Can Smith & Williamson make its mark on IFAs?

The focused approach to funds taken by S&W Investment Management has seen it make great strides among its target wealth managers. Now it wants to do the same with IFAs.

FS Neal Underwood 160 byline

With £12 billion in assets under management, Smith & Williamson (S&W) Investment Management, part of the wider Smith & Williamson group, is now a substantial business in its own right. Since the middle of 2009 it has been focused on better name recognition in the outside world, starting with the wealth management community.

“We can look back and feel we’ve made decent progress,” says Nick Hodgson, head of marketing and sales at S&W Investment Management. “Many of the leading wealth managers in the UK market now buy our funds. Our secondary target, though, was to start to build sales through the IFA channel. That’s a tougher channel for us to address.” 

Hodgson recognises that S&W does not have the same degree of brand recognition as many of the larger groups: “It’s very much a work in progress. The next stage, this autumn, has been to engage with IFAs, through our discretionary fund manager (DFM), multi-manager and guided architecture offerings. We’re making progress. In terms of IFA market awareness, we decided rather than to adopt a scattergun approach we’d link with specific organisations and work with them.” S&W has entered into a strategic partnership with Paradigm, and is also one of only four asset managers offering a guided architecture solution via SimplyBiz’s Verbatim proposition.

At the same time S&W is trying to sell its funds to the intermediary market and Hodgson says it has gained some traction via platforms, particularly for its bond funds. The firm remains focused on a smaller range of targeted funds: “There’s no justification for us trying to do the same as the generalist bond fund firms. Our approach should be to take specific views on credit and duration and offer products based on that. We’re not offering general corporate bond funds. Wealth managers want to make their own calls.”

In April 2009 it launched the Smith & Williamson Short Dated Corporate Bond fund, which is managed by Chris Lynas and has positions in investment grade bonds with a duration between 0 and six years. This summer the group launched a medium-dated vehicle with durations between six and 12 years. “We also launched the Global Government Bond fund, which invests in governments with independent sovereignty, either in conventional or index-linked bonds.”

That fund, says Hodgson, is more for investors with a negative view over the short to medium term on global economic growth and the future of the euro. “It also has the flexibility to make calls on inflation versus deflation. Further out, we expect there to be an inflationary problem.”

FS 0810 Focus g1small

At a fund level there is no prescriptive house style. S&W adopts what it views as a boutique investment structure, with each manager and their team responsible for putting into practice their own ideas, knowledge and expertise. Hodgson highlights the longevity of tenure of the investment professionals at the firm, as well as the fact it is owner managed. 

John Husselbee, chief investment officer at North Investment Partners, notes that historically S&W is better known for its private client business. “It’s established and it’s got pedigree in that respect. It was an obvious step to offer the funds they were running for private clients to outside markets because they’d done a good job for internal clients.”

Husselbee stresses the big changes S&W has made on the sales and marketing side. “The people there, like Nick Hodgson, have made them more aware and able to access broader markets. The funds are more diversified in their unit holder base, which is a good thing for investors. At times these [asset management] businesses can be quite insular in their thinking, so it can give them access to better ideas in the market place. They’ve got people who have built a retail business before, and they’ve opened up interesting funds to the market.”

In Husselbee’s view, S&W as a group is very accessible. “We’re looking for alpha. We don’t really mind where we find it as long as it’s robust and consistent. But the easier it is to access, the better it is. With some, either operationally or in terms of qualitative research, it can be difficult.” He has a holding in the Short Dated Corporate Bond fund, which he describes as delivering good risk adjusted returns. “It’s had some good inflows, which also helps performance. They’ve been proactive. Given the way the yield curve has changed shape they launched the Medium Dated fund as well, which has the potential to offer greater returns, although with more volatility attached.”

Husselbee also notes that the managers of S&W’s funds are all invested on behalf of private investors, which makes it easy for them to understand the challenges DFMs have in selecting funds for their investors. “Others are slightly less clear on that.”

FS Focus 0810 g2

Paul Farrant, joint managing director and a discretionary investment manager at IFPC, thinks S&W Investment Management’s size works to its advantage. “I think with them being a medium sized organisation you get a level of personal service you perhaps don’t get with a large organisation. You get to meet the fund managers; I had lunch with Ani Markova, manager of the Global Gold & Resources fund, about six months ago. You get the fund manager’s honest views rather than just being at a conference. That’s important to us.” He currently holds the Global Gold & Resources fund, and has looked at, although not taken a position in, the Short Dated Corporate Bond fund.

Farrant also likes the fact he receives personal representation from S&W. “They see every pound, shilling and pence walking through their door as important. We get good information from them, regular updates on funds and comments from fund managers. It’s all quite personalised.”

The retail distribution review (RDR) is getting ever closer, which offers opportunities for asset management firms, and Hodgson believes we are now at the “end of the beginning of the process. The sense is there are still an increasing number of advisers in the brave new world from January 1 next year thinking have I really got the time not just to do the initial allocation, but also the ongoing work. I believe there will be more outsourcing. That’s going to be quite a major strategic thrust [for S&W].”

“What we do know is some advisers have probably heard of our name and that’s about it,” says Hodgson. “We’re now talking to these people. We’re known as a credible fixed income boutique, there are those that know us for our gold fund expertise, which is managed by AGF Investments out of Toronto. We’ve got people like Mark Pignatelli running Europe [equities] and Tana Focke running North America [equities].” Currently the firm is seeing a good deal of interest in its bond funds, as well as the Global Gold & Resources fund. “There’s been a dislocation between gold bullion and gold equities prices so the fund has suffered a little bit, but we’re starting to see a tick up in sales. It’s linked to ‘risk off’ concerns over Europe. The Short Dated and Medium Dated Corporate Bond funds have also gone very well.”

While performance has not been so strong over the last year, over three years to October 1 2012 the Global Gold & Resources fund is first quartile in the IMA Specialist sector, returning 36.64% over that period. The European Growth Trust and North American Trust have delivered somewhat less stellar performance, but the managers of both are widely respected within the industry.

No fund launches are planned in the immediate future, say Hodgson: “We believe in keeping the product range as tight as we can. We’ll do what we’ve got to the best of our ability. We’re keen to build up funds here to a decent proper size, so they have a degree of critical mass. I’m more interested in revenues and profitability [than pure sales]. That’s the acid test. And to make the product range perform to the best of our ability.”

“Internally we will measure things on not just sales but revenues attached to sales,” concludes Hodgson. “Investment in the pooled funds area by the S&W board has been consistent and fantastic. They’re investing in everything we have to do to build brand awareness. It would be great for us to be recognised both as a good boutique fund manager and as a DFM recognised by IFAs as one of the leading players to go to.”

_____

Smith & Williamson was founded in Glasgow in 1881. The firm employs over 1400 people, and its businesses include an independent firm of chartered accountants, investment management and private banking. Smith & Williamson Investment Management manages a range of UK and Irish domiciled funds as well as a number of private client vehicles.