Profile: Neptune emerges from period of turmoil

Geffen Robin Neptune 2014

Neptune’s chief executive and founder Robin Geffen says it is “onwards and upwards” as the firm enters its next phase following a period of underperformance and consolidation.

The group had a tough time in 2012 and 2013. Pre-tax profit dropped 39 per cent in 2012 and 42 per cent in 2013, while assets under management fell from £6.3bn to £5.8bn in 2012 and then to £5.4bn in 2013. In response, Geffen announced a company-wide review of the business at the end of 2014.

Geffen attributes the group’s troubles in 2012 and 2013 partly to loose monetary policy and the resulting distortion in the markets, quoting the economist John Kay who said: “anyone who outperformed in 2012-2013 is not to be trusted as an asset manager.”

Geffen says: “We recognise there was a period of underperformance. This was partly because it was a period that did not flatter real world investors, but nonetheless we learnt important lessons and have made a number of moves to enhance our long-standing investment process, whilst staying true to our underlying philosophy.”

CIO James Dowey adds there is too much focus on short-term returns, which is not what the firm is about.

“There is a lot of emphasis on short-term performance. You can be lucky over three, six or 12 months, but not for 10 years. We are trying to emphasise the benefit of investing for the long term. I hate it when people say they will buy one of our funds for the next year,” he says.

“The crux is there is a relationship between the real world and the stock markets,” says head of distribution Charlie Parker. “Some claim it doesn’t exist, but it does. There are periods of time when the relationship breaks down.”

As part of the review, 40 per cent of Neptune’s funds were closed, although Geffen says this represented “a small percentage of assets”, although he wouldn’t give exact figures. The group now has a 24-strong range of Oeics.

“The consolidation has finished and we now have real confidence in everything we do. Previously it was rational to build the business, but now it is a narrower business,” Geffen says.

Another product of the review was a series of hires, with the group appointing analysts to assist the fund managers on several of the portfolios so that they rely less on stockbrokers.

Dowey says the industry is seeing a transition in fund management from reliance on stockbrokers to harnessing hands-on experience from people with a background in the relevant sector.

“Sector-level experience is going to be essential,” he says. “It won’t be possible to do fund management without that structure.”

“We are trying to emphasise the benefit of investing for the long term. I hate it when people say they will buy one of our funds for the next year.”

There are now 30 people in the investment team and there are plans to continue the recruitment drive with three new hires next year.

“The majority of people come through the ranks,” Geffen says. “As we have developed our investment process we have given ourselves a structure that leads people all the way through. How well they do [as an analyst] may lead to fund management.”

Following the review, the group has started winning back investors, with flows picking up this year.

“2012 and 2013 were challenging with significant outflows, but we have seen a gradual turnaround,” Parker says.

In the first quarter of this year the group saw modest net outflows, Parker says, although he wouldn’t give exact figures. However, advisory and discretionary inflows were masked by institutional outflows, he says, driven by fully-funded pension plans being pressured into reducing the investment risk in their portfolios to cut costs, he says.

“It looks like we had modest outflows Q1 overall but we did have inflows from the advisory and discretionary part of the business. We don’t have the headwind from the institutional business going forward,” Parker says.

In the second and third quarters of this year it seems the tables turned, with Neptune seeing flows of £60-70m, which Geffen says sets them apart from other fund groups.

Two of the funds attracting the largest flows this year are Chris Taylor’s Neptune Japan Opportunities and Mark Martin’s Neptune UK Mid Cap, which are £624m and £736m respectively.

“It was very unusual to see positive inflows in the second and third quarters of this year – I haven’t heard of anyone else who has,” Geffen says. “They were rough quarters. People were heading out of things, period. A lot of money was taken out of the market.”

“Asset managers generally hide what they are up to and we didn’t want to be like that. We have been an open book over the past year,” Parker says. “We are now moving out of the strategic review. We want to get the ideas that are driving our portfolios out there. I think people find they get the best commentary in the industry.”

Neptune now has assets under management of £4.5bn, although Geffen says the figure would have been closer to £5.5bn “if the market was where it was at the beginning of the year”.

“The markets are down 15 per cent in a lot of cases,” he says. “We are very mindful of targets for assets under management as they are subject to the vagaries of the market. But we think the market will normalise over next few months and if we can control costs and grow the business our AUM will be close to £5.5bn, and we would like to double that over a two- to three-year timeframe. But we won’t sacrifice our independence or performance for it.”

Occupying the middle ground between boutique firms and the asset management giants is an advantage, Parker says, with the added benefit of being privately owned.

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“There is a big crop of asset managers with less than £1bn finding it remarkably hard. One thing I have heard from several fund managers is that there are not many nice places to work. The big asset managers are trying to de-risk by lowering volatility, which is not a great environment for fund managers, while the smaller asset managers are being destroyed by regulation. So we are unusual being in the middle.”

Geffen adds that Neptune also stands apart as it is majority owned by its employees. All of the managers invest in their own portfolios, as well as each others’ funds, while Geffen’s pension is entirely invested in Neptune funds.

“How many boutiques are more than three-quarters owned by the people who work there? Very few people have the structure and model we do. The investment team has been here before and through crisis. That kind of stability is unusual.”

One of Neptune’s key offerings is now the Global Income fund, which reaches its three-year milestone next month.

“Asset managers generally hide what they are up to and we didn’t want to be like that. We have been an open book over the past year.”

Run by George Boyd-Bowman, who Parker describes as “the next star”, the fund has returned 28.3 per cent since launch against the 26.6 per cent of the IA Global Equity Income sector, FE data shows.

The group has said they are confident they can grow the fund “substantially” over the next six months thanks to its “strong client base”.

“People have been very disappointed in global income, there have been enormous outflows,” Parker says. “George is a core, dividend growth manager and the fund has seen solid dividend growth. There is no jiggery pokery.”

Parker joined Neptune in August 2014 as head of strategy and was promoted to head of distribution in July this year.

Dowey, meanwhile, has long been part of Neptune, having joined as an economist in 2007. A promotion saw him pick up the mantle of chief economist in 2009, followed by a further promotion to CIO in May this year. Both Parker and Dowey joined the Neptune Board in September.

“We don’t have a mad economist stuck up on the 43rd floor with broomsticks. James sits on my left,” Geffen jokes.

Geffen, of course, founded Neptune in 2002, having previously worked at Charterhouse J Rothschild, Eagle Star, York Trust Scottish Equitable and Orbitex Investments. He still runs money – currently seven funds.

“I have worked in a number of investment companies and when I founded Neptune, I knew the key characteristics it had to feature,” Geffen says. “It had to be an environment people liked to be in; there is a plentiful social side to what we do, everyone has the same desk and chair – there is no hidden floor management and we promote people on their ability, not on their years served.”

“We are not driven by a greedy parent or the stockmarket; our destiny is in our own hands,” Geffen continues. “We have got people in the right positions and James is the guardian of the process.

“Some of the changes we have made will hopefully reinforce people’s confidence. We believe passionately that what we do works, and that it works for the long run.”

Independent views:

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Tim Cockerill is investment director at Rowan Dartington

Prior to the financial crisis Neptune were one of the UK’s star boutiques, they had some of the best funds in the UK market place, but times changed and so did Neptune’s fortunes and much tougher years lay ahead. Their funds have been delivering mixed performances; UK Mid Cap fund has been outstanding and Japan Opportunities has provided some great returns and the level of volatility is almost second to none. But the flagship funds of Europe and the US for which they deservedly became best known have yet to regain their form. I understand Neptune is working hard to restore performance and changes have been made to the way the investment team is structured and works. So I’m expecting change to bear fruit and consequently Neptune is back on the watch list.

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Martin Bamford is managing director at Informed Choice

Neptune is a relatively young fund provider, established in 2002 by the widely respected Robin Geffen. It quickly grew to cover most investment areas, although earlier this year completed the closure of 40 per cent of its fund range as part of a restructure to focus on the most popular funds. We view Neptune as a high conviction fund provider with its own distinct management style. It has a lot of exposure to global and emerging markets, so performance has inevitably been poor for the past year due to an equity sell off in those markets. A number of their funds have demonstrated strong performance though, including UK Mid Cap managed by Mark Martin and Robin Geffen’s own Global Alpha fund. We would certainly consider recommending Neptune funds to our clients, although it would be good to see how their range settles down following their recent restructure first.

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Heather Ferguson is investment analyst at Hargreaves Lansdown

Renowned investor Robin Geffen set up Neptune Investment Management in 2002. As a boutique asset management company it is independent and privately owned which is one of its key attractions; employees and directors own around 75 per cent of the company, aligning the goals of the fund managers and staff with those of investors. We do not currently have any Neptune funds on the Wealth 150 list of our favourite funds across the major sectors, although a number have featured on the list in the past. Neptune’s fund offering is vast and they offer a strategy in most sectors. The group tends to be benchmark agnostic, which allows their fund managers to take a high-conviction approach to running their portfolios.

Company facts
Neptune is a privately-owned investment management company founded in 2002 by Robin Geffen, who runs seven of the firm’s funds. Neptune conducts its own fundamental research and has 24 funds, including global portfolios and more specialised regional funds. The company is based in Hammersmith.

Big numbers:

40%  Amount of funds closed during review.

24 Number of Oeics.

30 People in the investment team.

£4.5bn Assets under management.

£60m-£70m Flows in Q2 and Q3.

13 Years Since Neptune was founded.