PSigma must build on 'Bill' brand

Fund Strategy - 13 Aug 2012 | By Cherry Reynard

Psigma Asset Management is a new company of familiar faces. Launched in 2007, it was built on the reputations of Bill Mott on the investment side and Ian Chimes on the business side. It has since added James Abate to the mix and is on the hunt for similarly well-known names that will buy in to its “light touch”, investment-centric culture.

Mott had been a billion-pound-plus manager at Credit Suisse Asset Management, running the group’s two equity income funds – Income and Monthly Income. He built a reputation as a sound pair of hands, combining solid macroeconomic decision-making with bottom-up stockpicking. But with promotion to a senior role he moved away from day-to-day fund management and handed over several funds to Leigh Harrison in 2003.

When Mott decided that he wanted to return to running money, Chimes, who was now managing director at Credit Suisse AM, was on hand to build a business around him. Psigma – until then a private client wealth manager – gave them a platform to launch the “Bill Mott” brand and the business started with some considerable good will.

Nevertheless, says Chimes, Mott had been away from direct fund management for some time: “We had some proving to do when we left Credit Suisse – Bill had handed his mandates over at Credit Suisse. We talked to intermediaries and we got three reactions. The first group had always put money with Bill and supported him from the start. The second group said ‘we’re not sure, give it six months’, and the final group said ‘we’ve got Neil Woodford and Adrian Frost and if we’ve got spare cash, we’ll look at you’.”

But Chimes says that they were clear about what they wanted to achieve. “The idea was to try and build a boutique that was focused on investment management first,” he says. “We like the idea that investment managers make the best job of managing money when they spend the vast majority of their time managing funds. Bill is not on any boards or committees.

“Anyone who comes out of a very large organisation knows that you can move a long way from what you enjoy doing. Bill does one day per fortnight on client meetings, the rest of the time he spends managing money. We want our fund managers to wake up and the five meetings in their diary to be all company meetings or analysts.”

“What we hope for is a bit of luck and then to get added to the right lists”

The boutique’s first fund, PSigma Income, raised £108m in its launch period, giving the business some momentum and allowing it to pay off its start-up debts within six weeks. Chimes says this has been important for many multi-managers – where financial strength and operational risk are a key part of their due diligence.

Initially, Psigma’s target audience was fund of fund managers, private wealth managers and some institutional investors. Chimes adds: “We went all around the country, but had a network of people we knew that meant we got an audience.”

The firm has always recognised that it cannot compete with the major fund management groups on brand. Nor is it aiming to be all things to all men: “We knew we had to target certain gatekeepers and fund selectors some of which could unlock millions of pounds,” says Chimes. “But we knew we had to be patient. A lot of times we have found that we are fifth on a bench of four. Equity income is a phenomenal sector.”

The ride for Mott’s fund since then has been up and down, but has built momentum over the past three years. An ill-fated early move into financials hurt performance in its first year, but Mott has been ahead of the sector ever since.

Mark Dampier, the head of research at Hargreaves Lansdown, says: “I remain a fan of Bill Mott. Some of our clients who bought the fund at launch have been a little disappointed as Bill’s initial purchases of banks were quite unhelpful. However, performance since then has picked up.

“He has been exactly right about the macro situation – he foresaw that the economic backdrop would be weak. However, his performance has perhaps not been as good as it might have been because his portfolio has not been concentrated. Rivals such as Neil Woodford have held punchier, more concentrated funds. He continues to worry about stock-specific risk and he makes full use of the ability to hold 20 per cent outside the UK.”

Dampier points out that Mott’s skills do not lie solely in the large cap defensive area. “He ran a successful smaller companies fund at Credit Suisse. However, he believes at the moment that there is a lot of macro risk and with Vodafone or GlaxoSmithKline paying a 6 per cent yield, this is where the value lies.”

The fund has £452m and is firmly established. The sector is returning to favour on the back of the low interest rate environment. Chimes says: “What we hope for is a bit of luck and then to get added to the right lists.”

An occasional concern has been Mott’s age. Now 60, by Chimes’ admission he is unlikely to be working into his seventies. The group has brought in people to support Mott – notably Neil Cumming* and Eric Moore, who are playing an increasing part in the management of the fund and in client meetings.

It also means that the business needs to diversify. Chimes revisited another of his former Credit Suisse colleagues when he was trying to build the business. James Abate had run the Credit Suisse Transatlantic fund successfully in the 1990s before moving to GAM and then setting up his own practice, Centre Asset Management, in New York.

Chimes says: “We felt we knew him and so we got back together and put together the Psigma American fund. The advantage of a boutique is that we can work with people we know and trust. This is a large-cap growth fund, a classic blue-chip fund.”

The fund has not gained the traction of the Income fund, but this is partly a function of differing market conditions. Investors have been on the hunt for income and are increasingly using passive funds for their US exposure.

Dampier, for example, says: “James Abate has also done a good job, but the trouble is, it’s North America. The US has been a graveyard for us. We don’t get that much demand for US funds. The fund is only £23m in total, but if Abate sticks to his style, I’m sure that he will start to attract more assets. That value-orientated style nearly always works well.” The fund hits its five-year track record in October and performance is at the upper end of second quartile.

The group also has a small UK Growth fund of £3.5m in its range. This is run by Neil Cumming and is still at the incubation stage. The group also had £20m seeding from an institutional investor to launch a global equity fund. Abate’s team at Centre Asset Management is running this, and early performance has been strong. Tom Becket, who moved from PSigma’s private client side runs the group’s Dynamic Multi Asset fund. This is only £17m, but is gathering assets, according to Chimes. However, performance remains relatively weak over one and three years.

More recently, the firm joined forces with bond specialists TwentyFour Asset Management to launch the Focus Bond fund for PSigma’s clients. This aimed to tap into the scramble for yield and will have a yield of up to 7 per cent. The fund, opened with £50m in assets, was designed to minimise duration risk by selecting short-dated corporate bonds from across Europe.

The Psigma European Income fund closed earlier this year. It was launched in 2007 and was run by 2CG, the boutique investment manager co-founded in 2000 by Chris Garsten, a former manager at Credit Suisse, and Charles Glasse, former head of European equities at M&G. The timing was unfortunate and the fund attracted only £1m in assets.

Chimes says: “We have come close to broadening our range with a number of other managers, but the environment of 2007 to 2009 was painful. It was tough to get people to leave large firms and the security that they provide.

“Nevertheless, the plan is still to expand. We will never offer 30-odd funds in all parts of the world, but we continue to talk to people and to look at who’s doing well. Fund managers leave and we have an open-door policy. We always want to talk to anyone with talent, a credible process and asset gathering ability.”

The group has developed its infrastructure with various appointments while more recently, Punter Southall Group took 100 per cent ownership of the joint venture PSigma Asset Management. The group had been established with founder partners taking a 50 per cent stake and Punter Southall Group owning 50 per cent. With the move to outright ownership, Mott and Chimes have taken significant stakes in Punter Southall.

The group has said there will be no changes to the key investment teams and managers and that the funds and institutional mandates will be managed in the same way. Punter Southall will provide all the legal services and IT infrastructure.

The group has some chunky institutional mandates that bump up overall assets under management, but Dampier says Psigma as a whole needs another blockbuster fund, possibly in Asia or emerging markets. However, he adds, the paucity of genuinely good active fund managers may hold the group back.

John Husselbee, the managing director of North Investment Partners, says Psigma is moving in some tricky sectors: “I have used Bill Mott in the past – he is one of the most experienced managers in the UK equity income sector. However, we don’t currently own him. This is less to do with him than a problem of the sector, where the correlation between a lot of the well-known and popular income funds is pretty high. You can often have six funds fishing in the same pond and get no diversification. We believe [diversification] is important – if you are going to take risk away from government bonds, you need to diversify.”

Husselbee still uses active funds in the US but has not yet used Abate. He suggests that other US managers are broader and deeper. The size of the fund is not necessarily a problem – he suggests that with funds below £20m the total expense ratio can become a problem, but his firm would consider funds of the size of the US fund.

Psigma has made it through the toughest investment markets in history and is building momentum. This is an achievement in itself. However, the challenge is to diversify away from Bill Mott and build traction in some of the other funds. The group is operating in some competitive sectors, but has the advantage of familiar faces.

^{* 14 Aug correction. Neil Cumming has been brought in to support Chimes, not Will Cummings as originally stated.}

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^{PSigma Asset Management was established in January 2007 as a joint venture between the Punter Southall Group and Bill Mott, Graham Fuller and Ian Chimes. Punter Southall has since bought out its joint founders in full. PSigma has five retail funds and about £450m assets under management, plus several institutional mandates.}

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