Posted on Wednesday 31 March 2010 by Ulster Business

Andrew Campbell, Mike Irvine and Scott Hanley

Andrew Campbell, Mike Irvine and Scott Hanley.

Davy gets to the crux of investment management

The last few years have been challenging, to say the least, for investors. It would therefore be fair to assume an investment management company which set up in Northern Ireland in late 2007 may now be rueing its decision. Not so for Davy Private Clients, where a run of positive returns since then hints at a company swimming against the economic tide. Ulster Business met up with the Davy team to hear how to ensure you’re making money throughout the economic cycle. The auspicious surroundings of the Naughton Gallery at Queen’s University are certainly a more cultured venue to carry out an interview than Ulster Business is used to. The audience too, part of the Davy Portrait Awards 2010 and consisting of 29 pairs of nonchalant eyes belonging to the paintings adorning the walls, was also a break from the norm but one which lent itself perfectly to getting under the skin of the wealth management team. Whilst Davy has been trading for over 80 years, it wasn’t until September 2007 that the company set up its office in Northern Ireland. Given the economic turmoil the global and Northern Ireland economy has been through since then, it therefore begs the question as to whether their timing could have been better. “There is no doubt that is has been a tough two-and-a-half years to set up a business, particularly an investment management business,” said Mike Irvine, head of Davy Northern Ireland. “However, we are pleased with our progress and, importantly, we generated strong positive returns for our discretionary clients in both 2008 and 2009. Not many investment houses can claim that.” A strong performance in challenging times but in the aftermath of a recession which has drained assets from even the most prudent, is there really a need for further wealth management in Northern Ireland? Andrew Campbell, who has been a portfolio manager with Davy for the past 10 years, obviously thinks there is. “The growth in our business since we opened, despite the environment, suggests investors are looking for good investment advice. There is so much rhetoric and so many misconceptions around the investment industry in Northern Ireland that it can be difficult for investors to get a clear perspective. Separating the wheat from the chaff can be a problem. There are plenty of wealth managers in Northern Ireland but I don’t think clients’ requirements have been that well serviced.” So how can investors cut through the rhetoric and misconceptions to get a clear perspective of what exactly they need to be achieving? The Davy team of Mike, Andrew and Scott Hanley offer up a few pointers: Investors are interested in real returns, not comparisons to benchmarks. It isn’t much consolation to an investor that their portfolio outperformed an index by 2% if that meant the value was down 18% rather than 20%. Anyone weighing up investment considers opportunity cost not a benchmark. If, over an agreed investment period, we aren’t outperforming the return available on cash deposits as a basic requirement then why should a client invest with us? That is the analysis and critique we would undertake for ourselves so it should be even more relevant for our clients. Take a much more considered view of risk and ask whether you really are diversified. Someone recently told us of a friend who thought he was well diversified because he had bought property in all parts of Northern Ireland. It sounds ridiculous but you would be surprised at how many people are over exposed to a particular market or asset class. It is easy for wealth managers to claim they offer diversification but we see investors coming to us with existing portfolios set up by their financial adviser where over 75% of their assets are in equity markets and the majority of that exposure will be to FTSE companies. Worse still, often the investor will be overexposed to one or two individual stocks. Why on earth would you want to limit your investment to shares and even then to a single market or a couple of companies? The FTSE now makes up less than 20% of developed countries’ stock markets – why concentrate on such a small part of the investment opportunity? Sometimes people see Davy as only concentrating on the Irish market. Our discretionary clients have less than 5% exposure to Ireland but to us it as important they aren’t overexposed to the UK either. We want our clients to take advantage of opportunities all around the world across all asset classes. Financial planning isn’t investment management. There are plenty of advisers in the market that can help plan your finances, set up a pension or provide tax planning but do they have the depth of knowledge, research and experience to determine what you should invest in? We work with some really good financial planners who accept they aren’t equipped to make investment decisions. However, time and time again we see clients coming to us with the correct plan but with the wrong investments. It takes considerable resource to develop and maintain a robust investment decision making process. We have over 20 analysts in our private client division continually reviewing potential and existing investments to make sure they are appropriate or remain appropriate. Our clients are often surprised by the amount of due diligence we undertake before investing but we argue that this is the least they should expect? If you are paying for advice, make sure you are getting advice. An extension of this is that some advisers won’t actually provide investment advice. They either leave the investment management decision to the client entirely or make recommendations but get the client to accept responsibility for the final decision. Our service is all about advice. When a client calls us or meets with us we are happy to tell them what we believe is right for them. That is where our expertise lies and it’s what we get paid for. Our portfolio managers often get inquiries from clients on issues completely unrelated to their portfolios. They may be looking for a view on interest rates, currencies or property. We are happy to take those calls – it is part of the relationship. Make sure your investment manager is proactively managing your wealth. This is one of the key things we would stress to investors. The investment arena is dynamic with changes occurring at a rapid pace. Unless your investment manager understands your strategy and is prepared to revise and adapt your asset allocation regularly, you could find yourself in the wrong investments. Investors might agree an initial investment strategy with their adviser at a particular point in time and implement that strategy. Unfortunately, neither the investor nor their adviser monitor and adapt that strategy for changes which occur in the macro economic situation or individual markets. Often, a client finds themselves in investments that made sense two or three years ago but that are no longer appropriate. In addition, a client’s objectives and needs change too. What might have been appropriate this time last year may no longer be. We like to meet quarterly with our clients to make sure they understand what we are doing for them and to make sure their portfolio is adapted to reflect inevitable changes. Make sure your investment manager knows exactly what you are invested in. Increasingly, investors want someone to tell them exactly where their money is and why. Unless you have a first-hand relationship with the person making the investment decisions you are unlikely to be able to get a straight answer. This might sound obvious but you would be surprised that if you scratch the surface, often your adviser won’t have anything other than an overview. That isn’t good enough. One of our competitive advantages is that we aim to have no more than 80 to 100 clients per portfolio manager. This way the portfolio manager has enough time to really understand the clients’ objectives and meet them regularly. An adviser or broker with 500 clients can’t possibly offer that level of service. Unafraid to tackle these types of investment issues, there is no doubt Davy’s business in Northern Ireland will continue to grow and develop. Having nailed their colours to the mast, where does Mike see the business going next? “First and foremost we want to keep producing strong returns for our clients and to make sure they get the service they deserve,” Mike said. “That is the bedrock of the Private Client business.” “In addition, we are already looking at a number of deals in Northern Ireland where we believe we can bring capital and innovative structuring to inject some equity into the market and generate excellent returns for investors. There is definitely a big opportunity in this area for us so watch this space.” A buoyant end to the interview and one which I’m sure those on-looking portrait sitters would have approved of.


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