Mike Webb’s three step plan to turn around Rathbones

Mike Webb joined Rathbones Unit Trust Management when it was suffering a tough period but thanks to a three-step programme of stabilising the business and outflows and staff sharing in the success story, the firm’s fortunes have shifted.

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Mike Webb is approaching five years sat in the chief executive seat at Rathbones Unit Trust Management and during that tenure he has seen a large shift in fortunes for the group’s unit trust business.

Having suffered a tough period in 2008 and therefore a difficult subsequent 2009 as the effects of the financial crisis took hold, Webb says some four months into taking on his role Rathbone’s unit trust assets under management hit a low of £750m in June 2010.

Flash forward to 2014 and the group started the year with £1.8bn in AUM and by the end of September this had grown further to £2.3bn.

“When I joined I identified three things that we could do early to create an infrastructure that was capable of regaining momentum and growing,” says Webb who had previously held the role of head of business development at Hermes and was also ex CEO at Invesco Perpetual.

“The first thing we had to do was create stability in the business, critically among the front office fund managers,” he says. “While to be fair the managers have been incredibly loyal, the continuity of this management was critical to me.”

The second thing Webb says he had to do was to stabilise the outflows. He says a consequence of the business been to cut costs was that it had lost all of its sales and distribution prowess. 

“These needed to be rebuilt to show that we were serious about the business and that people had confidence we were here to stay,” he says.

“Thirdly we looked at how we could all share in the success story that we wanted to commit to.  This was all to do with renumeration and making sure we were aligned with the success of the business and more importantly aligned with the success of the clients who are invested with us.”

Since then further investments have been made into staff, in particular on the fund management side with teams being bolstered to support the primary fund managers. Webb says another focus was making sure all of its fund managers clearly articulated their investment processes and philosophies and then stuck to it.

He says: “We were not telling them how to run money. We just wanted to articulate it clearly and we check with them every six months to ensure they are continuing to run the risks they expect. This is because if they are not and they need to change it we need to communicate it clearly to the marketplace, or the manager needs to be made aware they are operating outside of their stated parameters.”

The result of all these changes, combined with the lessons learnt from the crisis of 2008, have turned Rathbones into a much stronger fund management proposition argues Webb.

For example he says that Carl Stick, manager of £950m Rathbone Income fund, is not the same manager today as he was back in 2008 when the fund hit the skids in terms of performance.

“Carl, who is an extremely humble person, and all our other fund managers realised that you never stop learning and if you can improve your investment process while staying true to your investment philosophy then that is what you should do.” 

Indeed Stick has seen a remarkable turnaround in fortunes since the tough times of the financial crisis, with the fund now ranked first quartile over one year and second quartile over three. This run of performance saw it placed back on Sanlam’s ‘White List’ of equity income funds in January, while assets are approaching £1bn again having hit a low of £417m at the end of September 2011.

James Thomson, manager of the Rathbones Global Opportunities fund, who Webb describes as “brutally honest” even took the step to apologising to investors in the £491m fund after a tough start to the year. However a strong second half of the year has seen it to recover back to second quartile and Webb says the most important thing was that Thomson did was not change his philosophy when times got tough.

“We do not ask our fund managers to focus on the short term,” he says. “We expect them to deliver over cycles, with their performance bonus’ measured on three-year rolling cycles. This is because the danger with focusing on short term numbers is that you take on additional risk to make up for the losses.”

The question then, with no emerging market or US franchises, is how does Webb plan to build on the success he is achieved in his first five years to keep this momentum he has created going?

“We are not trying to build a mega brand,” he says. “We are a specialist investment house, focused on doing what we do really well rather than trying to be an all things to all men group. We have our narrow range of directly invested funds and the multi asset business run by David Coombs that plays on the outsourcing theme.”

However Webb says if its range of directly invested fund hit capacity, they do need to consider other avenues for growth and with this in mind it has soft launched two funds in the past three years. In October 2011 it launched a Strategic Bond fund for fixed income director Bryn Jones, while in March last year it set up a global return mandate for Stick, called the Rathbone Heritage fund.

“In today’s market it is rare to be able to launch funds with £100m of assets, instead you need to incubate them well in advance and that is what we have done with these two funds,” says Webb. “It is thinking about as far as head as possible.”

Jones also manages the group’s Ethical Bond fund, which is first quartile over one and three years in the IMA Sterling Corporate Bond sector.

In terms of other growth Webb says it is seeing a lot of interest in Coombs’ multi asset range, which now houses £400m within its onshore and offshore funds.

“We deliberately set out not to create me-too products and we were early proponents of risk-targeted funds,” he says. “It is all about moving investor behaviour away from slavishly following quartile rankings to actually understanding what the funds do.”

Appropriate for investors both in the accumulation and decumulation phases, Webb says its Multi Asset Strategic Growth, Enhanced Growth and Total Return funds are its most suitable offerings to those investors not wanting to take up an annuity.

“There is a real danger post the pension reforms is that the asset management industry tries to create single solutions to solve the retirement issue,” he says. “Simply in isolation, one fund will not meet all these requirements.”

With these drivers in place where does Webb see Rathbones three-to-five years in the future?

“The aim would be to have double the AUM we have today, “ he says. “To achieve this I would want most of the growth to be organic but we would look at acquisition opportunities, but only in those areas we do not have any expertise but would like.”

Indeed Webb adds the group may look to launch one or two more incubated funds next year, in sectors they believe would appeal to investors for the next 10 years.

“The further goal is to be known for our broader set of expertise and our target funds really starting to motor,” he says. “It is important for Rathbones to be known as a major investment house.”

Given where the group has come from in the last five years and with pretty much zero turnover of its lead fund managers – a rarity in itself – Webb’s goal does not seem far-fetched.

The company Rathbones Unit Trust Management is a wholly-owned, London-based subsidiary of Rathbones Brothers. The parent company manages £26.3bn of client funds, of which £2.3bn is managed by Rathbones (as at  30 September 2014).

Independent views

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Darius McDermott, managing director, Chelsea Financial Services

We have Carl Stick’s Rathbone Income fund and James Thomson’s Global Opportunities on our core buy-list. Stick is a solid multi cap UK equity income and he learnt his lessons from the falls in 2008.  His fund has been on our buy-list for the last 10 years and I can’t really say more than that. As for Thomson, his Global Opportunities fund has not had a great year, but given his longer-term track record I don’t really care. Meanwhile while I don’t typically buy multi manager funds, we rate David Coombs’ Strategic Growth fund and FundCalibre research shows it has been generating decent alpha. Rathbones is a good business, with great returns on a number of their funds, my question is what is next for them given their lack of say US or emerging market funds.

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Mark Dampier, head of research, Hargreaves Lansdown

Rathbones is a good size group with a good size of funds. With Mike Webb you have a really good person at the top of the business. If he does not understand financial services, no one does. We hold Stick’s fund on our Wealth 150-Plus list of recommended funds and Thomson’s fund on the Wealth 150. Stick has been a round for a long time and he learnt from what happened in 2008and has improved no end, while Thomson is doing a good job on the global side. As for his apology for poor performance this year, it is nice to see managers eat some humble pie as it shows they are human. A bit of humility in this industry is a good thing.

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John Husselbee, head of multi asset, Liontrust

There are a very small number of people that could have turned around Rathbone’s unit trust business as there a handful who genuinely understand the retail industry. Mike Webb fits into this ilk as he not only understands how to sell funds but also how to market products. The growth of their multi asset business is the classic example. He quickly recognised an in-house product that may have been under-utilised and expanded it and promoted it. It was a case of all the pieces of the puzzle being there, it just took someone to put them in the right order.