Burdett and Potter: How we run your money

Gary Potter and Rob Burdett, co-heads of Thames River Multi-Capital, on how their investment process is a mix of “art, science and the intensive application of common sense”.

Building one successful business in a career is tough but the high-profile multi-manager pairing of Rob Burdett and Gary Potter, co-heads of Thames River Multi-Capital (TRMC), look to be in the process of pulling off the trick for the third time in their 15 years of working together.

The pair began picking funds together at Rothschild Asset Management in 1996, growing its multi-manager arm from £120m to £1.2bn. Joining Credit Suisse Asset Management in 2001, they built its multi-manager business from scratch up to £1.3bn and, since 2007, have been doing likewise at TRMC. With assets picked up as part of F&C Investments’ acquisition of parent Thames River Capital last year, they now run £1.5bn across nine UK domiciled funds of funds.

Potter summarises the TRMC team’s philosophy as a combination of “art, science and the intensive application of common sense” and this starts with a focus on boutique fund houses.

“We do own funds from the likes of J.P.Morgan and Schroders but we have a preference for boutique funds,” he says. “Boutique investors are highly experienced and generally perform better and more consistently. They are much less index-benchmarked and much more about making money – and not losing it.

“We do not take huge bets on markets, groups or managers. We like diversification – we will typically have 25 to 30 funds per portfolio – and we buy people. We base our investment judgement on the fact past performance is virtually no guide to the future, which means 75% of what we do is qualitative research. Of course we do all the analysis, run all the screens and crunch all the numbers but that is only a guide.

“Careful portfolio construction is one of the lost arts. So many portfolios have funds with different market exposures but the same sort of tenants – they all have the same type of risk on the table. We try and diversify that string of risk and build a sensible team of underlying managers.

“Fund managers can be delicate souls so we spend a lot of time analysing what keeps them motivated and incentivised. It is another reason why we focus on boutiques – the likes of Findlay Park, Majedie, Edinburgh Partners and Tiburon – because they are in control of their own destiny.”

Fund scoring system

This continual challenging of existing holdings’ right to be in a portfolio led to the creation of the team’s ‘iq’ system of scoring funds across four areas – portfolio, process, team and environment. “We came back to Rothschild’s one day after meeting a manager and agreed he was good and we could use his fund,” says Potter.

“But then we asked ourselves why he was so good. We wrote down how he was a good stockpicker, had a good deputy and a good boss, was paid well off his fund, ran a fairly small amount of assets and, by the end, we had 16 qualitative ‘iq’ factors – the quantitative numbers are separate – that we believe make a good investment.

“We also decompose a fund’s return and profile. Take a fund with a five-year track record – perhaps it goes up in 40 out of the 60 months and down in 20. So where and how is the manager outperforming? Are they a bull or a bear manager? Factors like these help us understand what and when to buy and then, every day, we review our portfolios and performance and manage cash.

Accident of timing

The TRMC team sees its job as to help financial advisers solve the “accident of investment timing”. “If a client came to an IFA with £100,000 to invest in 2009 when the market was at its nadir around 3,500, they would have made a huge amount of money,” says Potter. “But for another client with £100,000 to invest but 18 months later, when the market was up around 6,000, that is a whole different matter. We have to try and help the IFA avoid this accident of timing and, if we provide consistency of performance, we can build a great business.”

On team stability, Potter says: “It is very important you can rely on people. Rob and I do things the other is not so good at – and the rest of team is the same. We understand each other’s skill sets. As for accessibility, we naturally enjoy first-class access to the managers we use because of our longevity – but accessibility works both ways and we would like to think we are the most accessible pairing in this business. We always tell advisers, if you ring our number, one of us will call you back.”