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Milburn and Roberts: ‘We may feel guilty, but it’s not about the money’

Milburn and Roberts: ‘We may feel guilty, but it’s not about the money’

Former Kames bond bosses Phil Milburn and David Roberts took significant cuts in compensation in order to move to Liontrust.

The duo surprised the funds industry when they quit Kames for Liontrust in August, where they will launch three fixed income funds. This move raised eyebrows as Liontrust is known as a top equity manager.

Roberts said they were looking to leave Kames as their jobs became centred on administration, and Milburn (pictured) added they took ‘very large compensation cuts’ to make the switch.

Roberts said: ‘We were quite comfortable at Kames, but reached a stage in our careers where we wanted to do something different.

‘At Kames we had a team of 30 people, but a lot of time was taken up with admin. At heart we are fund managers, and that’s what we wanted to focus on.’

Milburn added: ‘We took very large compensation cuts because we wanted to have that entrepreneurial culture back.

‘It’s a great opportunity for us. One always feels guilty when causing disruption, but I think clients can appreciate it’s not about money. We’re looking to launch three strategies and we’re moving for the right reasons.’

The new funds

The hires represented a real coup for Liontrust, which said it intended to launch Strategic Bond, High Yield Bond and Absolute Return Bond funds for the duo.

Roberts said all three approaches will be global, with the vast majority of exposure in hard currency.

‘[All three] strategies have got a world view which sets a framework, supported by bottom-up stock selection.

‘We want to keep it fairly simple, three strategies, and three to four funds in total. We’re not in the market to chase massive assets under management, we’d rather work closer with key clients and build long-term relationships.’

The funds were expected to launch early this year, but Milburn revealed the process has been complicated by the six months’ notice they had to give Kames following a three-month non-compete clause, which means they cannot go after new clients in that time.

Seeding the funds

The funds will be launched without internal seed money, although Milburn and Roberts will put a large amount of their personal wealth into them.

Milburn said they are aiming to have one fund up and running by the end of April, with the remaining two launched by the end of the year.

Roberts said the duo is currently going through regulatory processes to get the funds up and running, and put a positive spin on the complications.

‘It’s a useful proving period for us. When we launch, we want to be in a position where clients understand what we do, how we do it and what the outcomes should be. It’s great to have the flexibility to do that here.’

Roberts highlighted that one thing which differentiates their approach is their straight-talking.

‘With clients, we are only too happy to be truthful. If we think there’s no value in the asset class, we will tell them.

‘Obviously we don’t think that is the case at the moment, but ultimately this is a relationship business and it’s all too easy to forget about that.

‘There are people at the end of the value chain whose money it is, it’s nice to believe that we can be truthful to them.’

Preference for the US

Milburn and Roberts will be supported by Donald Phillips, former manager of the £470 million Baillie Gifford High Yield Bond fund.

The pair will be the lead managers on the high yield bond fund, with Roberts providing support.

Milburn said there will be a strong preference for the US within the high yield fund, investing in BB and B rated bonds.

‘We’re focusing on the US because it’s a big, liquid market and there’s a value opportunity there.

‘Big and liquid usually means the market is efficient, whereas we’d say – because manipulation by the European Central Bank has made European assets expensive – US assets look cheap.’

All three funds will invest in developed market bonds. Roberts noted that while some of those big companies will naturally have emerging markets (EM) exposure, it’s an area he and Milburn are generally keen
to avoid.

He said: ‘When you’re in EM, you have to look at the governance side of things as well. Do they actually want to pay back their debts? There are so many opportunities in developed markets there’s no need to go into EM.’

Across the funds, Roberts will focus on the macro, Phillips on data and Milburn on both. Milburn said there will be a ‘natural synergy’ across the three strategies as the high yield fund provides ideas for the strategic bond fund, and in turn ideas from the strategic bond fund will be used in the absolute return fund.

Milburn said the absolute return strategy will aim for a total return of 3.5% and be generally market neutral, targeting no rolling 12-month drawdown.

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