Ashburton targets British investors

Trevor Falle, managing director of Ashburton, says the Jersey-domiciled group’s absolute return investment focus should help it build a strong position in the UK market. Simon Hildrey reports.

Advisers and investors are hardly short of asset management groups from which to select funds. There are already more than 2,000 open-ended funds in Britain. Jersey-based Ashburton, however, says its absolute return investment strategy will enable it to carve out a strong position in the advisory market.

Until now, Ashburton, which is owned by FirstRand and has just under £1bn in assets under management, has focused on distributing funds to non-domiciled resident individuals in Britain, as well as investors in the international market – there can be tax benefits for non-domiciled clients in holding assets outside Britain. However, Ashburton is now to market its funds to the broader investor and advisory market in Britain.

The group already has one umbrella fund range – Global – that is Financial Services Authority (FSA) recognised. This range comprises its Global Fixed Income Management, International Equity and Asset Management funds.

It has now collapsed another umbrella fund range – International Management – into the Global umbrella so another three funds can be FSA recognised. These are its Americas, Asia Pacific and European equity funds. These funds have unconstrained mandates, says Trevor Falle, managing director of Ashburton. He adds: “The funds are run with an absolute return mindset, although they are restrained by the fact they invest in one asset class in one geographical region.

“The funds are not constrained by benchmarks, although they recognise the fact that the industry measures funds against benchmarks. They can also use hedging techniques and cash to reduce volatility and minimise downside risk.”

The decision to expand Ashburton’s distribution into the more mainstream market follows the recruitment of Philip Childs in February 2006 to head its business development strategy in Britain. He was head of retail at F&C Management between 1987 and 2002, and before joining Ashburton was sales director at iimia. Falle says: “We had some distribution in the UK through advisers who had non-domiciled clients. But we should have actively targeted the UK market a lot sooner than we did – given our proximity and our absolute return investment approach – and not waited 20 years to do so.

“We have taken so long partly because we were a private company that was focused on other areas of the world, such as South Africa and offshore markets.”

Falle adds: “Philip was recruited because he knows how to sell funds in the UK. Initially, our focus was on expanding the non-domiciled market. But Philip found that everyone he spoke to was interested in the Ashburton investment approach, so we decided to devote resources to expand into the mainstream market.”

This is not the end of Ashburton’s activities, however. Falle says it will add another fund to the Global range in the next few weeks and is recruiting sales support for Childs. Given Ashburton’s expansion into new markets, Falle adds, it is also reviewing its fund range to see if it needs to launch new products in a new jurisdiction for marketing purposes. Whatever the result of this review, Ashburton will retain funds in Jersey, where all its funds are currently domiciled.

Breaking into the British market does not come without its challenges, of course. Falle admits the British investment market is already crowded but argues Ashburton has some advantages in securing distribution. These include its focus on absolute returns and risk management since 1982. “Ashburton was ahead of its time in launching private client portfolios in 1982 that sought to generate absolute returns,” he says.

“Portfolio techniques have evolved since then but the traditional portfolios continue to invest in cash, bonds and equities. The portfolios can invest up to 50% in equities and up to 80% in bonds. They can also allocate up to 100% of the portfolio to cash. The equity portion of the portfolio can be aggressive. For example, 80% of the equity allocation could be in Japanese equities.

“The portfolios also have a currency overlay because we believe management of currencies can add value for investors. A maximum of 50% can be invested outside the base currency.

“These portfolios proved popular with investors but some wanted a simpler administration system. Therefore, we launched a fund range in 1992 that had the same investment approach as our portfolios. This is called the Ashburton Replica Portfolio range but is not FSA-recognised.”

Childs says the biggest obstacle facing Ashburton is its profile, or lack of it, in the UK. “Advisers I have spoken to feel comfortable with the name Ashburton but usually say they do not know very much about us,” he says. “This is not sufficient for us to have a high profile. Within the next 12 months I hope that Ashburton becomes a prominent name in the adviser market.”

The initial strategy, Childs says, is to market to the discretionary market. This comprises discretionary asset managers, stockbrokers and multi-managers. Ashburton is also marketing to the top end of the adviser community by sponsoring the Institute of Financial Planners. “We feel that targeting the mass market is a bridge too far for us at this stage,” he says. “We believe our initial strategy will give us a good base to then expand into the broader market next year.”

Childs says there is always room for a niche asset manager that offers a different approach. “We have had a good reception so far on the basis that advisers like our absolute return approach,” he says. “There is no one definition of absolute returns but we aim not to lose money for investors at any one time. We can offer advisers and investors the fact that we have been running funds and portfolios on this basis for 20 years. Even though markets are doing well, there is a place for absolute return funds in portfolios, especially for risk-averse clients. When stockmarkets are doing well, it is often the time to become cautious.”

One potential obstacle is the fact that many advisers are cautious about using offshore funds. Childs says even if an asset manager is producing strong outperformance, it may be invisible to advisers because offshore funds do not appear in performance league tables. “The fact that the Investment Management Association (IMA) is to include offshore funds in its performance tables will help,” he says. “We are working on our profile but it will be a gradual process. It is a big challenge.”

Ashburton’s investment team is divided into two separate parts. There is a nine-strong stockpicking team. “They select stocks for our portfolios except where we do not have the expertise,” Falle says. “This includes exchange-traded funds for Eastern Europe and closed-ended funds for India, for example.”

The asset manager also has a five-strong, top-down team that focuses on tactical and strategic asset allocations and comprises Peter Lucas, Luke Gale, Nick Lee, Nicky Ludlam and Nick Wakefield. Falle says the two teams are integrated and continuously exchange ideas. For example, European stocks within the global mandates are the same as those within the European mandates, even though they are managed by different people.

Investment decisions, of course, do not always work out as planned. Falle admits that fund performance this year has been impacted by making allocation calls too early. “This has not been the best year for performance,” he says.

“But the team still believe in their investment decisions. If anything, they have been looking to increase their allocations to equities. There has been no weakening in their views.”

The main calls that Ashburton has made too early are investments in Swedish and Norwegian krona, Falle says. Another major asset allocation decision has been to invest in Japanese equities.

This is a theme picked up by Stuart Place, director of Guernsey-based Argyll Investment Services. He says the group has not invested in Ashburton funds for the past three years, but adds: “Ashburton could be one of the asset managers to watch next year.

“We like its investment approach and the fact it sticks to what it believes in. All its research is carried out internally. Unfortunately, some of Ashburton’s calls recently have not been perfectly timed. Sometimes it has been investing too early or exiting too soon. This is a good strategy but has impacted on performance recently.

“An example has been Peter Lucas’s currency calls. A man of his pedigree can only be wrong so often, however, which is why we expect Ashburton to revert to form next year.”

Woody Milroy, joint managing director of Guernsey-based Dawnay Day Milroy, first came to the Channel Islands because of Ashburton. “Some of our clients held Ashburton funds so we went to Jersey to meet Ashburton around 12 years ago,” he says. “This led to us establishing an operation in Guernsey. We like the investment approach adopted by Ashburton and it is a stable asset management company. It is now taking a more dynamic approach to managing its funds through the greater use of tactical asset allocation, which we like. Its performance has been respectable.”

Some of Milroy’s clients are still invested in Ashburton funds. “We have been using our own portfolios recently,” he says. “This is partly because our portfolios have slightly less volatility than Ashburton’s. But for some clients, the greater volatility offered by Ashburton is more appropriate.”

According to Standard & Poor’s, four of the funds in Ashburton’s Global fund range are in the fourth quartile over one year to December 4, 2006. The Sterling FI Management fund is in the second quartile, while the Dollar FI Management fund is in the third. Over three years to December 4, 2006, the Sterling FI Management fund is again in the second quartile. The other five funds in the range are in the third or fourth quartiles.

While its allocation calls have impacted on performance, Falle says, peer group performance is not a key driver for Ashburton. “Clients are not concerned about calendar-based performance,” he argues. “As we have a private client background, we place a lot of emphasis on explaining portfolio positions. Clients are comfortable with short-term underperformance if they understand our strategy and why we have taken our portfolio positions.

“If you look at client portfolios over the past 20 to 24 years, they have outperformed global equity indices over medium-term periods. Seeking absolute returns means that we tend to perform well in down markets when we preserve capital. This preservation then enhances returns when markets rise again. Thus, over the medium and long term, our performance is attractive to clients.”

The absolute return approach is emphasised by the fact that the Dollar FI Management fund is the only one in the Global range to have delivered a negative return over one or three years.

Falle says research is conducted in-house and Ashburton is not a fund of funds manager. Nevertheless, Ashburton has another non-FSA-recognised range: its Advanced Portfolio funds. These invest in multiple asset classes, including hedge funds, property and private equity, through three different risk profiles. The hedge funds, for example, are accessed through funds of funds.

In 2001, South Africa-based FirstRand completed its acquisition of Ashburton through an 87% stake in the business. Falle says the acquisition has not impacted on the management of Ashburton. “FirstRand has a policy of delegating management to each of its businesses,” he notes. “We have been able to run Ashburton as we have before but with more resources at our disposal.”

Ashburton’s focus on asset allocation and absolute returns will appeal to advisers and investors. But given the competitiveness of the British market, Ashburton will have to outperform consistently to attract strong inflows.

ASHBURTON FUND MANAGERS

was established in Jersey in 1982. It provides discretionary asset management for more than 6,000 clients based in 60 countries. It has about £1bn in assets under management and launched its first funds – the Ashburton Replica Portfolio range – in 1992. Ashburton is owned by South Africa-based FirstRand.