Before this year, Majedie Asset Management had rolled out just five products since it was established in 2002 – one of which was a concentrated version of another. By those standards, 2014 has seen riotous activity, with the summer launches of a US equities fund and two global funds adding to the existing line-up of UK equity and global long/short funds.
Fans of the boutique – and there are many across the UK pension fund community – need not worry. The firm is not about to morph into the next BlackRock or PIMCO.
“We talk a lot about being a ‘true boutique’, which means offering limited capacity in a tight range of funds – and that’s absolutely the way we want to keep going,” says CEO Rob Harris, who managed the firm’s UK Equity and UK Focus funds until 2010 and now concentrates on consultant relations and strategy. “However, we have had a lot of interest from clients in a global equity capability.”
Indeed, Majedie’s tight discipline on fund capacity is one reason for spreading its wings a little. While new capacity opens up for existing investors thanks to natural attrition of 5-10% of assets per year, the long/short Tortoise fund has been closed to new money for some time, UK Focus is at capacity and UK Equity is getting close. Until the new funds came along, only UK Income had meaningful room for new clients.
But that is far from the main reason for going global. In fact, the new launches represent Majedie’s second attempt at this: a global fund came out in 2010 after Majedie hired Simon Todd and Michael Nickson from Odey Asset Management, but closed when they moved on to Marathon Asset Management two years later.
Within the firm, global is seen as a natural extension of work already done on Tortoise – which went fully global in 2013 – and even the UK funds. Tom Record, hired from Baillie Gifford to lead-manage the new funds, will work alongside fellow newcomer Adrian Brass but also Tom Morris and Yuri Khodjamirian from Majedie’s Tortoise and UK strategies. Even before 2014, about half of the stock models in Majedie’s ‘MajNumbers’ research system were ex-UK.
Any UK large-cap strategy, and Majedie’s in particular, is effectively a mandate of London-listed stocks with global economic exposures, Harris observes. CIO James de Uphaugh, who has worked with Harris since their Mercury days in the early 1990s, develops the idea.
“At any point in time we will have a balance between stockpicking and macro and the two are very symbiotic,” he explains. “Throughout any cycle stockpicking is always, without fail, hugely important, but we’ve always felt that, to cut the mustard as a UK fund manager, you really have to think globally – the UK is a much more global market than the US, and arguably any other in Europe. Opening the mandates was on our to-do list from the start, and we began in 2007 with Tortoise.”
He picks out Vodafone to illustrate the point. To many UK-centric portfolio managers it has long been regarded as a robust, high-quality company. To de Uphaugh and the team it looked to have a strategic weakness, in that it was not well-positioned for ex-UK telecom markets where the choice is not so much about mobile itself, but about ‘triple’ or ‘quad play’ packages, which might be swayed more by factors such as the quality of the fixed-line service. In telecoms, therefore, Majedie rejected Vodafone in favour of using some of its ex-UK allocation to buy incumbent Continental European firms with strong fixed-line businesses and competitive positions in a consolidating market – all available at lower multiples.
Bringing Brass onboard from Fidelity and creating the new US and global products expands the potential for these kinds of insight.
“GSK came in to see us recently, as they were going through negotiations with Express Scripts,” de Uphaugh recalls. “Now I have the chance to talk with Adrian about Express Scripts, a share he’s very interested in. That’s the sort of collaboration we hope to build over the next 6-12 months and it should happen very naturally, as it has in the past.”
Given this logic, why wouldn’t clients of the UK equities strategies take their money over to the global mandate? Harris thinks the question misses the point at the heart of Majedie’s ability to extend its processes readily into new markets. For a start, those clients are happy with the 5-10 percentage points of annualised outperformance they’ve enjoyed from the UK funds. More importantly, they regard these strategies as alpha generators rather than regional mandates.
“The message we’ve got over the years is that Majedie can be seen as the active, conviction manager of your pension fund’s growth assets,” he says. “Regardless of the label, we are in the business of creating portfolios that can outperform any major equity index.”
This clearly fits into one of the strongest current trends in pension fund risk allocation: improving the efficiency of shrinking return-seeking portfolios by barbelling between cheap passive exposure and pricier alpha exposure, rigorously accessed via concentrated, high-conviction, often unconstrained mandates – determined by portfolio managers’ perceived expertise rather than by specific regional requirements or benchmarks.
Again, this is not a new insight at Majedie. When it was founded, pension funds and their consultants were disillusioned with their big, diversified mandates and had started to unpick them into specialist pots, both active and indexed. As de Uphaugh puts it: “Majedie was created to exploit this opportunity as a UK-specialist house running red-meat active money and charging a modest base fee and a performance fee as the best way of aligning with our clients’ interests.”
Like the supermarkets that are one of the main themes running through the firm’s UK equity portfolios today, de Uphaugh notes that asset managers face a fast-evolving market in which customers are not afraid to be seen slumming it with the pile-it-high merchants at the same time as spending a little on some luxury.
“The middle ground is the dangerous place to be now, in so many industries,” he observes.
De Uphaugh and Harris are realistic about the prospects for picking up more UK defined benefit assets against a background of maturing and de-risking, and have been successfully cultivating new distribution channels, but it remains an important market for Majedie and its role in DB pensions has, if anything, become more obvious since the early days.
Harris recalls that, even consultants that had known them for years through their careers at Merrill Lynch and Mercury had to give a lot of thought to how – and whether – they could follow their skills to the new firm. “I think the research teams did spend more time with us than they do with most managers because they wanted to get comfortable with what we do,” he says.
Twelve years later, and with new routes through which to benefit from those skills opening up, they must be glad they put the effort in.