www.citywire.co.uk 30 September 2004

First for fund manager performance, news and analysisFirst for fund manager performance, news and analysisNº 36

by Patrick Sherwen

Fund manager Chris Mills is oneof at least three directors at JOHambro Capital Management[JOHCM] to rake in multi-millionpound pay packages last yearfollowing a massive increase inperformance fees on thecompany’s funds.

JO Hambro pays 100% ofperformance fees to fundmanagers in the financialyear in which they aregenerated and thanksin particular to strongperformance on theTrident NorthAtlantic hedgefund, Mills isunderstoodto haveearned £2.1million. He

also runs North Atlantic SmallerCompanies and AmericanOpportunities investment trusts.

Mills who is JOHCM’s chiefinvestment officer estimated tobe worth £25 million whichmakes him one of the 100 richestmen in the City. He told Courierhe was unsure exactly how muchhe had earned last year. He said:‘I’m not the sort of person who

wakes up and says “Oops,how much did I earn lastyear?”’

‘This must be seen inthe context that my

salary is £1, which unfor-tunately they’ve neverpaid me,’ he added.

However, Mills wasnot the highest paiddirector. The biggestpayout was £3.6

million, up from £527,539 in theprevious year, and is likely to havegone to either Basil Postan orWillem Vinke who run theTrident European and BeaufortEuropean hedge funds respective-ly. Vinke also runs the JOHCMEuropean Select Values Oeic.

Mills said: ‘Another fundmanager earned as much as I didand [chief executive] NicholaPease did not do badly either.’

According JOHCM’s latestaccounts for the 18 months to31 March, group profit beforetax was £11.6 million up from£2.2 million in the previousyear. Turnover rose by 159% to£24.4 million. The total wagebill was £17.5 million. Thecompany now has funds undermanagement of about £2billion.

by Gavin Lumsden

This year has witnessed a bit of a debate over therole of the chief investment officer. Some firmsbelieve they can do without one, witness KeithSkeoch retaining the CIO role on his promotion tochief executive of Standard Life Investments.Others, such as Britannic, think they need four.

For a while it looked like Framlington was on theStandard Life end of the spectrum. After all chiefexecutive Peter Chambers has been acting CIO sincethe departure of Neil Birrell over a year ago. In ahouse with a diverse set of bottom-up stock pickerssuch as Nigel Thomas and Roger Whiteoak you canargue that the role of CIO is slightly superfluous.

However, the recently announced departure of

Jonathan Asante, chief economist – a role thatoverlaps with that of a CIO – may have forced aresolution. This week Framlington announced thatJeremy Lodwick, formerly of Morgan Stanley, wouldbecome head of its investment team in November.

This should allow a smooth handover withAsante, currently on honeymoon but expected toreturn to Framlington before joining AngusTulloch at First State in Edinburgh. There has beenmuch discussion about the reasons for Asante, anemerging markets manager in his own right, tobecome Tulloch’s senior portfolio analyst.However, First State assures me that Asante hasnot been hired to be Tulloch’s replacement.Tulloch, 55, has no plans to retire, it says.

Chambers can’t do everything at Framlington

Legg Masonseeks globalvalue launchUS investment guru Bill Miller’s Legg

Mason Funds Management (LMFM)

is eyeing up a Global Value fund as a

way of expanding its operations.

Citywire has learned that the

Baltimore-based firm turned down a

chance to run an international

mandate for Witan – during its

recent restructuring – in order to

leave itself the option of launching

its own Global Value product.

Earlier this year Miller expressed

a desire to expand LMFM and

admitted he had considered adding

further global holdings to his Legg

Mason Value trust. The fund has the

enviable record of beating the S&P

500 index in each of the past 13

calendar years.

Mary Chris Gay, senior vice

president at LMFM, told Citywire: ‘It

is something we would consider

doing at some point and we believe

our process could be applied to

evaluating companies outside the

US. But there are no firm plans about

timing or distribution arrangements.’

Last month Courier reported that

LMFM had expanded the size of its

analyst team and was planning to

overhaul its research methods.

Miller and Gay’s value approach

has already been made available to

UK investors in the form of the Legg

Mason US Equity unit trust. Since

launch in 2003 the US Equity fund

has risen 10.8%, compared with an

average 6.1% gain among funds in

the North America sector and an

11.1% rise in the S&P 500 index.

Sun to short sell for Asian advantage

– p3

Managers profit after strong bid

from RMC – p3

Suisse’s fund deserves star status

– p4

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II0169 280x210 CFI 12/7/04 12:37 PM Page 1

NEWS

Sun to short sell for Asian advantage

by Graeme Davies

This week’s surprise bid forcement giant RMC Group byMexican rival Cemex hasproduced solid gains forInvestec’s Alastair Mundy andLazard’s A-rated Tony Willis.

Shares in RMC surged 251p to850p on Monday as Cemexunveiled its agreed cash offer of855p a share. The £2.3 billionbid was set at a 43% premium tolast week’s closing price. MerrillLynch described it as a ‘knockout’ offer that all but ruled outrival bids.

RMC has been through aperiod of restructuring and hasbeen viewed as a recovery play,although it operates in difficultmarkets. Chairman John Parker

said the decision to sell woulddeliver ‘superior cash value forour shareholders now’ against anunpredictable and longer-termrevival.

Cemex has been built up bychairman Lorenzo Zambrano,the grandson of its founder,through an ambitiousacquisition policy with previousbuys in Puerto Rico, Spain andFrance. It is the first majoracquisition by a Latin Americancompany in the UK.

Mundy has been a long-termshareholder through the TempleBar investment trust, whichoriginally bought shares in May1997 when Chris Burvill – nowat Gartmore – was at the helm.

The last major buying by the

fund came in November 2001when Burvill was still manager.He added 417,000 shares atprices between 605p and 613p.Mundy sold 265,000 shares inJune last year when the pricehad slipped to as low as 495p butkept hold of 736,000 shares.Mundy told Citywire: ‘It’s a verygenerous premium. It’s such ahigh premium I doubt therewould be a counterbid.’

Willis is a more recent arrival.His Lazard UK Alpha fundsnapped up 769,000 RMC sharesin the space of a week in earlyJuly when the price was between600p and 616p. He has held onsince then and is now looking ata handsome 39% return on thehighest price he paid.

Managers profit after strong bid from RMC

www.citywire.co.uk 3 30 September 2004

NOT A LOT OF PEOPLE KNOW THAT...Jan Luthman, who manages theWalker Crips suite of funds alongsideCitywire AAA-rated manager SteveBailey, writes children’s stories in hisspare time. Readers logging onto hissite, www.fables.co.uk, can learn allabout the antics of Robbit the rabbitand his friends down at the OldFarmhouse. There are stories foradults too, but don’t expect to garnerany good share tips while you’repassing through.

Performance Highlights

Husselbeeanalysed forNeptune roleAnalysis from Portfolio Evaluation, a

new risk management firm based in

Harrogate, was key to Neptune

Investment Management’s decision

to appoint John Husselbee to

manage most of the Quilter fund of

funds range this summer.

Robin Geffen, Neptune’s

managing director and chief

investment officer, said the firm’s

analysis showed Husselbee, director

of multi-manager investments at

Henderson, provided one of the best

risk-return profiles among his peers.

Portfolio Evaluation was founded

last year by former executives of

Barra, a leading analyst of portfolio

risk. Its survey of the fund of funds

field focused on the value added by

multi-managers’ fund selection and

stripped out the contribution from

asset allocation.

Geffen said: ‘Lots of multi-

manager products have been

launched recently but we wanted to

appoint a manager with a 10-year

plus track record of fund picking. I’ll

retain the asset allocation

component of the funds and

Portfolio Evaluation will continue to

monitor the performance generated

from both of us.’

The £95 million Quilter fund of

funds range was previously run by

Derek Larcombe until its sale by

Morgan Stanley to Neptune.

Performance Highlights

by Simon Evans

Ezra Sun, the former Newtonmanager who quit his successfullong-only Asia fund to joinStewart Newton’s Veritas in May,has said the ability to hedge outdownside risk through shortselling will give him a distinctadvantage over rivals duringincreasingly volatile markets.

Speaking ahead of the launchof his long/short Real ReturnAsian fund this week, Sun said:‘In somewhere like China forexample, where there are manyfactors at work, including thecountry’s oil dependency,uncertain banking reforms andan old fashioned government,the ability to go short is vital.’

Earlier this year ScottMcGlashan cashed in his stake ina Jade Japanese long/short hedgefund in favour of his new long-only Japan fund at JO CapitalManagement. McGlashan said hedid not need the ability to hedge

out downside risk as he delivereda bullish assessment on theprospects for the region.

Sun said he planned to goshort in his Dublin-based fundusing derivative products,something the majority of long-only managers in the UK cannotdo.

Speaking on prospects for theregion in general, Sun, who willalso manage a long-only VeritasAsian fund that will not investin Japan and has a £30,000minimum investment, said therise of China and India,would soon force achange in globalinvestment patterns.

‘The global economyis too reliant on USgrowth,’ said Sun.‘And thoughpeople havelaughed at thesuggestion ofa decoupling

of the region from America, Ithink that in five or 10 yearstime, the region will offerinvestors a way to properlydiversify away from US risk.’

• New Star’s Mark Harris isthe latest multi-manager to putmoney into Scott McGlashan’sJapan fund. Harris toldCitywire he had made anallocation this week.

The fund directly benefitedfrom the defection ofFramlington star DavidMitchinson, to JP Morgan

Fleming earlier in thesummer, with a number ofmulti-managers switchinginto McGlashan’s fund.According to JO HambroCapital Management, the

fund has attractednearly £55 millionof capital since it was launched at the end of May.Sun: ‘vital’ to go short in Asia

NEWS ANALYSIS

30 September 2004 4 www.citywire.co.uk

These numbers are unimpressive in terms of returns to the end investor – theyare below the retail prices index and the return on an average 90-day account – butthey are impressive compared with general equity market performance.

Indeed the fund beat the FTSE World index by an average of 0.5% per monthover the last 36 months, while the average Global Growth fund underperformed by0.08%. These numbers, combined with the volatility of this outperformance,generate an impressive three-year information ratio of 0.73 for the fund comparedwith -0.21 for the Global Growth sector average. Certainly Burdett and Potter’s betsagainst the FTSE World index have added value.

In fact, the duo seem to have added value consistently over the period ratherthan undergone fits and spurts of notable outperformance and underperfor-mance. The trust has beaten the FTSE World index in each of the last three 12-month periods (and in 25 of the 36 individual months). In its first year – whenthe FTSE World index lost a little over 21% and the average Global Growth fundlost a bit less than this – the Constellation fund held its losses to 11%. In the

following 12 months the fund made almost14% while the average index made almost9.5% and the peer group managed just shortof 7%. In the most recent 12 months thereturns have been more modest but the fundoutpaced both yardsticks – 5.53% versus2.34% and 2.55% from the index and peergroup respectively.

It should be noted, however, that the recent12-month period has been tougher. TheConstellation fund beat the market seven

times out of 12 but has underperformed in three of the last four months. Indeed itis underperforming over the most recent six months. Having said that, Citywirewas positive about this fund at its launch and believes it will continue tooutperform the market over the longer term with its emphasis on quality fundmanagers at the helm of unconstrained portfolios.

Credit Suisse can rightly claim star status for itsConstellation fund, which has recently passedits third birthday. The fund, managed by RobBurdett and Gary Potter, has paid off the faithinvested in it by managing to build £140million of assets during some tough times inthe equity markets.

The fund invests in aportfolio of 30 fundsrun by star managers.At present it has justunder 20% of its moneydirectly invested in theUS with 23% in the UK,16.5% in continentalEurope, 12% in Japan,11.4% in ‘specialist’funds, 10.5% in Asiaand a further 4% in emerging markets (theremainder is cash).

Holdings include Mark Costar’s JO HambroCM UK Growth, Tony Jordan’s Atlantis AsianRecovery, Odey Japan, Philip Wolstencroft’sArtemis European Growth, Findlay Park USSmaller Companies and Thames River GlobalEmerging Markets. The specialist exposureincludes a healthy 4.6% in Alex Foster’s NSAMHiscox Insurance Portfolio and a further 3.6%in Philip Gibbs’ Jupiter Financial Opportunitiesfund.

Excluding the effects of initial charges thefund has made a total return of 7.02% over thethree years to August 2004. This compares veryfavourably with the average 13.28% lossdelivered by Global Growth unit trusts or the11.73% decline in the FTSE World index. Thefund ranks sixth out of 154 Global Growthfunds over the period.

Suisse’s fund deserves star statusIn the three years since launch, the Credit Suisse Constellation fund has outperformed the

market consistently. The company has good cause to celebrate its impressive success.

by David Smithdsmith@citywire.co.uk

Tota

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(%)

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

FTSE World TR GBP (IN) IMA Global Growth (IN) Credit Suisse Multi Manager Constellation Acc (MF)

Aug-04Aug-03Aug-02Aug-01

Credit Suisse Constellation has added value consistently over the past three years

Source: Lipper

‘The fund has paid off the faith

invested in it by managing to build

£140 milllion of assets during some

tough times in the equity markets.’

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UBS US 280x210.pdf 8/9/04 2:19:55 pmUBS US 280x210.pdf 8/9/04 2:19:55 pm