Lean model’s dogged pursuit of best in breed

Spike Hughes, the chief executive officer of Insynergy Investment Management, talks to Neal Underwood.

Q. What is the overriding philosophy of Insynergy?

A. As a starting point, to identify the needs of the investor, then to find proven solutions off-market, or previously out of reach, then provide exclusive access via an Insynergy fund through an outsourced model.

Q. What makes you unique as an asset management firm?

A. It’s difficult to say anything is unique, but there are two things we do differently. The first is the outsourcing model. We work out what people want and provide access to best in class. Second, most groups don’t give people what they want; most are benchmarked to peer group and index. We’re more absolute return focused. With outsourcing we genuinely can access the best wherever in the world that is. We can access managers based in the Far East and India.

Q. How beneficial is the involvement of Dragons’ Den’s James Caan as chairman?

A. James is an out-and-out entrepreneur. He is a professional investor in a range of companies. There are problems and challenges with any business, and his experience and advice and strategic contribution I find very helpful. He has also become a celebrity business figure. That helps me when dealing with big organisations to be taken seriously. It is instantly a comfort factor for them.

Q. What are the advantages of outsourcing investment management?

A. As mentioned above, it means we can genuinely access best of breed managers. From a business perspective it means we can have a leaner model; not having to employ investment teams in-house reduces our cost base and stops us compromising results. There’s also the geography issue. We should be able to build a better business. It is quite unusual, even for big, established groups, to have more than three funds which are successful at any one time. Crispin Odey is as good as the best, then we have GAM in China and Reliance in India. We can build a range of funds which are never going to be compromised on quality. (article continues below)

Q. How did you reach the decision on what vehicles to launch and how did you identify which managers were best to run them?

A. For the first fund with Crispin, I just saw a huge disconnect with people wanting to grow and preserve their wealth. Fund groups are obsessed with satisfying an investment committee, not focusing on the client. Crispin has always managed money as if it is his own; he behaves and operates differently. Clients weren’t buying the relative argument. Crispin played perfectly into the hands of how I’ve always believed money should be run. If you’re looking to repair your losses from the last two years or asking where you can make money over the next five to 10 years, there are very few managers in the UK who can do that.

”Crispin has always managed money as if it is his own; he behaves and operates differently”

The GDP growth forecast for the UK is 1.2%. It’s nine to 10% in places like China and India. These are the places that can deliver the best returns. That’s why I wanted to access these markets. We found the managers through a combination of desk-based research and industry contacts. It became apparent quite quickly that Reliance is the biggest fund management business in India, and the longest running, and has significantly outperformed everyone else. They have a huge team of analysts, better research capabilities and they have huge ground leverage – every industry you can think of they control and dominate. I spent a lot of time with them; these guys are similar quality to Crispin Odey.

In China, we didn’t like the concept of a UK-based manager. You have 33 provinces with different economies and languages. We have a manager who speaks Chinese and understands the culture, but has a Western education. He understands the Chinese jungle. GAM is one of the most respected hedge fund companies and we have a manager with 20 years’ experience.

Q. Is a long/short approach advantageous in markets like China and India?

A. We wanted a long/short strategy. You don’t want to overplay the shorting because these are growth stories but you can do some opportunistic shorting and hedge out some risk. It is about having more tools to play with in inefficient markets. Both are ripe for good stockpickers.

Q. Is relative return no longer a viable approach?

A. It’s a difficult one. Over a five-year period where the market just went up if you tracked it you’d be happy. But if you set out with the objective of just tracking the market you’re not delivering what the client wants. You want to preserve capital when things are going wrong and make money in the good times. Compared to absolute return it’s a flawed approach. It’s particularly relevant in the market we’re in. There’s also a difference between absolute return making as much money as you can and a more market neutral approach. We’re not trying to be in positive territory every month or year, but it is possible to get significantly higher compound annual returns over a five-year period.

Q. What funds might you add to the stable in the future?

A. We’re at a fairly early stage. All our emphasis has been on building these new funds. We may do something in another asset class in the equity space but also in the non-equity space, which will give more diversification opportunities. We definitely want to launch two more funds by the end of 2010 and two or three next year as well.

Q. What are your ambitions?

A. The ambitions are to build a strong brand. We’re on a journey – we would like to be recognised for the things I’ve talked about. We want people to think of us in that role.

It’s also about building scale; to have half a dozen funds with sizeable assets. We would like to distribute our products overseas, not because we don’t believe in the UK, but one of my frustrations in the UK is around asset allocation looking at peer group and consensus. It’s limited. You look at the past 50 years, when you should be looking at today and the next 10 years. If you only look at the last 50 years, you’re not going to allocate to China or India.