By Sophia Grene
Article from ft.com
Nick Mustoe’s position does not appear an enviable one, but he seems very comfortable in it. Mr Mustoe is the second chief investment officer Invesco Perpetual has ever had, stepping into the shoes of Bob Yerbury after an extended handover period, and with Mr Yerbury staying on as a senior managing director.
Not only does he have a popular and successful predecessor peering over his shoulder, Mr Mustoe must also manage one of the biggest names in UK fund management, Neil Woodford, Invesco Perpetual’s head of investment and manager of its flagship UK equity income funds.
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With all this set against a backdrop of “turbulent financial markets and a global economic environment shrouded in gloom”, Mr Mustoe might be forgiven for being a bit downbeat. Instead he is cheerful and optimistic about the challenges facing him, even dismissing some as trivial or non-issues.
“Coming here has been all about the people. Cultural fit and how you work is the most important thing in terms of being successful and being happy,” he says. He explains that before joining Invesco Perpetual in 2010, having previously been CIO at Pictet Asset Management, they had “quite a long courtship”, during which he recognised a similar investment philosophy to his own, key precepts being valuation, being prepared to take big views and acting as a long-term investor.
This focus on investment philosophy is in keeping with his view of the role of CIO, which he sees as having three aspects: “You’re an investor, a team manager and a business person, with the investment hat always the most important.” In the context of Invesco Perpetual, this means Mr Mustoe sits on the same open plan floor as the rest of the fund managers, is part of the global equities team and continues to run money himself. That is the investment side, which also involves lending support to fund managers with more than usually contrarian views.
Invesco Perpetual’s fund managers are traditionally not given to following the herd – as far back as 1999, when Neil Woodford refused to jump on the technology bandwagon, it has marched to the sound of its own drum. The most recent example was the launch of a fixed income fund investing in financial institutions in January.
This was the “brainchild” of IP’s veteran fixed income managers Paul Causer and Paul Read, with Mr Mustoe backing them (and indeed co-managing the fund’s equity allocations). It is the development of an investment idea they have been germinating for some time as they saw financial companies being sold off to levels well below what they saw as fair value.
“The two Pauls came in for a lot of stick at the end of last year for investing in financials in their bond fund,” says Mr Mustoe, but so far it looks like a good decision. “The new fund has already gone up a lot but it’s a long story” which will play out in the years ahead as banks recapitalise.
“You have to hold your nerve. That’s the role of a good CIO – to support the team when we take views like this.” This contrarianism is made easier by the group being based in Henley, some 50km outside London. The fund managers are a little removed from the “noise and emotion” of the markets, says Mr Mustoe.
He likens the second aspect of the CIO role to that of a football manager: “You have a number of stars and you have to help them play better, but you’re not going to tell them how to kick the ball into the back of the net.” In other words, his job is to improve their performance by making the team work better rather than by micromanaging.
While the fund managers are given a great deal of leeway to follow their convictions, with relatively concentrated portfolios that are not expected to track benchmarks closely, in return they have to undergo an annual CIO challenge, a process whereby their portfolios and investment decisions are subject to intense scrutiny and they are expected to defend them.
This process is intended to ensure managers are continually striving to improve performance, but it also serves to weed out any that are failing to deliver. This is not a swift process, says Mr Mustoe, “you give them a sensible time frame, but there is a finite run of time”. A couple of fund managers have been asked to leave “because the numbers didn’t add up”.
Where teams are doing well, Mr Mustoe is likely to expand them, however. The fixed income team has seen additional analysts, marketing and support personnel added recently, as Messrs Causer and Read have extended their reach. Their Global Bond Fund has delivered annual compound growth of 8.39 per cent over the past five years, compared with 7.38 per cent for its peer group.
While Mr Mustoe sees his business management role as important in the context of a relatively flat management structure, with just three people including himself overseeing the running of IP on a day to day basis, he sees his function on the executive committee as ensuring that “investment is the absolute priority of everything we do”.
With a relatively narrow fund range, IP’s business is “very simple – it’s all driven by investment results”, he says. He is quite satisfied with how the funds have performed in the past two years. Mr Woodford’s High Income Fund has grown at a rate of 3.43 per cent a year over the past five years, which does not sound impressive until you look at its peer group, which delivered a 0.19 per cent annual return over the same period. This means it comfortably beat its benchmark, the FTSE All Share Index.
“We’re not trying to promise something that can’t be delivered,” says Mr Mustoe. “We don’t promise absolute [returns], we don’t promise low volatility.” Instead the offer is of a positive return for investors prepared to stick it out over a three to five-year period.
As for the difficult investment environment, Mr Mustoe is gloomy about the global economic outlook, but upbeat about the opportunities for his team. “There are a lot of places we can find to make money.” The recent move away from equities to fixed income by risk averse investors has created a huge opportunity, he says, as stocks are at 30 or 40 year lows in terms of metrics such as their price-earnings ratios. “I always get interested when I hear that.”
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Curriculum Vitae: Nick Mustoe
Born: 1961
Education
19XX
Bradford University (BA Business studies)
Career
1985
Director and fund manager, Phillips & Drew Fund Management
1996
Head of equities, Prudential Portfolio Managers
2000
Head of equities, F&C London
2002
Chief investment officer, Hermes Pensions Management
2006
Chief investment officer, Pictet Asset Management
2009
Sabbatical
2010
Chief investment officer, Invesco Perpetual
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Invesco Perpetual
Established: Perpetual founded 1973, merged with Invesco 2000
Assets under management: £56.8bn as at 31st December 2011
Number of employees: around 800 in the UK
Head office: Henley-on-Thames
Ownership: Invesco Perpetual is part of Invesco Ltd
Article from ft.com
