Yariv Haim (above left) is a man who seems to like a challenge, be it trekking across the Andes, scaling the heights of Mount Kenya or diving down to the depths of the ocean.
Which is just as well, given the unique situation he found himself in back in 2005.
Now chief executive of family office Sparrows Capital, Haim was serving as vice president of business development at the time for MH Eliashar Distribution, a retail business owned by Israel’s entrepreneurial Eliashar family, when Haim was suddenly thrown what he calls a ‘curveball’.
A marketing and business development director by trade, he was asked by the Eliashar family to manage their wealth.
It was a ‘very fortunate opportunity’ as he tells Wealth Manager some 13 years later, but there was one snag – he knew absolutely nothing about financial markets.
Such was the trust the Eliashars placed in Haim, they gave him a year out, a sabbatical in effect, to go and learn all he could about financial markets and investing.
‘It was a hectic year,’ Haim says, ‘and learning everything from scratch was not an easy feat, as you can imagine.
‘But I think to a certain extent, if something was an advantage, it was the fact that I did not come from the industry. It kind of allowed me to be a completely blank canvas. I was not susceptible to any misconceptions.’
The year that followed involved a ‘long and hard time of research’. This included taking multiple courses, doing a lot of homework and reading several books and research papers.
He highlights Cambridge University and the University of Chicago as ‘phenomenal sources’ for those wishing to get clued up on markets. Through the process, Haim found a handful of principles that, looking at the evidence, he believes investors should stick to.
The first, he says, is that return is an outcome of risk: ‘They go in tandem, you can’t separate them. The more risk you’re willing to take, the better expected returns you may have.’
The second is that certain risk factors have been persistently rewarded by markets, Haim says, giving the well-known example of value over growth stocks.
The third, which he found surprising, is that stock picking and market timing ‘seldom add value’.
He explains: ‘This is surprising because there are many people in the industry who argue that their skillset allows one or both of these activities. But when you look at the evidence, you see that this skillset is quite rare.
‘Why? It seems like the markets are perhaps more efficient than we would like to think. Because it is, in essence, a zero sum game, it’s impossible for all of us to be above average.
‘If somebody wants to take a position in the market, he needs to have a counterparty who takes the opposite position. So it’s a zero sum game. Somebody will benefit, and somebody will not. Who? Only hindsight will tell.’
And then, Haim adds, comes the matter of fees: ‘Both the investor and his counterparty charge fees. Not only do you need to be smarter than the other guy, you also need to be smart enough to cover your own costs. So it seems, over the long term, finding people with that skillset is extremely difficult. Not impossible, but perhaps improbable.
‘Obviously costs matter. The fee structures seem to be presented as a relatively lean structure whereby you only charge 1%, but these small numbers have a huge effect when you talk about the long term, because of the way compounding works. Very small savings can have a huge impact on your end result. So costs matter. You need to make sure you bring your cost to the bare minimum.’
With these principles in mind, after six years of managing the Eliashar family wealth in Israel, Haim came to the UK and in 2013 launched Sparrows Capital, which, in effect, is a discretionary fund manager (DFM) for family offices, wealthy individuals and selected institutions, though Haim continues to manage the Eliashar family wealth.
The Eliashar family owns 66% of Sparrows Capital, which posted a loss of £890,000 in the year to December 2017, on a turnover of £309,500, which was up 23%. Despite the loss, the firm highlighted that it expects to breakeven in 2019/2020 as it grows assets under management (AUM) and revenue.
Within its portfolios, the firm invests solely in exchange-traded funds (ETFs), index funds and trackers.
All client portfolios are bespoke, though clients have the option of adding active strategies to their portfolios if they wish. Fees typically range from 20-40 bps, depending on the size of the client’s assets. Haim declines to disclose AUM.
The firm takes what it describes as a ‘barbell approach’ to investing, with the core being invested in a diversified portfolio of passive funds.
Clients can then add a few active strategies, the management of which Sparrows outsources to other providers, in asset classes such as real estate and private equity, to try and add some alpha around the edges.
This is an approach that is used by many big institutional investors, in particular the trillion dollar Government Pension Investment Fund of Japan and the Government Pension Fund of Norway.
Starting from scratch to manage the money of a wealthy family is certainly no mean feat, but to manage portfolios for other similarly wealthy families, individuals and institutions is another kettle of fish altogether.
To help develop the investment process, Haim recruited the expertise of world-renowned academic professor Elroy Dimson (above right) who chaired the strategy council of the aforementioned trillion dollar Norwegian pension fund and, inter alia, co-designed the FTSE 100 index.
Having come on board via a ‘meeting of minds’ with Sparrows chair Steven Fogel, as both are on the investment committee of the pension funds at the London Business School, Dimson has been a key part of developing the barbell approached used by Sparrows.
‘It is much harder to pick the right active manager than it is an index fund,’ Dimson says. ‘I don’t advise that people should only ever go passive, but I always argue you should look carefully at the costs involved, how much of the expected reward is actually being spent on fees, commissions and other things which affect performance.’
A well-respected market historian, Dimson says that time has shown the importance of diversification, a key part of the core of Sparrows’ barbell approach. He highlights the Norwegian fund, which he says holds around 10,000 funds.
‘The benefits of diversifying across many geographies and asset classes means you greatly reduce the chance of a financial catastrophe. Of course, you won’t get the extremes on the upside, but we’ve seen that it’s not only companies that can lose all of their value, entire markets can do that as well.’
Sparrows Capital is now a nine-strong firm, having recruited a number of people in recent years, including investment manager Mark Northway, former Close Brothers and WH Ireland director William Ladenburg, chief investment officer Dr Raymond Backreedy and analyst Marianne Bruce.
The firm is targeting both the institutional and the independent financial adviser (IFA) markets, with Northway and Ladenburg tasked with driving growth.
Part of what has allowed that growth to occur seems to be what Haim calls the ‘evolving conversation’ over the last 12 years when it comes to passive strategies, and in particular after the global financial crisis.
Haim says: ‘After the crisis, a lot of people realised the potential benefits of adopting a passive strategy. Peers asked if we’d be willing to consider opening this platform for other investors to co-invest alongside us.’
He adds: ‘When I started investing and designing our portfolios in such a manner, a lot of people were quite sceptical. When you talked about passive and active, it was kind of a binary choice, almost like an investor needs to make a decision – does he believe in active or passive – and that’s it, you’ve made your decision so now you can start designing your portfolio.
‘Whereby today the discussion has evolved significantly. It’s no longer about is it active or passive and who will do better over the next year, but the roles of both active and passive in a portfolio. It’s about the diversification they both give you and being able to benefit from the interaction between them.'