Now is a great time to set up a fund management firm despite negative investor sentiment, according to Hargreaves Lansdown’s founder Peter Hargreaves, who will launch his own asset management company Blue Whale Capital alongside former colleague Stephen Yiu this week.
Hargreaves, who is no longer a director or employee at the investment services giant but remains a significant shareholder, is placing an initial £25m into Blue Whale Capital and expects to add more over time.
He said Yiu, whom he hired around 20 years ago, had always wanted to be a fund manager. Because Hargreaves Lansdown didn’t own their own fund range at the time of his employment, Hargreaves encouraged Yiu to chase his ambitions. He has since worked at several asset management firms including Artemis and New Star.
“[Yiu] is exceedingly bright and makes very knowledgeable investments,” Hargreaves said. “I have always kept in contact with him and he’s always wanted to have his own investment business.
“I told Stephen that I would like him to look after a substantial portion of my money but, instead of just doing that, I asked if he would like to launch a little investment business and launch a fund where other people can invest alongside me on the same terms.
“That’s what we’re doing. It’s going to be called ‘Blue Whale’. We’re not giving details of what the fund looks like yet but that’s the essence of the business.”
Hargreaves first officially launched Hargreaves Lansdown alongside co-founder Stephen Lansdown in 1981, although they previously started out trading from a bedroom.
Some 36 years later it is a different story entirely, with the FTSE 100 giant’s shares up 810.17 per cent since it first floated onto the London Stock Exchange in 2007.
Performance of stock vs index since IPO
Source: FE Analytics
Despite Hargreaves working in the financial services industry for more than 30 years, he believes now is a better time than ever to launch an investment vehicle.
“I do think that British investors have never looked internationally enough. If you look at where most of the people in Britain’s investments are, they are in the UK,” he pointed out.
“Assuming Brexit happens, I think Britain will then be quite a small economy in the world and I think British investors need to look far further afield than they have done in the past.”
Not only this, Hargreaves said British investors – himself included – tend to be underweight US relative to both global indices and investors elsewhere across the globe, given the maturity and efficiency of the market.
“British investors have been considerably light on the world’s biggest stock market. I am personally, I don’t have enough in the world’s biggest economy as I should have. So this fund is going to invest much more broadly than most investment funds and it’s going to fill in the gap for most investors,” he explained.
“My assets aren’t deployed significantly differently from most people; because of my shares in Hargreaves Lansdown of course most of my investments are actually in Britain.
“This is a new venture for me, it might help other investors and potential fund managers to follow the same path in due course. But Stephen is a great start because I know him terribly well and I know his capabilities, so this is why this is my first venture.”
Hargreaves said there are other reasons why now is a particularly good time to launch a fund.
Firstly, he said that many investors are concerned about toppy valuations, heightened geopolitical risk and macroeconomic uncertainty.
“Fear is good – it’s when everyone thinks the market is going up forever when you shouldn’t invest,” he reasoned. “When they say the valuations are greater now than they were at some other point in time, that is normally a good time to invest. It’s the famous adage that markets climb a wall of worry.
“I’m going to put £25m in this fund and possibly more afterwards. I wouldn’t be launching the thing if I didn’t think it was a good time.
“It’s a kiss of death launching a fund before the stock markets all go down because new funds never recover from that situation. So, we think it’s a good time to invest and it’s normally a good time to invest at the end of the summer after people return from holidays.”
Generally speaking, Hargreaves said investing is about ‘time’ rather than ‘timing’. Within his own portfolio, for instance, he invests regularly rather than trying to decide when the best time is to buy or sell.
“I’ve known many investors – and this is a huge number – who look at the stock market and they think ‘oh gosh it’s high’, then it creeps up and they worry that it’s even higher, then it goes up again and suddenly comes back to the level at which they first started looking,” he continued. “But, they don’t invest there either because they think it’s going to go lower.
“Sometimes I will buy when the market is high and other times I will buy when the market is low but, in general, I will do well.
“I have been in the market when the market has not been good at all. Then I have looked at my investments at the end of a period like that and thought, ‘actually, they look okay’.”
In terms of the increasing number of investors moving from actively-managed funds and into passives, Hargreaves said this has partially been caused by misconceptions peddled by the media.
“A lot of the press love to point out that the average active fund doesn’t beat the index. Well they’re absolutely right because you should never invest in the average unit trust in a million years,” he said.
“But if you invest with good fund managers, good stockpickers, managers with a good process and managers who work hard, that’s where the difference is made. Investing is 10 per cent inspiration and 90 per cent perspiration.”
Hargreaves pointed out that he has followed fund managers for years, irrespective of swings in market sentiment. In fact, he said he owns a number of investments that he bought right at the top of the market which still look “fantastic” today.
“I really do hate it when people trot out the fact the average fund doesn’t beat the index,” he continued. “The average fund is run by banks who don’t care about the performance; some of them are nothing more than quasi-trackers and aren’t even managed at all.
“There are billions of pounds in these funds and they’re held by old ladies that have been sold them by one of the advisers from these institutions. They will never change them so why spend the money looking after them? I think it’s crazy.
“If you look at the top 100 fund managers in this country, you would be pretty safe investing with those guys. The one thing that is guaranteed with a tracker fund is it cannot and will not beat the market. If it’s a good tracker it might shadow the market but you still have charges.
“I have nothing in trackers at all and nothing in fixed interest: 99 per cent of my wealth is in stocks and shares.”
The Blue Whale fund is due to go live in Q3 this year.