Boutique Modelling: The 5 year milestone interview
For this post we thought we would celebrate the 5-year track record we have at PBIM and talk to Nick Marshall our Head of Fund Solutions about the trials, tribulations, cycles and method of running solutions in a boutique investment management firm. Karl Thompson, one of the founders of Peregrine & Black hosted the interview.
1. How and why PBIM?
Easy – I had known Olly (Pearson Lund) and Phil (Gent) for over 10 years from the Industry before I joined and a mutual colleague suggested we chat as they were setting up PBIM. We all had similar views on investing. My ability to focus on the Investment process, setting up the models and the recommended list gave Olly and Phil the time to focus on building the client side of the business. The “why” is equally as easy! We get along very well and I enjoyed and agreed with their vision for running an efficient boutique for our clients and investors. We had all worked in different institutions and clubbing together the best of parts of our years of experience I thought would be a recipe for success.
2. Nick, it has been 5 years in January running the models – importantly how have they done and how has that fed into the investment process we now have at PBIM?
Thankfully the four models have achieved the goal of delivering above average returns over the long term. Over 5 years Cautious, Balanced and Growth have delivered 38%, 49% and 64%. Defensive has a 3-year track record and has delivered 11%. (https://www.peregrineblack.com/model-portfolio-solutions). As a business that’s what we try and stress to our clients, all of whom have a medium to long term investment horizon, and to deliver those results is justification we have got it right. On the back of the models the investment recommended list is an invaluable tool for the wider business when constructing individual client portfolios.
3. So, what has been achieved after 5 years?
We’ve done well - the Private Client side of the business has continued to grow and we have expanded the number of employees. The creation and development of our IFA arm (P&B Wealth) has been a great addition to the organisation to market the investment capabilities of the firm and keep costs down for clients by offering an integrated solution. Also having in-house expertise with AIM/IHT Investing and Responsible Investment has been exciting to watch as all are growth markets from a business perspective.
4. What’s the difference between the models and the private client side of PBIM?
Good question – in essence nothing. We try and deliver the best models for each client. Where we differ is the interaction level - for our bespoke clients many have needs over and above purely the investment solution. That is why the client gets a dedicated individual attentive to their needs and requirements (Tax, Cashflow, Risk) alongside the investment solution. With my models I construct what I feel is the optimal portfolio irrespective of those highly important areas that define private client management - so both can work in unison. Where investors choose the models this is usually because their company is providing the advice and outsourcing the Investment Management to PBIM.
5. How would you describe the boutique model over an institutional model?
The end result is delivering the optimal portfolio for a client – so both are equal. How you get there is different. I like our process and having an Investment Committee that can chat and make a decision affecting the business quickly and efficiently. Previously I was on numerous committee’s and decision making would take a lot longer. We love the fact that our Private Client managers all have an active input into macro and fund discussions – the fact we can do it all in one sitting is important.
One of my big concerns when I joined was the danger of a lack of access to Fund Managers when leaving a big institution for a boutique – thankfully that has not been the case whatsoever. One of my investment tenets is if I do not get regular information on a fund I will not hold it irrespective of how good it is. My experience at PBIM has been quite the opposite and managers are more than willing to engage with smaller holders and if not available then the product specialist / sales contact can fill that void seamlessly. That may be down to our reputation or due to charity the jury is still out!
6. How do you choose the investments?
The same way I have done for years and the same way the other members of the investment committee have – experience, lots of research and solid analysis. I was adamant when I joined the company that we would have a recommended list not a buy list as we wanted to encourage participation by our employees. Equally there has to be a hierarchy as we expand to keep the decision making crisp and effective. We have meetings for the Investment Committee to set the guidelines for the business and the asset allocation meeting each quarter is the culmination of all the investment discussions attended by all the Private Client Managers. The committee then set the Asset Allocation and include any changes to the fund list. We are inclusionary not exclusionary in our approach.
7. Do you often disagree within the committee and if so, what happens?
All the time!! I joined PBIM because I had known Olly and Phil for a long time and we all loved talking investment. Graham (Withers) has 28 years experience in investing and we knew each other before as well. We all have very similar views but not identical. We always get a resolution and technically speaking if it involves a fund my view is agreed at the end!
8. From an investment standpoint what have you enjoyed most and what has concerned you most in the last 5 years?
Tough. Achieving the investment goals of the models - we have managed to deliver good returns to our clients through all sorts of adversity. The annual returns do not illustrate the stress involved on a shorter basis in the last 5 years but that’s what gets me out of bed – it’s what I signed up for. I enjoy the challenge. Negatively COVID19 from every perspective has changed so many landscapes and from a financial perspective trying to navigate the way out of that will be our biggest challenge going forward.
9. Again, from an investment standpoint what has been your best call and worst?
Not a fair question as some clients may not be invested at the same time – Many of our funds have produced stellar returns over a 3 and 5 year period. If anyone is interested, I can send you 3 and 5 year annualised for 150 funds we invested in as a company. Perhaps the best achievement has been avoiding some of the pitfalls such as holding funds that have been suspended or liquidated over the last 5 years. In all honesty that has been more satisfying than picking the top of the pops for one year!
10. Fair enough. How about regrets and excitement?
Regrets - not enough in technology over the last few years – I missed the data on my Nokia phone as I was playing snake. Hindsight is a wonderful thing but not having a bit more technology (be that disruptive tech / COVID winners FANGS etc) certainly hurt. We had exposure through our Asia, Emerging and the S&P funds which we felt was enough considering where valuations were positioned. Our discussions going forward are centred around the future usage of technology and whether higher valuations are justified ‘this time’. We are certainly adaptable and not luddites and part of our increasing allocation has been thematic investing (favouring the technology side on offer).
For those with a penchant for Apple, Billy Joel and growing up in the 80’s please google ‘we didn’t own an iPad’ or view the following link https://www.youtube.com/watch?v=HeEWtNaW6KE
In terms of excitement perhaps getting asset allocation right over the period by underweighting UK and overweighting Asia and Emerging certainly helped our clients. Underweighting the UK feels a bit disloyal as it is the very market that has given us employment but from a pure investment standpoint, we were very happy to initiate that position since I created the models.
11. Speaking of Thematic Investing… we have a cryptocurrency division at Peregrine & Black what are your views on this area of the market?
They are very much part of our thematic discussions. They are perhaps separate questions involving the currency and the blockchain technology behind it. I hate comments like unprecedented / game changer. Technology has become such an integral part of our lives and we have to accept that the technology powering the exuberant valuation of 1999 is a million miles removed from the technology which is inter-moulded into our everyday lives today. It is dangerous to think ‘this time it’s different’ but we believe what we’ve seen in technology advancement is different to 1999. I think the blockchain technology behind Bitcoin will be transformative and put simply any platform or technology that is un-hackable and cuts out the middleman should be invaluable as it increases security and decreases costs to provide services and transfer goods. However, at the moment in my models there is no way to buy it as an investment (ETF) so it is not currently on my agenda - however for clients we can offer that service if they request exposure. Visa and Paypal have entered advanced discussions to accept the currency as payment through their platforms which may be the catalyst the currency needs to take it mainstream.
12. How has COVID effected the functionality of PBIM?
It has been difficult from an employee level– Our HR and Operations have really stepped up to ensure that all employees have the ability to dial in to continuous meetings and address any issues with relevant division heads or to discuss investments. We have a bi-weekly investment meeting which everyone can attend.
Personally, I have been going into the office regularly as I can walk in from three miles away and I have seen my Investment Committee members twice a week and we talk most days – that’s plenty.
From my investment perspective I have seen no problem whatsoever with the ability to do my job - every fund group has also stepped up to the plate during the pandemic, so my updates for funds are as good as ever and information flow has if anything increased which allows me to research all my managers effectively.
13. Outside of tech what other changes have you seen that affect the market place in the last 5 years?
ESG / Responsible /Impact investing has become massive and rightly so in the last 5 years. Thankfully in Chris Redman we have an expert who has been investing that way for years. Nowadays all managers can claim to be ESG compliant and we are lucky we can have Chris to dig a bit deeper for our clients with specific needs and offer bespoke solutions.
Thematic investing is another area growing in dominance. Graham Withers, our Head of Discretionary Investment Management is passionate about this area which we agree has always been around but has got a bit more diverse in the last 5 years. Please check the website for Graham’s recent insightful article on the subject.
(https://www.peregrineblack.com/insights).
14. Industry wise what has concerned you most over the last 5 years?
I worry that qualitative assessment of a fund manager is getting asphyxiated. I often get asked what percentage of your process is quantitative vs qualitative and I always say there is not a mathematical number answer to that – which I suppose reinforces my belief in the importance of qualitative assessment!
In an industry of increasing regulation where face to face events have declined substantially the ability of people entering the industry to go out and meet their peer group and managers worries me greatly. COVID has exacerbated this scenario for other obvious reasons. Being from Yorkshire (where we can be blunt) my investment theory can be boiled down to two simple questions - do you trust this person with your money and do you understand what the fund is doing?
The three-year Sharpe / IRR / EVA numbers are all important elements in the process of choosing a fund but it is not going to answer the two questions above if you cannot look someone in the eye when you talk to them. I worry that the new generation do not get to talk to their peer group and managers as we did and that was an invaluable source of knowledge when I entered the industry – indeed without it I would not be at PBIM as I would not have known Olly and Phil.
15. Any pearls of wisdom you have learnt from your career?
A few bits of advice have stuck with me over the years:
In any given situation - there is probably always someone smarter than you in the room – bear that in mind before you open your mouth.
You have 2 ears and 1 mouth – listen twice as much as you speak but equally never be afraid to ask a sensible question.
16. Finally, where do you see yourself in the next 5 years?
Hopefully here running models and delivering above average returns for our clients and investors! I may be commuting from Mars on a virgin hyperloop and paying for my latte with Frivoleum (It replaces Bitcoin, Ethereum and Ripple in 2023 - you heard it here first!). I am confident I will be doing it with a business that continues to grow and function as successfully as it has for the last 5 years. It has been challenging but great to see PBIM grow over that time and the next 5 years of the journey should be equally if not more exciting. Looking forward to it.
Karl Thompson is a Director at Peregrine & Black Investment Management and the co-founder of Peregrine & Black Limited. He has been instrumental in expanding the capabilities of the wider business.
Nick Marshall is Head of Fund Solutions at Peregrine & Black before that he spent 10 year working as a multi manager at Smith & Williamson and prior to that worked for the Guinness Family office.
Website www.peregrineblack.com