Veritas focusing energies on achieving real returns
With several ex-Newton executives and managers at the helm, Veritas has similar global thematic investment approach combined with client partnership philosophy
With many senior staff previously working at Newton, Veritas Asset Management's investment process is based on a similar global thematic approach.
This is hardly surprising, considering the groups have a founder in common in the form of Stewart Newton.
Newton and Charles Richardson founded Real Return Holdings (RRH) in 2003, and the firm merged with Swiss fund manager Veritas Asset Management the following year.
Veritas Asset Management (UK) and Veritas Asset Management AG are now wholly owned subsidiaries of Real Return, which is 100% owned by management and employees.
Prior to establishing RRH, Newton set up his eponymous group in 1977, leaving it in 2000 when the firm was bought out by Mellon.
Veritas, which opened a London office in 1996, was a discretionary asset manager focusing on high-net-worth private clients. It established a long-only equity fund in Switzerland in 1995, converting it to a Dublin-listed Oeic, Veritas Global Focus Fund, in 2001.
The group's senior management represents the entirety of Newton's former top tier, with founder and former CEO Newton at the helm.
Richardson, former Newton CIO, is joint chief executive of Veritas UK, alongside ex-CEO Colin Harris. Anthony Rosenfelder is managing director of Veritas AG.
Perhaps the group's best-known manager is former Newton Oriental head Ezra Sun, who joined the boutique in 2004. He currently runs the long-only Veritas Asian and long-short Real Return Asian offerings.
Soft closure
Last month, the manager took the decision to soft-close his long-only portfolio, after attracting inflows of $542m in just 12 months.
The fund, which launched in October 2004, is now closed to new investors as Sun has become increasingly concerned about maintaining performance if the portfolio grew too rapidly.
The soft-closure will only allow existing investors to invest further money into the vehicle. Sun will review whether to reopen the fund to new investors on a monthly basis.
Any prospective new investors will have the opportunity to go on a waiting list should the fund reopen in the future.
Veritas said the plan had always been to soft-close the fund in the interests of protecting performance for existing shareholders. The Asian vehicle has grown from $180m in September 2006 to $943.5m today.
John Campbell, marketing and sales director at Veritas, said: "The fund has reached capacity and Sun is keen to maintain consistent performance. This latest move is designed to preserve the performance characteristics of his investment approach."
Campbell said Sun's Real Return Asian hedge fund will remain open, but will also close if assets under management exceed $800m.
Among other former Newton managers at the group, Sun works alongside Andy Headley and James Harries, with the latter joining to run an income fund in June 2004.
Harries briefly ran the Newton Falcon fund, following Clive Beagles' departure to JO Hambro.
Meanwhile, Headley is head of global research at Veritas and runs the Real Return Global fund and Veritas Global Focus.
Newton's director of Japanese equities Miki Sugimoto also moved to Veritas in 2006, joining Sun's Asian team.
Management structure
Campbell said that the group's fundamental investment approach seeks to deliver a total real return and exhibits independent thinking.
"The house philosophy is built on two simple, solid principles: achieving real returns for our clients and working in partnership," he added.
"We believe in partnership with the client by sharing goals and interests, as well as partnership within the firm.
"The ownership structure aligns the interests of management and clients, with the attendant benefits of independence, stability and a long-term perspective."
He highlighted the soft-closure of Sun's fund as an example of this approach.
"While there is nothing in our strategy that is inherently capacity-constrained, we want to retain flexibility and leave capacity for existing clients to grow with us," he added.
"We also wanted to demonstrate to our investors that we are not asset gatherers - our focus has always been on performance."
Investment objective
Campbell explained that the team's psychology is completely different to that of benchmark-driven investing, which, together with the obsession with style, has come to dominate the fund management industry.
He said: "We would only buy a security if we believed it has an attractive stand-alone valuation and will deliver a real return. We believe it is common sense to own cash or bonds if we cannot find sufficient equity opportunities. Opportunity costs are less expensive than capital losses."
As an example, Headley's VGFF, which has a three- to five-year investment horizon, aims for long-term growth from global equities, but can invest in fixed-interest securities, derivatives and cash to navigate short-term periods of volatility.
Fundamental research
Veritas' investment takes place within a global thematic framework similar to the long-established process at Newton.
Headley said: "Within the context of the themes, we seek to identify winners and losers. We strive to find sound businesses whose earnings will grow predictably and sustainably at an above-average rate, but whose valuation is reasonable."
The head of global research explained there is no single approach that delivers a real return.
"We undertake our own in-depth fundamental research to ensure we understand the dynamics and profit-drivers of the business, as well as the risks," he added.
"We access as many sources of information as possible - annual reports, management, independent experts, industry literature and so on. Specialist research is necessary in some areas, such as healthcare, technology and Asia."
Headley cited valuation and the assessment of downside risk as key factors.
"Share prices fluctuate more widely and frequently than values do," he added.
"This volatility provides long-term investors with timely entry and exit points.
"We calculate our own intrinsic value, based on a variety of techniques, including free cashflow and a discount rate that reflects our assessment of risk. We allow a margin of safety between our assessment of value and the market price."
Conviction investing
Overall, Veritas said its approach is long term, and involves concentrated portfolios expressi-ing conviction.
Headley said the long-only funds exemplify the group's long-biased real-return approach, protecting the real purchasing power of capital over the long term.
Meanwhile, the Real Return products represent a more flexible range, including the ability to adopt long and short positions, targeting inflation plus returns.
"Investing based on intrinsic value needs time to pay off, and we are not distracted by short-term market noise, "he added.
"We also believe in a multi-dimensional approach to risk, rather than one based solely on volatility. Investing on the basis of in-depth understanding and a margin of safety in the price we are paying are significant contributors to reducing risk."
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