Neptune wades in with quality haul

Neptune’s sector-based research generates results, says Robin Geffen, the managing director – but it is also incentives and team effort that help the boutique flourish. Neal Underwood reports.

Boutique fund management groups in particular live or die by their performance. That is one thing Neptune Investment Management is getting right. Of its funds with a three-year track record, every one is top quartile in its peer group; indeed all but one are top decile.

Robin Geffen, the managing director of Neptune, says this is no coincidence. “We have a team-based approach that all our managers are part of. We do a lot of work for each other; so Rob Burnett is head of a three-man team running financials and is also a European fund manager.”

This approach, says Geffen, gives Neptune an advantage. “It comes through strongly in the results. We’re unusual as a boutique having a house process we all contribute to and are part of. That’s the reason we have good performance across the board.”

Neptune’s sector rather than region-based approach is something Geffen has used in the past, but says this is the first time he has done it completely his way. “We have a very experienced head of research, Chris Taylor, who’s a huge believer in sector research. The younger guys have all been brought up on it and can see it works.”

This approach appeals to Tim Cockerill, head of research at Rowan & Co Capital Management. “I like them; not just the performance because that speaks for itself. What makes them different is that unlike most small outfits they have a strong global research capability.

“They come up with their own views and they are not afraid to have their own opinion. This global view filters down into their funds to a greater or lesser extent. The collective intellect of all those guys and girls together seems to be more effective than trying to be clever on your own.”

Geffen stresses the importance of the people at Neptune. “A lot of effort goes into growing our own people. If they work hard they can get into running money a little quicker than at some houses.” Many of the firm’s investment management professionals joined early in their careers and Geffen describes them as bright, committed people. Having previous experience in the industry is not a pre-requisite, but they must be clear that fund management is what they want to do, he says. People that put the work in to understand it can really stand out. It’s very clear in a boutique who isn’t flying along – we all sit round one desk.” He highlights American research into long-term performance that shows that the key is a combination of the process and the quality and longevity of the people.

Neptune employees are heavily incentivised, receiving options from day one and building their equity stake as, in Geffen’s words, they contribute more and more. “It’s very much a partnership structure,” he says.

In time fund managers stand to make more from their equity than from their salary and bonus which, says Geffen, is a good way of locking them in. “They’re in it for the long term.” He also notes that Neptune has paid a dividend for the past two years.

Three of the firm’s funds were ranked top in their sector over three years to August 25, 2008, according to figures from Morningstar. The Global Alpha fund, managed by Geffen, returned 48.18% over that period, while the European Opportunities fund, run by Rob Burnett, delivered 64.77%, well ahead of the IMA Europe ex UK sector average of 27.43%. The third fund to top its sector is US Opportunities, managed by Felix Wintle, which rose by 31.15% over the three year period.

Cockerill highlights both Burnett and Wintle as managers he is particularly impressed with. “Both want to hold gold in their portfolios, so they want an exchange traded fund [ETF]. I think that’s good. At the end of the day it’s about making money. It’s a way of enhancing performance. You’re getting something that is creative at Neptune.”

Tony Lanning, the head of multi-manager at Gartmore, is a long-term holder of the Neptune Income fund, which is managed by Geffen. “We consider Robin to be an extremely capable manager with a good macro view,” he says. He has also taken the opportunity of the sharp fall in Russia to take a small position in the Neptune Russia & Greater Russia fund.

“They have an embarrassment of riches at the moment,” says Lanning. “It’s a very strong story – they’ve done a brilliant job; there’s not much more to say. There are always question marks over how a boutique structure copes with asset gathering, but it’s a house we’re very comfortable with.” While Geffen is still an important part of Neptune, Lanning says he has surrounded himself with some very capable people.

“Maybe a few years ago people were worried about fund managers staying a few years at Neptune then moving on, but now a lot of people are going to Neptune and staying. We’re completely comfortable with the structure Robin has put in place.”

Neptune wants to be seen as equity specialists across the board, says Geffen. “It would be invidious of us to say, for example, that we are European specialists. We have pretty much all geographic regions covered – there’s a pretty decent range there. The global equity fund is now our largest fund, which helps us build a reputation.”

The only area where it does not and will never have any products is in smaller companies, which Geffen says is labour intensive and cyclical. “In the UK, for example, we focus on the top 400 stocks. It is a scalable and repeatable process. We do not have to cover the entire world of stocks.”

Geffen is the lead manager on several of Neptune’s funds, including three global funds: Income, Russia & Greater Russia, and China. Despite combining this with his role as managing director, he insists he is not spread too thinly.

While he is responsible for overall asset allocation, he does not do any sector work. Describing himself as a stockpicker, he points out that he has three assistant fund managers on the Income fund and two on the China fund, to whom he is planning to hand over responsibilities entirely at some point.

Earlier this year Neptune also hired Richard Green, a former UK managing director of Barclays Private Bank, to take on several roles including product development. “What’s important now is that a lot of pieces written on Neptune quote people such as Jeremy Smith on the UK or Rob Burnett on Europe. People understand Neptune is a team.”

In terms of clients, the company is still focused at the top end of the retail market; on discretionary advisers. It is, though, increasingly doing business in the institutional market. “It’s blurred in terms of private banks, funds of funds, actuaries and the consultants,” says Geffen.

“Around a quarter of our business comes from classic institutional investors. They’ve been looking at us for a while and our track record is long enough. But the core of our business remains the retail market.”

Geffen says there will be further product launches, but he is always slightly cautious of getting caught up in the latest trend. “We’re not in a rush to put something in, for example, the Middle East & North Africa [Mena] region. Not when they’re too fashionable. I’m very mindful of tech funds that launched at the top of the market. We tend to have very quiet launches and very much take a three-year view. There are things we’ll add.

“We’re not about to go out and hire anyone from outside and fill in a gap, but we’re getting some youngsters coming through. We will in time add more funds as appropriate members of the team get to a point where they’re ready to run one.”

Neptune has made acquisitions in the past, one of which, North Investment Partners, was spun out of the firm in October 2007 following a John Husselbee-led management buyout. Geffen describes this as a natural progression. “The timing was good. People were saying that North was wholly owned by Neptune, and a lot of their business was coming from bundling two or three IFA banks of businesses. It was the right way of going forward.

“We still support them in, for example, back office, but it is much clearer to their clients. They have a different growth trajectory from the main Neptune business. I am a big believer in clear structures.”

The long-term focus for Neptune will be on growing organically despite what have been difficult market conditions. “We get offered things from time to time but we’re not tempted and we’re not looking,” says Geffen.

“The sales and marketing side has been strong for us. The guys on the investment team see that if they perform well we have a good brand. We have pretty much doubled every year since we have been going, and hopefully we’ll reach £2 billion in sales this year. All of our objectives looking forward this year and next can be achieved through organic growth.”

Cockerill says the key test for the firm will come in the next two or three years as it grows assets. “They need to get that right. I can see the need for changes. But being smaller, more flexible, more dynamic and less established, it is looking good for them. They are hungry in a good way, very much where Artemis were some years ago.”

Geffen is keen to retain the boutique culture that has served the firm well to date. “It is not a numbers game. I do not see us having investment people all over the world. We have distribution into the US now and we’ve got a range of Sicavs in Europe, which are being bedded in, so distribution is going on overseas but there are no plans to move investment people. We are pleased with the progress we’ve made. We haven’t got any dogs. We are focused on standing in the trenches and keeping things going.”

NEPTUNE Investment Management was founded in 2002. The firm is based in London and three-quarters of the company is owned by its employees and directors. It has £3.2 billion in assets under management.

The best and worst funds

The best and worst funds for each group profiled in the Focus are shown on a relative rather than absolute basis. Until recently, the best and worst funds were defined in absolute terms. But the percentile ranking of a group’s funds are now shown relative to their respective sectors.