June 2019
“The best way to find out if you can trust somebody is to trust them.” – Ernest Hemingway
Trust is perhaps the most important element in a decision to invest with an active fund manager, particularly when the cost of doing so is typically more expensive than with a passively managed alternative. This is because the validation of that decision is only evident after a reasonable period of time – it cannot be measured instantaneously like it would be for a plumber tasked with fixing a leaking tap.
Trust in our process
A rigorous and repeatable investment process is something most fund managers should be able to demonstrate, and we at Hawksmoor Fund Managers are no different. This should give some reassurance as to the pattern of performance investors should expect from an investment in an actively managed multi-asset Fund of funds such as ours.
However, we believe we need to do more to justify an investment in our Funds.
Alongside our proven investment process is a belief that investors in the Funds are not just our clients, but our partners as co-investors in Funds in which we ourselves, our friends and family are invested. We aim to give our investors an excellent service, where access and ongoing dialogue with us as their fund managers are a given. Many fund managers regard their funds as ‘products’ (some even call them that) which gives the impression that investors, once invested, are left alone.
Trust in our teamwork
One of the key issues arising from the well-publicised suspension of the Woodford Equity Income Fund is its heavy exposure to illiquid holdings despite promising investors the ability to trade the fund daily.
Our full-time job involves scouring and ongoing monitoring of the fund universe to identify best-in-class managers and investing in the most attractively valued asset classes, using the most appropriate structure for that asset class, i.e. whether open-ended (unit trusts or open-ended investment companies (OEICs)) or closed-ended (investment trusts).
Investors in our Funds can take comfort from the fact that our portfolios are highly diversified across a range of high quality funds, bringing together the talents of a variety of managers into a single actively managed holding. Furthermore, that trust in the benefits of teamwork extends to our Funds which have always been managed by the whole team at Hawksmoor Fund Managers, rather than by an individual.
Trust in our controls
However, it is not just our process and philosophy that ensures that the liquidity of our underlying investments matches the daily liquidity of our Funds. There are strict internal and external controls to ensure this remains so. First and foremost, the Hawksmoor Funds are structured as Undertakings for Collective Investments in Transferable Securities (UCITS) which place greater restrictions on what fund managers can do. In contrast, many other funds-of-funds are structured as Non-UCITS Retails Schemes (NURS) that constrain their managers to a far lesser degree.
The relevant protections include that a UCITS fund cannot:
- have a single investment representing more than 10% of the portfolio
- have investments issued by the same group representing more than 20% of the portfolio
- own more than 20% of the assets in another fund
- invest in open-ended funds that own ‘immovables’, i.e. highly illiquid assets such as physical property or gold
These restrictions are monitored by the fund managers, Hawksmoor’s own Compliance team, the Funds’ Authorised Corporate Director (Maitland Institutional Services) and their Custodian (Northern Trust).
Trust in our experience
As multi-asset investors, we use investment trusts to access less liquid assets such as property, private equity and specialist debt, since they have fixed capital and do not have to manage inflows and outflows. We never have and never will own property or any other illiquid asset within an open-ended fund due to the inherent liquidity mismatch between the underlying investments and the daily dealing mechanism offered by most open-ended funds. This discipline ensured we avoided the suspensions in the property sector in 2016 and we did not invest in the Woodford Equity Income Fund due to concerns about the underlying portfolio.
A drawback of investment trusts is the potential for a more volatile return profile given their shares trade on the stock market. They are therefore subject to supply and demand which can cause the share price to move independently and with a greater level of volatility than the value of the underlying assets, resulting in a discount or premium to net asset value. As active managers, this can provide trading opportunities but it does mean investor sentiment can be a significant driver of short-term performance.
We have witnessed this recently in a couple of our real estate investment trusts (REITs), Civitas Social Housing and Phoenix Spree Deutschland, where negative newsflow questioning their business models has caused sharp share price falls, even though the net asset value and our confidence in the managers’ ability to generate attractive returns over the medium to long-term remains intact.
Such share price falls, whilst painful, should be temporary and store up value that we hope will be unlocked in the future.
Trust in our reputation
Unfortunately one thing any fund manager cannot guarantee is future performance, but we hope that the above explanations provide some degree of comfort that we take the responsibility of the wealth entrusted to our care extremely seriously. We also hope that it is clear that we have investors’ interests at the forefront of everything we do.
Together with our rigorous investment process, we hope that the disciplines we impose on ourselves give our investors in the Hawksmoor Funds the greatest chance of seeing their desired outcomes achieved. We constantly consider what might go wrong, and do our best to protect our investors against downside risks, because as the veteran investor Warren Buffett said “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently.”
This financial promotion is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation. They are subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. HA3349.
