary is already well down, with the global product, (ex the client’s domestic market) is one way things are going, she believes. “People often feel a local manager will have local expertise, but need to go outside for a global product. But essentially it does depend on clients’ risk parameters, where their liabilities are, and so on.”
The consequence from a manager’s perspective is that they will need significant resources to research these global portfolios. “This may not be in terms of numbers of people, but in having the technology to arrive most efficiently at which companies are ‘best in class’ for portfolios.” In Fidiciary’s view information is so efficient, that while a firm needn’t have many analysts, those they have must understand their industries inside out. “Then having regional analysts working with them gives a feel for the regional economy. This combination and narrowing it down to find best in class is one of the most efficient ways of building global portfolios.”
The basis of the investment process has been in place since the early 1960s, but as markets keep changing, it is esential to re-examine the approach, she maintains. “You must see if you are being proactive enough in your process and that it is evolving.” She points to the shift from regional to sector returns in the past couple of years. “So by blending our top down approach with our sectoral one, we have been able to take advantage of changes in the market.”
She rejects the view completely that having 200 anlaysts will increase the chances of finding those companies - it is a quality not a quantity issue in her mind.”We have 17 industry analysts and five regional. On average ours have 13 years’ experience; in bigger teams the average may be no more than three!”
Another clincher in her view is that Fiduciary treats analysts and portfolio managers on a par. “Analysts have a separate career path and their compensation is equal to that of portfolio managers, they do not want to be portfolio managers. We just want people who love going out to see managements, digging through the numbers and understanding the great growth prospects out there. They are not second class citizens.” So analysts are in the room when decisions are taken about stocks.
Similarly when it comes to constructing global equity portfolios, you don’t need huge teams, as a stock will be bought for all portfolios, clients’ guidelines permitting. “Our portfolios tend to to be concentrated, with only 79 names in the global equity product and a similar number for emerging markets. “What we have to keep doing is adding analysts in those segments of the markets that are growing,” she says.
“What is essential is to have clients understand what your strategy is, so that in the bad times, they understand why you are sticking to a particular strategy.”
This year started with assets under management at $65bn (e72bn). This is expected to grow by $6bn this year, with perhaps the firm passing the $100bn milestone in five years’ time. “We expect this to be all organic growth,” she says, though this does not rule out buying in specialist firms when opportune. The US accounts for 75% of business, and Europe for 15% and 10% from Asia. “In five years’ we would be very pleased, if it was a half in the US, half outside, with Europe and Asia showing strongly.” She is very hopeful about the Japanese businees as a result of their agreement with Daiwa for sub-advisory business there.