Is Neil Beaton the last romantic in wealth management? In a world of vertical integration, leveraged scale, unitised model portfolios and marginal production costs, the chief investment officer of LJ Partnership stands out among his peers for his rejection of operative efficiency as an end in itself.
Now the gatekeeper to approximately $4 billion (£3.17 billion) in liquid client assets following the company’s acquisition of multi-family office business Guggenheim Advisers, roughly doubling its global assets under influence in the last year, his refusal to adapt to the cultural norms of technocratic managerialism is unusual enough that it may count as a marketable commodity in its own right.
While client-first bromides are obviously the reflex position of many private banks which have historically found it challenging to live up to their own rhetoric, it is worth emphasising how deeply his feelings on the issue run, becoming visibly animated as he warms to the theme.
‘It’s a very good question – just how scalable is asset management?’ he asks. ‘My feeling is that the further you go down that road, the more you inevitably lose sight of what your original clients actually want.
‘It’s not my quote, but I have always appreciated Ralph Waldo Emerson’s observation that consistency is the hobgoblin of little minds. We are not trying to add assets to become the largest asset management business in the world, which means that we have a little more freedom in how we allocate our clients’ funds.’
The purchase put the family office advisory, fiduciary and asset management company – founded just five years ago after Beaton led his team out of Deloitte citing the ‘potential for internal conflicts of interest’ – on equal footing within the sectors big hitters, a feat largely achieved the old fashioned way.
Even after the acquisition, around 75% of accounts are held by private individuals and while the company does work with a handful of high-profile charities such as Help for Heroes, it has not targeted institutional clients as a route to rapid asset growth with anything like the avidity of rivals such as Stonehage Fleming, Stanhope Capital or Sandaire.
Nonetheless, something is clearly going right: after taking a minority 40% stake in equity capital from merchant bank silent partner LJ Group at the time of the original 2011 management buyout, the business has funded expansion, including the Guggenheim purchase, via organic revenue generation.
Having alternative revenue streams such as the company’s direct property franchise, the inclusion of which takes total assets under advice to $13 billion, offers some balance sheet cross-subsidisation not readily available to all peers. But in an industry which increasingly equates scale with survival, this is potentially the differentiator between buying and being bought.
While there was already a commonality of ownership with Guggenheim Advisers – whose founders also own a chunk of LG Group – he says the purchase of its Geneva, Miami and Lisbon offices over the last 12 months culminating with its Hong Kong team in September, was as much about adding global capacity to its research as it was about leveraging distribution of its existing capacity. The company now employs 250 people across a network of 11 offices around the world.
‘Miami is obviously a very good base to reach into Latin America and Hong Kong into Asia.
‘We are unusual [among family offices] in having a well-defined and rewarding career path in funds analysis, rather than expecting staff members will ultimately become asset managers.’
The analogue warmth of his conception of the business extends into the realm of portfolio management.
While many of his peers tend to go long on near-actuarial levels of quantitative statistical data, with heavy lashings of repeatable processes and definable outcomes, Beaton is happy to put the more qualitative colour of macro-thematics up front.
Lest we get too carried away with the nostalgia for a more innocent time, this can be to the bad as much as the good: in a distinctly retro refusal to engage with contemporary ideals of transparency he flatly declines to name any of the mandates in which the house invests, a doubly maddening point of principle when he insists that he has consistently held a number of major fund allocations since the early-2000s.
Similarly, he refuses to get specific about the overall number of funds on the company’s whitelist simply insisting that it is ‘highly concentrated’ and citing a choice of two managers apiece in emerging market and North American equities as demonstrating his overall conviction.
Nonetheless, it is hard to argue with the end product. The company claims the average balanced client portfolio has returned 79.5% over the seven years to the end of September after fees, versus an RPI+2% benchmark of 41.4%.
While the portfolios are not managed against an investable index, for reference that compares to an ARC Sterling Balanced return of 18.7% over the same period. Beaton adds that despite the company’s mistrust of unitised commoditisation, the variance of client portfolio outcomes remains ‘vanishingly small’.
‘We are very wedded to [funds which share] our philosophy of the emerging Asian middle class. We strongly believe this is something that will continue to power portfolios across decades. [Generally] we are trying to pick up on macro themes and asking which are investable, such as the rise of populism in Europe.’
The house has spent the last nine years broadly and heavily overweight equity, funded by a consistent underweight in sovereigns.
When the house says consistent it is really not messing around, with Beaton saying, for instance, that it kept risk exposure across client portfolios substantially unchanged through the brutal drawdown of 2008 – which, on the face of it, seems an extraordinary act of faith on behalf of clients.
‘We operate a very long term, very low turnover methodology. For instance, I have held the same manager in Europe since 2002. Some of the biggest mistakes I have seen in fund management have been from over-asset-allocation, making big changes which didn’t really need to be made.
‘For instance we have been hearing for years that the US market is expensive, but it is highly rated for a reason – that it has a very flexible economy and a lot of very desirable businesses which produce products which people want to buy all over the world. In all the crises I have
seen [throughout my career] people have gone on spending. Was [British American Tobacco] hurt by the credit crunch, for example?
‘[At the time] I had plenty of conversations with clients about the range of possibilities and what would happen next. But we are protecting wealth over generations, not quarterly periods. We are also quite defensive – we are just trying to beat RPI+. We are pretty steady-Eddie.’