“The most important element is great people,” replies Edward Guinness, chief executive officer of Guinness Global Investors, when asked what qualities he believes drive a successful asset management business. “So we first need to have investors of a really high intellectual calibre, who are into fund management, into looking at companies and into what is going on in the world – and that makes for great people to work with.
“Then you need to complement that with great people in all the other parts of the business. So we have very strong sales and marketing to help us communicate with investors – and also really good finance, operations and compliance. Having that in place has been a very deliberate strategy over the last seven years to strengthen that infrastructure and position us for the growth we have achieved – as well as the next phase of growth from here.”
That timeframe is a reference to when Guinness succeeded his father, Tim – the firm’s founder and current chairman – as CEO in 2019, having originally joined the business as a portfolio manager in 2006. And time is also his second ingredient for a successful business as he continues: “You then need a long-term horizon on what you are trying to do – both for the business and for the products.
“Really, to have a chance at selling a, let’s call it, ‘mainstream’ fund that is competing against other existing funds, you need to build a three or five-year track record. And then you have to have the patience and the ability to support – both financially and emotionally as well as intellectually, with research and so forth – your funds over that long-term period.
“You also need to think about where you want to be in, say, five or 10 years with additional product, which means you have to create building blocks to get there and think about the right order in which to do things. So we have been slowly doing that but these things do take time and you have to run with it – shutting funds after two or three years, for example, is not the right way to go about building a fund management business.”
Talk about evolution
Nodding to ‘the rule of three’, Guinness picks out one further key ingredient – a willingness to evolve. “You need to have a mindset where the approach to portfolio management embraces new sources of information,” he elaborates. “By bringing in enhanced processing, for example, ESG and responsible investment opened up a whole new channel of information for fund managers.
“Arguably, 25 or 30 years ago, if you could identify which companies were quality and which were not, that was enough to be a good fund manager. Now, that level of insight is largely available at the click of a button and you need to move to the next level and the level beyond that with quick analysis – whether that is through AI or simply fast access to the financial and other data of the companies you are looking at.”
From the human element, it is a short step to the importance of business culture, which – adhering still to the rule of three – then leads on to brand and client communications. “Every firm will say they have a great culture – so the idea can become pretty nebulous,” Guinness begins. “Still, good culture is critical and, for me, it boils down to being somewhere great people want to work.”
“Part of that involves a path for people to be well-rewarded financially – but they also need to feel they are going to be surrounded by great people who will help them achieve their goals and be a pleasure to work with. And all the way through, as a business, I think we have been lucky to have a very good collegiate culture of fund managers supporting each other and operating overall as a team.
“You also need a culture that fosters progression for your people and so our HR team are focused less on ‘tea and tissues’, so to speak, than on succession planning and development across all roles in the business – not just key ones. As for the investment managers, the senior team needs to be both challenging to them when things are going well and highly supportive when they are not – something I see as a really important part of my role.” (Main article continues after box)
“If you have funds that are globally relevant in their long-term themes, that should resonate with investors and give your business a more stable platform.
‘Rapid responses’
Who or what has been the most important influence on your career?
I have to say our chairman and majority shareholder Tim Guinness. It has been a real pleasure to be able to work alongside, and with, my father for the last 20 years and see him in a sphere where he is so good at what he does.
What excites you about the current investment outlook? What worries you?
Companies are better managed than they have ever been, which is really exciting – as is the transparency and talent there. What worries me? Political uncertainty because investment managers are much better at analysing stocks than political changes. One further thought – while investors rightly do have valuation concerns, these can be boiled down to a very narrow set of stocks. If you look through the aggregated number, however, a broad set of companies are trading on very attractive, long-term valuations – particularly in Europe, China and other parts of Asia – and we have really strong products in those areas. So I am very excited about that.
If you were head of the FCA for a day, what would be your priority?
I would introduce an independent regulator for the investment management industry, which marches to a very different drumbeat to the banking and insurance worlds. So I would be trying to set up something specific and dedicated to it.
How can wealth and asset managers best attract the next generation of talent?
Start early. A lot of our senior team joined us at or near the outset of their career so there is a great opportunity to bring people in when they are young and evolve them. To do that, though, you need to be really proactive at reaching out and taking on interns and inviting people in to talk to them. We invite people of different school ages – from 13 to 18 – in for half a day, with six of our people happily giving half an hour of their time each to talk about what being in investment management is about. I happen to think this is one of the best careers out there yet it remains very little understood – so getting out there and communicating it is really important.
What advice would you have given your younger self on your first day in this business?
Get good, specialist sales and marketing people into the business earlier. Doing so has really helped us serve customers better and get our message out there. Like a lot of small businesses, when you are at the early stage, the senior team does everything – including trying to find out which clients to talk to – and bringing specialists into the business has really enabled us to grow.
If you were not in investment, what job would you be doing now?
I have an engineering background – indeed, lots of people in the business have science and engineering backgrounds; it is quite a defining feature – so I would like to be in charge of UK infrastructure. There are so many easy wins that could be driven forward but we need more engineers running things – from motorways and airports to railway systems and networks. It would be a fascinating job – and I think I could do it better!
If culture is a business viewed from the inside, the outward-facing element is brand – which, in this instance, involves the family name – so how important does Guinness think brand is in asset management? “You can build a business short-term without brand – but not long-term,” he replies. “If you want to a business that is going to be sustainable and grow over multi-decades, you also need to build a brand.
“The first step here is recognition. So people thinking, Oh yes, Guinness – I have seen them on the side of a taxi, or in the FT or in MoneyWeek, and I know who they are. So we have rolled out the approach we have in the UK in Germany, where we are building up what we are doing, and we are looking to do the same in other countries. And then we also aspire to having a brand that is associated with quality product.
“If we are going to evolve what we do, investors need to know that, when they come to us, we have thoughtful, well-constructed products that are going to deliver good, long-term returns. If you are a short-term business, you can win big institutional clients off the reputation of one or two people – but, without further products and a brand, that becomes quite hard to sustain through periods where your main product might be underperforming.
“The other thing we are very conscious of here is that, in this space, brands and reputations can vanish overnight and so you have to make sure everyone is adhering to high standards and thinking about the reputation of the business in everything they do. And, again, that feeds back into ensuring a high calibre of team, of approach and of product.
“You need to be authentic in what you are putting out – and also offer an element of differentiation. If you look at the marketing we are doing and how we are positioned, we are comfortable with having a bit of character in it. There are plenty of fund management brands that do not have much character to them and I think we can differentiate ourselves by having some – provided, of course, that remains wholesome and of high quality.”
A step ahead
On communications, Guinness highlights the need for transparency, clarity and consistency. “At its core, messaging should be relevant across all types of clients,” he elaborates. “There is no need to dumb things down. If people are already interested in investing, by definition they are a step ahead and there is no benefit in being patronising. Then, if you have that core message right, you can look to customise it across different client types.
“Overall, I believe we are well-known for our communications and differentiated for the quantity and, I hope, quality of the information. Our fund managers produce relatively long, detailed monthly pieces on all the funds, which itself is an important part of the investment process – the idea the investment managers are, on a regular basis, reflecting on how they are doing and how they are positioned is in itself very useful.”
On an adjacent topic, how might asset managers make better use of technology in general and artificial intelligence in particular? “The big challenge with tech and AI is senior management getting too involved,” Guinness replies. “It is becoming increasingly difficult to manage this all centrally so that improvements are achieved at the pace they can be.
“The increased opportunities to automate processes – which is not so much AI as just ‘doing stuff better but more easily’ – can now be seen across almost every function in the business. Indeed, at the moment, AI is not frontline for us – for example, there is nothing directly linked to AI that actually changes the underlying portfolios. We are very careful about that – just as we are about the data-protection side of things.
“That said, we have achieved so much with AI across a number of different areas – for example, we have a team on the fund management side who are assimilating both our internal views and external equity research with all the data available on different businesses – in other words, trying to create a ‘golden source’ for companies so that different teams can collaborate more efficiently on stocks they might all be looking at.
“Meanwhile, responding to investor queries generally – and specific to RFPs – is becoming much more efficient as we can now access every previous answer we have ever given and customise them for a specific question. So I am really excited about it – but it needs to come from every member of the team. It is a bit like asking, How will the internet change what you are doing? AI is now such a fundamental piece of absolutely everything.” (Main article continues after box)
Long-term alignment
These interviews rarely, if ever, reveal a senior executive who is not completely happy with their business’s existing ownership structure – and, realistically, this was never going to be one. “We have an equity structure with Tim Guinness, my father and chairman, as the majority shareholder – and he intends to remain as such, both in terms of economics and voting rights,” explains Edward Guinness.
Asked for its particular advantages over other structures, he continues: “For me, it hits that long-term horizon piece. You get a vision at the top where, ultimately, a narrow senior team can decide what the direction of the business can be and take a view on how the P&L will evolve. It is very important that majority equity ownership is combined with deep involvement in the day-to-day running of the business.
“Then, by having minority shares in the hands of the senior team – and now we have that with an evolving and wider set of junior cohorts becoming equity owners in the business – you do attain economic alignment in the long-term prospects of the business. Certainly, there are people who have done very well out of the growth we have achieved so far.
“And if we can go from where we are today and grow the business, say, another 10 times from here – which really should be achievable over a long period – there is good upside for everybody involved. There is also a growing view that it is difficult to have a listed investment management business – and we certainly find it a benefit not to have those pressures on us or pressures we then pass through to the investment managers.
“The last point I would make is this structure allows a balance sheet to build up – certainly when compared to a partnership. You do not have the constraints of having to pay everything out, which I think pushes equity to have more of a long-term perspective. If you are paying out everything that comes in on an annual basis, almost by definition that makes you shorter-term in your outlook.”
Let’s pick up on Guinness’s earlier mention of “building blocks” in the context of new product as this mirrors a line we often take on Wealthwise: that what wealth managers really want to know is what a fund can do for them and where it therefore fits in client portfolios – and no surprises. When the firm began as Guiness Asset Management in 2003 there were three such blocks – Asia, energy and innovation – now there are rather more.
“It is very much by design,” observes Guinness. “We like the idea of having product that fits the different ways different types of investors allocate. When people are looking for equity exposure, for example, our global product fits for those who use global funds while, for those who allocate on a regional basis – which is, quite often, a completely different set of people – this is where our Europe and our Asian funds fit in.
“Then there is the subset of people who invest entirely thematically, who would be interested in our energy funds. At the same time, though, both our conventional and sustainable energy funds are seeing a lot of traction with people who might, for example, have held gold or gold-type funds as an outlier and are recognising this is another ‘fat tail’ they need to think about.
“There is only so much ‘shelf space’ you can have with clients so having product designed for different types of investors is a real positive for us. I then look at how we are evolving – last year, for example, we launched a real assets fund, which marches to a completely different drumbeat to any of our existing funds, and a global environment fund, which was really about strengthening what we are doing on the sustainable energy side.
“One of the benefits of having a long-term horizon is we are able to launch funds in areas that are quite unloved – and I would say launching a global environment fund is very much against the run of play. If you flip it, though, and say, We need to build a three or five-year track record, there is no time I would rather start than when something is completely out of favour – both in terms of valuations and the political environment.”
The firm’s most recent ‘building block’ is its Global Dynamic Bond fund, which launched in July with former Man GLG Strategic Bond manager Craig Veysey at the helm. “We wanted to establish a fixed income franchise,” says Guinness. “Again, this hits a different part of people’s portfolios and, indeed, the sort of person who buys into this will be slightly different from those buying the existing products we offer.”
Risk exposure
With active asset management such a key focus, does Guinness have a view on when we reach ‘peak’ passive – or are we there already? “We are nowhere near,” is the immediate response. “I mean, the US is five to 10 years ahead and that is still growing apace – and it is just getting going in Europe. Still, from our point of view, the more passive funds there are, theoretically, the greater the chance there should be for us for outperformance.
“This is a personal opinion rather than the firm’s but, the way I see this, indices are designed as management tools, not to deliver investment returns. As such, by crafting portfolios that are specifically designed in structure to deliver investment returns, we should – and do – outperform indices or outperform what we are trying to achieve.
“You do also achieve a very different risk exposure, if you do not follow an index. After all, we can actually manage our risk exposure, whereas the risk exposure from an index is pretty arbitrary and dependent on whatever happens to be in it at any given time. That then plays into a general equal-weighted approach, which gives us another material point of differentiation.
“That said, I do believe active funds will need to be priced much more competitively over the next 10 years. We have certainly been proactive in bringing our own funds’ prices down – for example, we have a ‘waterfall’ structure built into the pricing of both our US mutual and Irish-domiciled Ucits funds so that, when their assets grow above certain points, the pricing of the fund comes down. I suspect that will continue to happen.”
Good and differentiated
Speaking of the next 10 years, what businesses will emerge as asset management’s winners and losers in that time? “Well, Guinness Global Investors is the first answer to your winner’s question!” Guinness smiles – though you sense he is not really joking – before continuing: “We do subscribe to the ‘barbell theory’ that you either have to be very, very large – which we are not – or very, very good at what you do and differentiated.
“As we get larger and are doing more things, then, it will be incumbent on us to maintain differentiation – and we have a tagline ‘Positively different’ and we bark it out. Every time we launch a new product or think about evolving what we are doing, we are trying to make sure that ties in with our culture and values and we are differentiated in what we are doing.
“Looking ahead, the next leg of growth for us is in some ways very challenging. Lots of people who go from the size we are now up to becoming, I am going to say, ‘medium-sized global investment managers’ really struggle with it. So we are conscious of the size point in every aspect – while the other really important consideration here is global reach.
“We are quite differentiated among peers of our size, in having both a diversified fund range and a global reach. We are out communicating on our funds across Europe, the US and Asia as well as a growing number of other areas because different markets allocate to different areas for different reasons – and, if you have funds that are globally relevant in their long-term themes, that should resonate and give your business a more stable platform.”
A steady path
So how is a business, whose roots lie in the not-always environmentally friendly world of energy and commodities, able to have maintained a sustainable energy strategy for almost two decades and then go on to launch a global environment fund last year? “We have always steered, I think, a relatively steady path on ESG and responsible investing,” Edward Guinness replies.
“We come from an energy perspective historically – both oil and gas and sustainable energy stocks – and we have now broadened that to having a global environment strategy. So we have never been very extremist – however, as I touched on earlier, we have seen these areas as a great source of information and a great way to become more engaged and more involved in what companies are doing.
“As new sources of information arise or a new rating is awarded or you find there is a new potential concern or controversy, that has to be incorporated into what you are doing – and we continue to do so. Since we have never gone to the nth degree on ESG and responsible investing, however, there has been no sense of pulling back at any point – it has just been constant.”
Highlighting the very different approaches to ESG and responsible investing adopted either side of the Atlantic, Guinness continues: “The US speaks for itself while, in Europe, the allocators and the rules have largely remained supportive. Where you are seeing changes is pragmatically – for example, energy security becoming a bigger priority or how people think about natural gas or defence strategy – but it is very much on the margin.
“Within the universe of our two funds, there are still plenty of companies doing interesting things, with exciting growth paths ahead of them. The difference now is, looking ahead, you have sensible valuations and you have the raw economics of the products they are selling driving these businesses – not government subsidies. That is a much more solid base and a healthier place from an investor perspective.
“So I do feel our history and experience have given us a good perspective here. There was a period where there were lots of asset managers holding themselves out as ESG and responsible investing specialists – whereas we prefer to be seen as investment specialists who also understand these areas really well. Again, that comes from us thinking about this over the long term.”
