We meet in Bonds Restaurant on Threadneedle Street in the heart of the City, a popular hangout for financial professionals. It is 10am and the place is deserted, with one eastern European waitress absentmindedly polishing a glass at the far corner of the bar. He is in his early 40s and has an easy laugh and a confident diction. He is wearing a collar but no tie and orders a green tea, which he almost forgets to drink.
“On the one hand I don’t think the financial industry is so radically different from the rest of the business world. Other industries are organised as pyramids where everyone is trying to get to the top; no difference there. Then again in the financial industry we are working with other people’s money. That is a real difference.
“What you might call Gordon Gekko wannabes, they usually don’t last very long around here. Ego and testosterone actually may cloud your judgment. You really don’t want machos who enjoy risk-taking for its own sake. Investing is all about risk, but it needs to be calculated risk, taken as part of a deliberate strategy. I don’t have ‘heroes’, but an archetypical good fund manager is Warren Buffett. He uses plain language, can put things in a broader perspective and is a very good investor.
“What I do: pension funds entrust us money to invest in the stock market, hoping that my team can achieve better returns than the market. We are so-called value investors, with a ‘horizon’ of about three to five years. After a lot of homework we buy shares in companies we hope to sell half a decade later for a good profit. We are like marathon runners, where traders are more like sprinters – they close their positions [sell all their stocks]at the end of each day.
“I’d say that asset managers like me come in two varieties. There are the hedge funds. They do what we do, investing in companies on the stock market, but they do hedging (eliminating specific risks) or shorting (speculating on a share falling in price) in addition to this.
“The second variety of asset managers is the one I am in, ‘long only’. These take only long positions and hence invest, or speculate, only on shares going up. This may be seen as a bit more dull and dusty. Hedge fund managers typically don’t work for larger institutions, but for smaller independent boutiques. They may dress more casually, and can be more eccentric in their presentation. I’d say typical fund managers have stable personalities, independent thinkers, who are also modest – in this business you need to be well aware of everything you do not know. It’s in the unknowns that risk resides.
“Our clients are institutional parties, professional organisations with lots of capital that invest their money with specific investment teams they have confidence in. Retail houses, fund managers that sell funds to the general public, tend to attract clients more on the basis of the house’s name, its image in public opinion.
“For me there are two kinds of typical working days. When I travel to meet with a company’s management team I get up really early to catch a flight to some place in Europe. Upon arrival we usually rent a car and often end up driving through some pretty desolate landscapes.
“Meetings are about two things: acquiring information, and sometimes delivering a message – when we believe that the company should change some of its practices or policies. It’s mostly the former, and the way you do that is pretty much the way you are interviewing me now. Put the other person at ease, lean backward slightly and begin by pleasantly asking a non-threatening question like: where do you see your company in three years? You take it from there. Ask open questions.
“Delivering a message is something we regularly do as well. This is the province of so-called activist investors. These come closest, I suppose, to your Gordon Gekko. Activist investors actually want the boardroom of a company to change course. For the board to do that, to come around to the view of an outsider, that requires charisma on the part of that outsider, as well as a lot intellectual persuasive power. There are not a lot of people blessed with both qualities.
“What company managers really hate during these interviews is when fund managers or analysts come over and only ask very detailed questions about the last quarter and/or, when fund managers or analysts fail to prepare. The latter happens a lot. Many fund managers are so spread out, they have hundreds of companies in their portfolios. They take no time to read up in advance, and end up spending their time asking questions like ‘what is your company’s product?’ or ‘who are your main competitors?’ Managers appreciate not having meetings where they exchange basic information that investors can easily research for themselves.
“If it’s a big company the meeting usually lasts an hour. Smaller companies may reserve more time, since they are also interested in learning things from us, as representatives of the financial markets. As fund managers we speak to many different people and companies; that’s a perspective that can be very useful to a company’s management somewhere in the European heartland. Good company managers are eager for feedback.
“So we travel a lot, but companies’ boards travel themselves too. We call these ‘road shows’. They have a message to deliver, and they come to London and do a tour past lots and lots of asset managers and analysts. I often prefer visits to the company by myself. Companies often do road shows when they have a nice story to tell rather than when there are issues that may be depressing their share price.
“The other kind of working day is when I don’t travel. Traders and brokers have to be at their desks really early because they have to do be prepared to start calling clients and trading before the markets open at 8am. I don’t, so I can have breakfast with my young children, and usually take them to the nursery … then the tube, time I use to read the paper and check on my phone, to see what the markets are doing and if there’s news flow; events that may affect the companies in our portfolio.
“The major part of a day I spend having meetings, basically. Meetings with representatives from companies, analysts, consultants, clients or potential clients, and internal meetings with the rest of the investment team. There may be conference calls, and I phone up lots of people. I spend also quite a lot of work reading company reports and broker research, and modelling company’s valuations.
“Ultimately what you are after as a fund manager is what we call the underlying reality, the fundamentals of a particular company. What kind of returns can a company make? What kind of investment and growth opportunities are there? To what extent is management willing and able to take advantage of these opportunities? These key drivers determine the company’s value. We then build a model that we can feed new developments into, to keep our assessment of the company’s value and prospects up-to-date. Finally we have to follow the psychology of the markets, because not everyone invests like we do, with a five-year perspective. There’s a lot of herd behaviour. Successful investors are contrarians, they go where others are not.
“A different category of meetings altogether is with potential clients. Winning new ones takes a long time, years really. As an investment team you typically need a track record of at least three years. Pitching to potential clients, you begin by introducing your investment house, trying to persuade them you’re a professional and reliable lot. Second you lay out your investment philosophy; why would you be making money or in other words: why do you expect to be able to outperform the market? You will then typically explain how you have organised your research process, so you go over that, and then you introduce your team, their individual strengths and backgrounds. Finally you go through your track record, explaining why one year saw better returns than another.
“The best moments in this job? There is the game element. Basically, an investment is a hypothesis about the future value of a given company. You believe its share price will go up, and you test your hypothesis by taking a ‘position’ [buying the share]. Then when you are vindicated, that is really very satisfying. And yes, that means you make more money. In that respect, the money you make expresses the degree to which you have been successful at what you do.
“Another top moment in this job is when a client decides to trust you with a large sum of money to invest for them. It’s a vote of confidence, and that feels great. Yes, it also means that my income goes up, because we get paid partly on the basis of the total amount of money under management. The more you manage, the more you get. But there’s the sense of responsibility too, I mean, in the end we represent families, the people who paid into the pension fund whose money we are managing. One of the greatest pitfalls for fund managers is thinking we are more important than the clients whose money we are managing. That’s why there are not a lot of Gordon Gekkos among us.
“Finally, great moments in this job are when your relationship with the company you have invested in has become so strong, and your insights into that company and the market it operates in have become so in-depth, that you end up almost in an advisory role. Obviously management knows its own company best, but you may bring a perspective from the capital markets. Say, we show the company that their current structure is ‘suboptimal’ as we call that, and we suggest that they sell off part of their operations and accelerate investments in their core business. If such discussions truly lead to value enhancing actions by the company, that is very rewarding.
“I’d say I work 50 to 60 hours a week. In my job it’s not about the hours you put in, it’s about results. I do work late a lot. Occasionally I take a taxi home, as the tube will have closed. We tend to use evenings to update our models of the companies we invest in; entering new numbers and data etcetera. That’s the sort of stuff that is very difficult to get done during the day. There is always more you can know and find out. Often I can’t help myself checking the latest on my Blackberry even during breakfast with the kids. This job is never finished.”