Group has started life with edge on many rivals with three high-profile fund manager hires and financial backing from Sir John Beckwith
With an established brand, backing from Sir John Beckwith and high-profile hires on board, River and Mercantile entered the marketplace last year with an edge on most start-up companies.
Headed up by former Liontrust marketeer James Barham, the group has made three fund management hires so far, taking Hugh Sergeant and Richard Staveley from SGAM and Daniel Hanbury from Investec.
The group entered the retail market last year, with UK Equity High Alpha and UK Equity Smaller Companies funds launched in November while UK Equity Unconstrained came to the market last month. A Core UK Equity offering is also in the pipeline.
Since announcing the rebirth of the River and Mercantile brand at the start of last year, Barham and chief operating officer Julian Cripps have had to build the business from scratch, with manager hires only one facet of this.
Barham left Liontrust nearly three years ago, with property magnate Beckwith approaching him to set up the fund management business in mid 2005.
Beckwith also backed Liontrust when it launched in the mid 1990s, with the company trading under the River and Mercantile brand until it listed on the stock exchange in 1999.
He retained the rights to the brand as part of the IPO and went on to back a number of other asset management companies such as Thames River Capital and Alpha Real, a property specialist headed up by Philip Rose.
Beckwith had been looking to back another UK Equity fund management company for some time.
At outset, Barham wanted to put a corporate and capital structure in place for the business that allowed him to spread equity around the management team as tax-effectively and broadly as possible.
"Under limited company rules, if someone receives equity as part of their employment, they are liable to tax at their prevailing rate on grant rather than exercise," he said.
"As we are looking to bring people in gradually, this structure would have caused issues, with the potential tax liability from equity stakes increas-ing as the business grows in value."
With this in mind, Barham has structured the business as a limited liability partnership, which he feels allows him to grow the company on a more structured basis.
This is because the tax hit comes when people crystalise their equity holding rather than on grant.
Across the business, Barham has focused this equity on what he calls the value creators, with two-thirds to sit with the fund managers and a third with the distribution and operations staff.
Overall, he is looking to spend this budget wisely, with no individual holding more than 5% of the company, which he claims forces equity down and out into the business.
With Beckwith providing the risk capital at outset, he will take a 51% share in the company, with Barham and the management team holding the other 49% between them.
In addition to the fund management side, Barham has also had to build up distribution and operations elements.
On the former, he has brought in former Credit Suisse head of sales Mark Thomas to look after the retail side of the business and will focus on institutional distribution himself.
Thomas' main responsibility is to develop the firm's retail proposition including building relationships with key intermediaries, distributors and fund platforms.
Planning to focus on both distribution channels equally, Barham said the group will bolster its sales and marketing function if necessary, but this will be revenue-led.
"The way we have structured the business means we will never get into a position where costs outrun revenue and asset growth," he added.
"If revenue allows we will add further people on the sales and operations side. But we do not want to get into a position where, if the market suddenly turns down or revenue growth is slower than predicted, we have to lose people to survive."
In terms of operations, Barham and Cripps have made a call to outsource non-core headcount intensive areas such as information technology and fund administration.
As for compliance and finance, while the group is outsourcing this initially, it will bring it in house once the business and revenue streams have become more established. Cripps is in charge of implementing and managing these various outsourced relationships.
On the fund management side, Barham said, with all three individuals joining from much larger groups, they have introduced a more systemic approach into their process to offset lack of analyst support.
At SGAM, Sergeant assessed companies using what he calls this QVT philosophy, examining the quality, value and timing of an investment.
Hanbury's approach at Investec involved more of a quants element, with the group's four-factor process comprising a weekly assessment of the entire investment universe using a scoring system.
Overall, the group is looking to establish three basic arms to its asset management business in the form of UK equities, global equities and so-called special products.
In addition to four initial funds, Barham is examining options to launch an equity income product from the UK desk and, if confirmed, will look to identify a suitable manager in due course.
He will also be looking to recruit a global team in the latter part of 2007 or 2008, or earlier if he can find the appropriate personnel before that.
On the special products side, there is no timescale for launches or boundaries on types of assets considered.
Barham suggested aggressive global macro strategies, private investment in public equity (PIPE) deals and European high-yield as possible areas of interest.