Cementing its place in the market

“You can have the best fund in the world, but no-one will buy it if they haven’t heard of you.” So says Jonathan Fry, managing director of Premier Asset Management, adding that while investors may not necessarily have heard of his Guildford-based fund group, they will certainly be comfortable with the name. Indeed, listed in the UK Yellow Pages no fewer than 60 firms use the Premier name, in areas as diverse as plumbing and hairdressing.

Premier manages a range of funds and funds of funds, as well as third-party Oeics, investment trusts and structured products. Of the eight open-ended funds with a three-year record, six are in the first or second quartile of their respective sectors, while over 12 months four out of nine funds are in the top half.

“Premier has five operating divisions,” says Fry. “First is ‘managed investment services’, which offers private client portfolio
management using funds and equities, and also fund of funds-type services. Second is structured products, then third-party solutions [such as the Resolution funds set up with UBS Laing &
Cruickshank], specialist funds – such as our High Income Bond and European Growth funds – and finally investment trusts.”

The company focuses on intermediary distribution and Fry says that last year it did business with more than 750 firms. “Our view of the intermediary market is that it is like a wedding cake,” he says. “On the top tier are 100-150 firms that include the private banks and discretionary portfolio managers. We can sell our specialist funds to this tier.

“The second tier contains around 2,500 firms, made up of the more sophisticated owner-manager intermediaries. This is the hardcore IFA market and at least half of these firms will always be independent as long as the regulatory framework allows it. The third tier contains 6,000 or so firms made up of network members and former bancassurance advisers who are now back in the independent arena.

“Our specialist funds and third-party solutions are mainly sold to tiers one and two; structured products and managed investment services go primarily into tiers two and three.” The firm is well known for its fund of funds team, which Fry says is the
longest-serving and most consistent in the business, having been run by David Hambidge since 1987. “I think we are unique in not buying our own funds. We think funds of funds should be independent,” adds Fry.

“We manage in an institutional style – if we decide to have 2% of a fund in the US, we will hold at least a couple of funds. We have always used rigorous quantitative and qualitative screening. We look at volatility and performance, and then speak to the managers we hold and those on our watchlist. We want to hold a mixture of styles – large-cap, small-cap, value and growth.”

Neither Chelsea Financial Services managing director Darius McDermott nor Gartmore multi-manager fund manager Marcus Brookes holds any Premier funds at present. McDermott says: “They are not on Cofunds, which is a big disadvantage to us.” But he does single out some of the funds for praise: “The European fund is quite reasonable over both one and three years.

“I’ve met David Hambidge and Raj Hallen on the fund of funds side.

They are good fund managers, but we are not big users of funds of funds. The Selector Growth and Income funds are fairly consistent and have pretty good performance, and the Enterprise fund looks good too.

“Over three years, the UK Equity Income sector average has put on 13% and the Selector Income fund has put on 16%, which is pretty strong considering it probably has some corporate bond exposure as well.”

Brookes agrees: “The fund of funds team I rate very highly. Hambidge and Hallen are good guys. They do a lot of work and a lot of
research, and in terms of the top-down approach they take, they have done very well.”

Premier has historically taken an outsourced approach to running its specialist funds, but in the past few years it has brought more of the funds in-house.

Brookes says: “It seems to have slightly changed its strategy in terms of insourcing its funds. The European fund used to be managed by Catherine Guinefort at BNP Paribas and the numbers were very good.

Hiring James Buckley from Solus to manage it in-house seems a change of tack.”

The best and worst-performing funds in the Premier range over three years are both now run in-house. Best in absolute terms is the UK Smaller Companies fund, with a three-year gain of 41.57% against a sector average rise of 31.08%. This fund was launched by Premier for Unicorn’s Peter Webb, who gave it up in 2002 to concentrate on his own funds. It spent a year under the management of David Horner at Chelverton Asset Management before passing in October last year to former Edinburgh Fund Managers small-cap specialist Alastair Currie.

Fry says: “The three-year record has about one year each from Webb, Currie and interim manager Horner. Alastair was twice voted smaller companies manager of the year in the 1990s, but then he fell in love with technology. We have limited the amount he can put in emerging growth companies to 20%. Alastair has fantastic contacts and is able to be quite nimble with his portfolio.”

Brookes is optimistic about Currie’s prospects at Premier. “He had a fantastic time in the late 1990s, although he did less well when the market turned. He is a vastly experienced small-cap investor who has made a lot of money for his investors. We will definitely keep an eye on him – in the past his funds have been like rocket fuel.”

However, over one year the fund has fallen into the third quartile of the UK Smaller Companies sector, and McDermott is so far unconvinced by Currie: “The UK Smaller Companies fund is an average fund at best.

Apart from James Buckley, one would question the quality of the internal fund managers.”

The worst performer in absolute terms over three years is the Global 100 fund, down 22.74% against an average fall in the Global Growth sector of 3.06%.

However, Fry says Premier hopes to turn this performance round with a change of mandate and manager: “We are converting our Global 100 fund into a UK Opportunities fund. When we launched Global 100 as a global quasi-tracker investing in the world’s 100 largest companies, there were no exchange-traded funds. Now you’d be better off with an ETF.

So instead we are offering a UK fund run by Kenneth Warnock,
previously of Jupiter and Legg Mason. Kenneth has been on board for about a month, but we got shareholder approval for the conversion of the fund only last week.”

Warnock enjoyed success with Johnson Fry (now part of Legg Mason) in the 1990s, but was less convincing when he moved to Jupiter to take over the UK Special Situations fund from New Star-bound Alan Miller.

McDermott says: “I don’t like firms changing global mandates to UK mandates, but I could make an exception. With performance that poor, I’m not surprised they’ve changed it.

“Warnock had good figures at Legg Mason during the growthy times and then underperformed at Jupiter during the difficult period. For me there are two issues on this fund – first, should they change the mandate, which is fair enough if that’s what the investors want, and second, can Warnock turn it round?”
Brookes is more supportive: “Warnock was a great success at Legg Mason and I’m not sure why Jupiter did not work out for him. He is well thought-of and a talented manager. UK Opportunities is what Warnock is good at, so to create such a fund for him is a very smart move.”

Another consistent underperformer, the Premier Dividend fund, is also under scrutiny. Fry says: “The Dividend fund manager was Martin Rash, who was responsible for the Perpetual Income fund before Neil Woodford. Martin retired earlier this year and his deputy took over.

The fund – which is managed externally – has not done well and we are in discussions about what is going to happen, although we are not taking any immediate action.”

Fry sees Currie, Buckley and Warnock as central to the growth in Premier’s specialist funds business: “All three of these managers work for us, invest their own money in their funds and get paid a percentage of the fund – so they have a real interest in growing their funds. All of them have worked in much bigger operations and run hundreds of millions of pounds, but have been happy to come down to Guildford and work somewhere much smaller. Corporately, if only one of these funds works out, it’s still good for us.”

In a market where fund sales have fallen 90% between 2000 and 2003, from 19bn to 1.5bn (according to IMA figures), a smaller fund manager such as Premier faces a number of choices when growing its business. One avenue is growth by acquisition, and Fry admits this is on the agenda: “We are very interested in talking to
acquisitions of between 20m and 500m under management. We would be delighted to bring new teams to Guildford if they want to come.”

A major acquisition would certainly increase Premier’s profile, which Brookes feels is slightly lacking: “I’m not sure the market is fully up to speed with what Premier does, but in the areas that it has publicised, people are getting a better feel for what the company is up to.”

Fry agrees: “One of the downsides to having five business areas is that we are different things to different people, and it is difficult sometimes to get the message across.”

But Brookes says recent developments have helped Premier to cement its place in the market: “Premier seems to be expanding. It is taking on more salespeople and trying to expand the business, and I think it is on the right track.”

Fry concludes: “There are interesting opportunities, and we look at them in a different way from some of our competitors. One of the challenges of a small business is getting in through the door – but once we are there, we tend to do business. We are getting there. You just have to do your time in the market.”

Premier Asset Manage-ment was founded in 1987 and has two regulated subsidiaries, Premier Fund Managers and Premier Portfolio Managers.

It has 42 staff, mostly based in Guildford, Surrey, who manage 550m of assets for a range of clients. Its funds of funds, launched in 1995, have assets under management of about 150m, while assets in its specialist fund range amount to a further 100m. Premier also offers investment trusts, structured products and portfolio management services.