Professional Client Advisory

Building Relationships With Clients That Last A Lifetime

The client, is retired after a long and successful career in the City. That said, he’s probably as busy now as he was when he was in full time work, admittedly now travelling for pleasure as opposed to for business, as well as sitting on a number of boards. His three children are nearly off the payroll – one working and two at university. He and Mrs Client, his wife, fully expect their kids to ‘boomerang’ home on graduation, as their generation currently tend to, but they may find this an incentive to help them onto the housing ladder...

Mrs Client has little interest in investment and while Mr Client carries around a detailed understanding of his investments in his head, his other record-keeping is patchy. It worried him that if anything were to happy to him he’d be saddling Mrs Client and his executors with a lot of complexity in difficult circumstances. As ever, an early meeting was with our head of Wealth Planning, and we’ve started to build a relationship with Mr Client's accountant and tax advisors and to put a bit more structure around his reporting.

Mr Client invests directly in private companies (often but not always benefitting from EIS/SEIS relief) and has a wide range of fund investments – hedge funds and both listed and private equity funds. When we met, he had a concentrated single stock position (quite common among City professionals) and substantial liquidity. He wanted to reduce concentration risk, by reducing his stock exposure, and this was going to increase his liquidity position.

Understanding The Situation To Find Solutions

Cash was, he agreed a poor store of value, effectively compounding negatively in real terms, but he liked the ‘optionality’ that cash allows, giving the ability to buy equities on weakness. Similarly bonds offered little appeal – good perhaps for ‘risk-adjusted’ returns, but again likely to lose value in real terms given yields substantially below inflation. As a sophisticated, experienced investor he is comfortable with equity volatility – he sees risk more in terms of ‘permanent impairment of capital’. We discussed the ‘High Conviction Funds’ approach: this selection of process-driven, unconstrained managers was appealing to Mr Client: he liked the fact that the managers invest alongside their clients, that they were highly idiosyncratic as opposed to benchmark-oriented. We also discussed the unusual performance profile of these managers – that they tended to participate in most of the upside in markets, while historically suffering a more modest portion of the downside. This gave him some comfort – yes, he’d be exposed to equity risk, but being able to take a very long-term view he could weather the bumps. Owning managers who specialise in value together with those who focus on high-quality companies give diversification by approach, and we discussed which geographical areas he wanted to emphasise as well as those that he wanted to avoid. As a professional investor he was able to meet these managers with me – this too reassured him that they were sensible investors, with a strong focus on long-term capital preservation and growth.

We’ve invested over time in the High Conviction Funds, tending to favour those whose strategy is struggling at any time. We’ve reduced the single stock exposure – working with algorithms through our partner bank to manage liquidity sensitively in liquidating the holding. We’ve also somewhat reduced the liquidity, while keeping dry powder for inevitable episodes of turbulence ahead. While still sceptical about bonds, we’ve managed to find some private credit opportunities – loan notes to UK SMEs that entail some risk, but also deliver a real return above inflation.

We also look together at the occasional single stock, and private opportunities, often introduced to us through the Artorius network of shareholders. Mr Client brings at least as much to the table as I do – it’s great to be able to work together on this project. And working with Jane Fowke to sort out his financial affairs has brought him substantial peace of mind.