RWC draws on wealth of experience

The boutique that is now RWC Partners has an absolute belief that talented individuals are the drivers of investment returns and is untiring in its search for the best, writes Neal Underwood

RWC PARTNERS was founded in 2000 as MPC Investors. Since 2006 the firm has grown significantly, with the appointment of Peter Harrison as chief executive and of Miles Geldard and Ajay Gambhir, who head two of its investment teams. RWC has assets under management of $2.5 billion (GBP 1.6 billion)

RWC Partners was founded in 2000 as MPC Investors and for the first few years of its life was predominantly a hedge fund house. Things changed in 2006 with the appointment of Peter Harrison as chief executive and in May the name change to RWC took place.

Dan Mannix, the head of business development at RWC, says Harrison’s appointment was partly to take the business to the next level. “We had previously been successful as an absolute return manager,” he says. “The focus was to bring in quality teams and expand the management team.”

One of the firm’s biggest coups was hiring Ajay Gambhir as a European equities manager from JP Morgan Asset Management (JPMAM). Harrison had headed the global equity team at JPMAM, during which time assets grew from $500m (£308m) to $30 billion, before becoming global chief investment officer at Deutsche Bank.

“When I joined I thought: we can either have another ‘me too’ boutique or we can sacrifice profitability to have something very successful,” says Harrison. “For example, we have two people full-time running a very complex risk system.”

The firm also introduced a state-of-the-art dealing system. “We’ve got a fully owned Sicav with fully hedged share classes in four currencies. For us that was a must. Then you can go out and say to Ajay, ‘Why don’t you come here, and by the way you’ve got complete investment latitude and equity partnership’. It’s an easy sell.”

Having worked for large organisations, Harrison and Mannix wanted the freedom and flexibility that a boutique-type firm can offer. “Both Dan and I realised there are a huge amount of compromises in large organisations; corners being cut,” says Harrison.

“We wanted to shorten the lines of decision-making. The business is all about people who’ve been at the top end of big businesses and said ‘there’s a better way of doing it’. This creates a hell of a culture. It’s a genuine obsessiveness. That’s why we’re all here.”

Equity participation is also important as a way of binding everyone together, he says. “Our operations guys, our marketing assistants, are all shareholders.”

The firm has an informal approach to investment idea generation. “The role of CIO [chief investment officer] is nonsense these days,” says Harrison, “but you do get very experienced people standing at the coffee machine exchanging views. It’s an investment culture. Having a chief executive as an investor and a head of sales obsessed by investment markets, it doesn’t cross our minds to try and formalise it.”

Harrison also warns against an over-reliance on corporate themes, saying those that become dogma can be dangerous. He argues strongly in favour of total autonomy for fund managers.

He says: “If you cut the umbilical cord between fund managers’ decision process and their responsibility for their portfolio, that’s a massive impediment to getting it right. In many houses the fund manager doesn’t really own the portfolio. There’s a direct link.”

RWC has an absolute belief that talented individuals are the drivers of investment returns. “For every 100 fund managers, one is talented,” says Harrison. “We probably see three managers a week. In three years we have hired three teams, and two of them were already known to me.”

“To us, talent is experience,” says Mannix. “It’s amazing that Ajay Gambhir is our least experienced fund manager with around 20 years’ experience. Miles Geldard, who runs our convertible bond and absolute return multi-asset funds, has 25 years. And Carmel Peters, who will run our Asian fund, has 30-plus years. You really notice it in this market environment – they have seen multiple market cycles.”

Harrison says that while many fund managers just talk about what has happened from a British perspective, both Geldard and Peters were in Asia during the Asian crisis. Geldard has also worked in Africa and seen some interesting events, while Peters was in Tokyo during the protracted bear market. “These are different kinds of experience,” he says.

Mark Dampier, the head of research at Hargreaves Lansdown, is a fan of Geldard although he does not hold any RWC funds. “He used to run a cash-plus fund over at JP Morgan, and I rated him quite highly. I have a lot of respect for him. When he left JP Morgan I told him to launch a fund quickly. This is testing ground for [RWC] now, which is good.”

Dampier also says hiring Gambhir was a big positive. “Undoubtedly Ajay’s hire was a coup. I was really fed up when he left JP Morgan. It reinforces my view about large companies and fund managers and how they support them. It makes me less inclined to support larger groups and more likely to use smaller groups. Now Gambhir’s there he’s not likely to leave.”

RWC decided to launch Luxembourg Sicavs rather than domicile its funds in Britain or elsewhere because it believes there has been a strong move towards this as a fund structure. “We thought that to back Oeics was to go back the past,” says Harrison.

“There’s increasingly an indifference from clients over where the domicile is,” says Mannix. “The big platforms are now taking on Sicavs. Because we’re only dealing with top-end intermediaries and professional investors it’s not an issue.”

Mannix accepts that the wider IFA community still does have a bias towards onshore funds, but RWC has felt no need to have, for example, onshore mirrors of its funds. “There’s little question that running multiple platforms makes things expensive and complicated,” says Mannix.

The Sicav structure also makes it easier to achieve cross-border distribution – an important consideration given that at least half of RWC’s fund sales come from continental Europe.

One area where Harrison feels companies such as RWC can play an important role is in the gap between highly correlated low alpha products and low-correlated high alpha products. “It’s about people who understand the client issues. It’s that which we think is opening up massively.”

RWC offers two funds in its Sicav range: RWC Global Convertibles, which invests primarily in convertible securities, and RWC Strategic Reserve, which aims to return 3% above the London inter-bank offered rate (Libor), with low volatility, from a global multi-asset portfolio.

Global Convertibles has fallen 7.71% since its launch in December 2006 to the end of September 2008, while Strategic Reserve is up 4.64% over the same period.

“What clients are looking for is delivering what you say you are going to deliver,” says Mannix. With both funds, he adds, this means deciding when to have risk on the table.

“It was a lot harder to do at first when we launched the funds,” says Harrison. “The reality was we needed a year or two years’ track record. Now we’re proving that their previous track record was down to the fund manager. The only way you get the message across is to put the numbers on the board.”

Mannix says the Global Convertibles fund is attracting a lot of interest in the current environment. “The fund has limited downside and lots of upside, so it’s a very logical product to have in a portfolio. In bear markets, people’s appreciation of downside protection increases. Investors who are in the fund are very happy.”

“We’ve now got four teams, all of whom I have personally given my money and in whom I have a great deal of confidence,” says Harrison.”

Another area where he says RWC adds value is its managers’ expertise in hedge funds. “There are skills in the hedge fund world which can be brought to bear in the regulated world. The reason why Miles and Carmel are very good at this is they’ve done both [long only and hedge]. They know when to take risk.

“History tells you there are times to take risk and times not to take risk. The last five or six months have been time not to take risk, but now is the time to start taking risk.

“We’re bringing material skills into the authorised world; the ability to turn the dial when it matters.”

“This has been crystallised for us in the last few months,” says Mannix. This week RWC launches the RWC Asia Ascent fund, managed by Peters and Kirsty McLaren, who joined from Sofaer Capital, where they ran an Asian hedge fund.

Mannix describes the fund as a sophisticated Ucits III vehicle. He says: “Carmel is someone who’s got experience of using cash and index futures shorts, which can be phenomenally powerful. A classic case of not being index constrained is coming through in China, which has come from a focus on exporters to a strategy of bolstering the domestic consumption side. There’s a strong feeling from Carmel and Kirsty that the programme will be significantly accelerated. The performance of stocks that drive the indices will change.”

Mannix says the fund may start with market exposure as low as 20 to 25%. “We would expect the fund to be top of the second quartile in protracted bull markets, but in bear markets to reduce volatility and protect the downside. There are only two or three managers in that area with multi-decade top quartile performance.”

Despite its long/short approach, the remit of the fund, says Mannix, is not absolute return. “The concepts of Ucits III, 130/30 and absolute return have become confused.

“We felt there was a misunderstanding of, for example, 130/30 funds. They’re arguably significantly more risky than a normal long-only fund. Asia Ascent is much more akin to a long/short hedge fund, with the ability to reduce exposure.”

“Absolute return for us is nothing to do with the index – it’s about beating cash,” says Harrison. “This is an index fund but will differ significantly. People who buy them are going to want to participate in equities, but want somebody to worry about protecting returns.”

In terms of future developments, Harrison says he will continue talking to fund managers over sometimes lengthy periods with a view to potential hirings. “If we can find more elephant-sized portfolio managers we will carry on tucking them into our line-up,” he says. “It’s the long old grind of talking to people. We don’t write people a cheque. Ajay wrote us a cheque to join us. It’s really about finding other things to plug in.

“We will be deeper in each country and will be broader in our product range. We’ve not launched a retail product for Ajay or a hedge fund for Carmel.

“These are all things we could do. We believe we should be better at hiring and better at managing, and, since we started with a clean sheet of paper, should be able to add a lot of value in terms of keeping things clean and pure.”

Mannix adds: “One thing that will remain constant is being an investment manager and not a distributor. There’s a massive market in Europe for funds that have weathered the storm well. We have had some conversations on white-labelling. The Strategic Reserve fund is particularly well suited to a white-label type product, where a life company’s sales force could distribute it.”

“If you were to highlight an issue, it’s that we are UK-based and a long way from European markets,” says Harrison.

“Dan’s team spend a huge amount of time on the road. That’s why white-labelling makes sense. Dan’s role is a strategic role as much as banging on doors. Two of the top four UK banks say they want more boutique products on their shelves. That’s definitely on the agenda.”