Over the course of more than a century, the Guinness family had accumulated vast experience and expertise in the field of family office wealth management under the auspices of Iveagh Trustees Ltd, the former family office which could trace its origins back to the flotation of the brewing business on the London Stock Exchange in 1886. However, in 2005 the decision was taken to wind up Iveagh Trustees Ltd. The reasons for this could be the source of a separate essay in itself but suffice it to say it had simply outgrown its usefulness. Now a new generation was ready to take that legacy on, re-inventing it for the 21st Century, building on the strengths and avoiding the weaknesses. At that stage, none of us imagined that some four years on this would take the family into the uncharted waters of retail fund distribution.
That’s not to say we had not intended to take new money. On the contrary, growth was at the very heart of the strategy for the new Iveagh business. The family recognised that to achieve and sustain investment success it was necessary to attract and retain the highest quality talent. This required two critical ingredients: partnership and growth. Partnership was needed to incentivise management and align their interests with those of the investors. Thus Iveagh was established as a partnership, 70% owned by management. Growth was needed to inject dynamism and ensure the business had the necessary resources to stay ahead of the game in the long term. This meant taking in third party money.
It made perfect sense. The point of having your own wealth management business must surely be, first and foremost, to ensure your money is managed in such a way as to fulfil your particular objectives. The fact you were doing it yourself signalled it was not something readily available “on the street,” implying a gap in the market. So, just like the eponymous pint many years before, it seemed obvious that if the Guinness family liked the recipe, it might go down rather well with one or two others.
And what was that investment recipe? Well, the first thing was to make sure the money was in safe hands, with a process that could keep the family wealth safe from harm. Capital preservation, measured in absolute rather than relative terms, rules supreme, the prime directive being to have the money still in the coffers to pass to the next generation. However, that money still has to grow and by a decent amount.
There is sometimes a presumption in the ultra high net worth client business that because the money has already been made, it doesn’t need to work that hard. The potential impact of inflation on wealth is well understood. Less well articulated, perhaps because it’s non-financial and hard to model, is the stress placed on family wealth by the growth of the family line, the natural tendency to expand and fragment. There are always more mouths to feed. Meanwhile, the corollary of the money already having been made is often that it is no longer being topped up from external earnings. The money needs to work quite hard but not so hard as to jeopardise the first principle of capital preservation, which for us meant a long term target of 10% pa, assuming long run inflation of about 3%.
However, there is a natural contradiction in the twin objectives mentioned above. How can one keep the money safe, and yet at the same time take sufficient risk to deliver a relatively demanding 10%pa return target?
The only way to achieve this goal is by knowing when to apply risk to the portfolio and when to take it off. Being in the right asset classes at the right time is far more important than picking the right individual stocks in markets (statistics tell us one outweighs the other by a factor of 9:1).
This is our investment recipe. It uses high conviction tactical asset allocation to both maximise returns and minimise risk. The important thing is we seek to add value not by shooting the lights out in bullish markets but by avoiding losses in falling markets. This can only be done by building a very rigorous asset allocation process, using all the tools available. For us that means using leading edge proprietary macro-economic modelling to forewarn of economic shocks, valuation metrics and market intelligence to tell us what is and is not expected by markets, and technical analysis to tell how market momentum will interact with this information. Once this investment concept and process had been developed, implemented and proven to work with live portfolios, it was time to consider taking it to a wider audience. The first thought was that, because we were a family office (although we had always preferred the less exclusive-sounding “private investment house”), the multi-family route was the most obvious. However, as we began to consult potential investors, a funny thing happened. A financial intermediary we knew well, Chamberlain de Broe, immediately spotted the appeal of our investment concept to a much wider clientele. Before long, this grew into a clamour for us to launch a fund which would be accessible to investors of more modest means.
It was clear from the start that this should be a UCITS III fund, with distributor status for UK investors. We also saw we could take exactly the same investment strategy as we used for the family and apply it in this format, using, in large part, Exchange Traded Funds. These relatively new index tracking vehicles allow us all the flexibility we need for our dynamic approach to asset allocation but with low costs and high liquidity and transparency.
We had experience of managing regulated funds in-house, the family having established its own Oeics in 2004. What was an entirely new realm was that of wide marketing and distribution. From our first conversations with Chamberlain de Broe, it was clear our primary route to market should be independent financial advisers (IFAs) and other financial gatekeepers. However, with upwards of 12,500 investment-oriented IFAs alone operating in the UK, this in itself would be a mammoth task.
Our insight here was to outsource the main marketing and distribution effort. We engaged two firms, one specialising in the UK and one overseas. In this way, we had a substantial sales force ready to hit the road from day one. Although this took the heaviest burden of the marketing effort off our shoulders, we have still had to put in substantial effort and resources of our own in supporting it. Extraordinary effort goes into servicing the operational needs of what is now a base of more than 1,000 (and counting) underlying IFAs investing in the Iveagh Wealth Fund.
Was it worth it? Unequivocally yes. Few of us imagined that, with not much more than a year since launch and despite the most turbulent market conditions in living memory, the Iveagh Wealth Fund would rapidly be approaching £200 million. The response has been enthusiastic, with IFAs telling us again and again that this is just the thing for which they have been looking.
Will others follow our example? Some, almost certainly. Indeed, having seen two bone-crushing bear markets in 10 years, the virtues of tactical asset allocation are more widely appreciated. We do believe this approach to managing money will continue to gain traction, at the expense of ‘buy and hold”. However, whether others could, or should, replicate our particular formula is another question. Our four-man investment committee has nearly a 100 years of investment experience and has developed what we hope will continue to prove to be a remarkably robust process utilising in-house proprietary technology at its heart. Yet none of this would have got us to where we are today without that all-important backing and endorsement from the Guinness family.
Which brings us to the final, and perhaps most important question of them all – what has the family got out of it? Clearly, it has a stake in a rapidly growing business. More importantly than that alone is that they can see the resources being applied to the management of their money increasing as a result of the growth in the business, with a highly motivated team behind it – and that is what they always wanted.
In keeping with the culture of the oldest private family office, and in contrast to a traditional fund management business, the fund’s prime objective is wealth preservation, aimed at families seeking to protect their assets and pass wealth from one generation to the next. The optimised portfolio universe is drawn from alternatives (private equity, venture capital, hedge funds and structured products), real assets (precious metals, natural resources, global real estate), major market equities, emerging market equities, bonds and cash. The fund invests almost entirely in daily dealing quoted securities.
The tactical asset allocation strategy aims to increase the portfolio return and reduce downside risk by making tactical adjustments to holdings on a quarterly basis. This strategy makes use of highly liquid instruments such as exchange traded funds and the direct purchase of government bonds.
