Majedie mindset thrives on breaking free from benchmarks

Although assets overseen by Majedie Asset Management – a London funds house started from scratch by a band of disgruntled ex-employees of investment giant Mercury in 2002 – have surged to £15bn ($20bn), the firm clings jealously to its original “boutique” status.

The UK-only strategies of yesteryear have expanded to include funds covering all global markets, but the culture has not changed, claims Rob Harris, the group’s CEO, sipping tea in his offices on Old Bailey, next door to London’s Central Criminal Court.

As defendants, witnesses and jurors in sunglasses lounge outside in the lunchtime summer heat, Mr Harris talks enthusiastically, yet with a hint of caution, about his vision for the group’s continued success.

“What makes a boutique is not just an AuM figure, it’s a business model, a frame of mind, about wanting to do a few things really well, rather than all things to all people,” he says, speaking with pride about how many of his 60 staff invest in Majedie’s fund range.

Although he and his then youthful colleagues had resolved to just manage UK equities in a highly focused way, as they hatched their plans at the turn of the millennium, they eventually found their stock selection disciplines could be extended to all the world’s markets, as far as China to the east and Latin America westwards.

They even regard their UK portfolio as an essentially global one, pointing out that 70 per cent of UK equity returns actually originate from business done outside the country.

In the hands of the few

Mr Harris recalls the stifling atmosphere of the UK institutional market during the 1990s, when five firms controlled the institutional market, who were in turn controlled by a handful of consultancy firms, which essentially decided which house to allocate to run a particular pension fund. Nobody dared criticise these all-powerful consultants, as they risked losing key mandates for breaking ranks.

Information about stocks was scarce and at a premium. Today, that information is all publicly available, and the investment houses that can thrive are those with the ability to interpret data. This, he says, plays very much into the hands of small, cohesive boutique firms, “able to debate various issues and come up with very interesting, contrarian views”, rather than manage money purely on an indexed basis.

Majedie are recognised by consultants for investing in portfolios of concentrated stocks, without the restriction of a guiding index or global team, which would pressurise them into putting money into particular markets. “If we had an analyst in India, I would feel compelled to buy Indian stocks,” he ponders, believing that keeping the whole team in London allows him to be more focused and independent, and not be swayed by local market sentiment.

The time at Mercury was dominated by a battle of cultures, as the large but charismatic group was in the process of listing on the stock exchange and being taken over by Merrill Lynch. 

“This forced many fund managers who had grown up working for a highly meritocratic, high quality institutional business to question where they were going,” he recalls.

Changing of the guard

The unwinding of mandates, controlled by just five managers with “unnaturally high market shares, managing almost entire pension funds”, was another reason for a changing of the guard, as institutions increasing sought a more diverse set of managers for specialist tasks rather than sticking with the generalists. 

“We recognised that we would be losing client assets if the drift continued.”

Today, the power of consultants has waned, and firms such as Majedie have been pushed to tout their products to private banks, family offices, wealth managers and distribution platforms, as the “natural attrition” of the compulsory occupational schemes continues.

He proudly talks about a £50m mandate recently secured from a major UK retail bank for its wealthy clients and believes more are in the pipeline. “On the private wealth side, many firms still seek to invest on a regional basis, but some are going global,” he says. 

There is also typically a tax benefit for private banks who want to switch assets between regions if they allocate within a fund, rather than switch funds between providers. “We are bolting regional strategies together.” 

Mr Harris confirms that his firm is essentially pursuing a “Star Trek” approach of going boldly into new markets, without fear or restrictions, provided that the companies are investible, properly regulated and show good investment prospects. 

He says his small coterie were fortunate to launch Majedie at a time when fixed costs were low and there was still much money available from defined benefit schemes.

Today, aspiring boutiques have a tougher time, fuelled by increasingly onerous regulation requirements. Starting a funds group “in the cloud” as web-enabled businesses were beginning to make their mark, with just £1m of seed capital, would be difficult to replicate.

“We had just four fund managers in a team of six staff, no dedicated compliance team and no risk managers,” says Mr Harris. 

“I don’t think it would be possible to do today what we did then.” 

Small is beautiful 

Tom Record, Majedie’s head of global equities, who earned his spurs at Scottish boutique Baillie Gifford, thrives on the flexibility of working for a small house, and the global reach this gives him as an analyst of trends and data.

“If you are big house trying to pile it up high and sell it cheap, you need to invest in a lot of companies, through a diverse portfolio, employing people on the ground,” he says.

A handful of large firms followed this model and achieved commercial success, but it has limitations, he believes. “They are trying to generate index returns, plus a little bit. We are trying to run active bets,” consisting of 30 to 50 stocks in a focused global portfolio and 80 to 120 in a broader fund. 

One stock he particularly likes is New Oriental Education, “one of China’s two leading after-school education businesses”, a Beijing-based, US-listed firm, which he has owned since 2014. The company has both formal lessons with a teacher addressing a classroom, and is also pioneering “VIP teaching”, with one to three pupils per teacher. NOE is moving to a more profitable model of standardised content, as it expands from first tier to second and third tier cities, currently achieving “spectacular growth” of 40 per cent each year. 

Another favoured holding is Credicorp, a leading Peruvian bank. Despite the country being starved of investment after its association in investors’ minds with the now faded Shining Path guerrilla movement, Mr Record talks about a “very open, attractive economy”. The bank, he says, enjoys a 40 per cent market share, high capitalisation and return on equity.

He accumulates much information on stocks through following Twitter commentators, especially PhD level researchers, in developing markets. “They provide a very different narrative to the financial press,” says Mr Record.