Dan Jones talks to RWC's CEO Dan Mannix about how the group is adapting to the post-RDR shake-up of retail financial services.
The answer, he suggested, is both to shy away from ‘me-too’ investment strategies and to diversify client bases.
RWC’s own client channels increasingly encompass UK and US institutions, global private banks and European buyers as well as UK wholesale. This diversification may have been easier to achieve for a boutique which was never predominately focused on the UK retail market.
Nonetheless, the firm has made strides in this area, too. Mannix said RWC has seen “huge support” from the big independents in UK retail, as well as smaller private wealth managers.
He puts this down to another way RWC seeks to distinguish itself from other groups and ease the pressure on its fund managers: a refusal to be constrained by benchmarks.
“There has been a big change in the mindset of private client managers, away from index investing and the idea fund managers simply had to beat the index. It is now about what you are delivering for those clients.”
“We have had huge support because our fund managers run money in a way that is appropriate to what people need. No investment we make is done so because it is a constituent of an index.”
Income strategies
A case in point is the group’s Enhanced Income strategy, run by the highly-rated Nick Purves and Ian Lance.
The fund has returned 12% over the past year, according to FE, and has seen healthy inflows despite the average return for a UK equity income strategy being closer to 25% over that time.
“Enhanced Income does something quite simple, but meets a specific need. What is important is to make sure the fund has a stable and growing income distribution.”
“The managers still believe it is challenging to buy equities at the right price at the moment. But clients are much more focused on income than performance versus the FTSE.
“The fund is run with a low risk, as defined by its volatility profile, and one of the trends we are going to see is the use of equity income strategies to access lower volatility exposure to equities. There is a place for funds which are taking a lower level of market risk.”
Enhanced Income sits in the IMA Specialist sector, rather than UK Equity Income, and Mannix is sceptical of the benefits of sector-based investing in future.
“If your USP is where you sit in a particular IMA sector, you are going to have a very challenging few years, because you are increasingly competing with guys who are taking a lot of performance risk,” he said.
Another area where the group has eschewed high risk, high return structures is in the convertibles space: Mannix said this is an example of RWC seeking assets with “a more conservative payoff profile”.
The group’s Global Convertibles fund, run by Davide Basile, saw flows of over £400m last year, and the strategy as a whole now has around $2bn in assets.
Basile, head of convertible bonds, joined RWC from Morgan Stanley in January 2010, and exemplifies the boutique’s policy of bringing in experienced teams to complement existing offerings.
That philosophy may become more attractive as the cost of doing business increases.
Headwinds for small firms
Another headwind facing smaller operations is the burden of fixed costs and regulatory demands associated with setting up and maintaining a business: one reason, perhaps, why even Neil Woodford has sought the help of an established firm (Oakley Capital) as he prepares to branch out on his own.
Mannix agrees the bar for maintaining an independent business has been significantly raised.
“It is certain the cost of being in business has gone up. Additionally, it is much more challenging for smaller businesses to gain critical mass. We have seven teams here, all headed by partners in the business, and they all recognise the benefits.
“We do not want a mismatch of aspirations, fund managers who want their name above the door. What we provide is investment autonomy and clear, uncomplicated lines of communication.”
Looking ahead, Mannix recognises the industry faces a wide variety of challenges. Along with many others, he expects a significant focus on cost control across all parts of the investment chain.
Mannix is insistent a balance must be struck, in order to avoid a “self-defeating race to the bottom” that focuses on asset gathering at the expense of delivering outperformance.
He acknowledges, however, that upheaval in financial services has only just begun.
“I joined RWC in 2006. The challenges over the next seven years are going to be just as transformational as those seen over the past seven.
“We cannot predict the unintended consequences of regulatory changes, but businesses need long-term shareholders, and have to have the flexibility not to be driven by external factors.”
CV: Dan Mannix
March 2013
Became chief executive of RWC
October 2006
Joined RWC as head of business development
2000-2001
Joined J.P. Morgan Asset Management, becoming vice president and head of UK wholesale
Pre-2000
Began career at Singer and Friedlander Investment Funds
