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Profile: Philbin on the opportunity explosion in fund selection

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Profile: Philbin on the opportunity explosion in fund selection

It’s hard to recall a moment during Wealth Manager’s chat with Richard Philbin when he did not revert the conversation back to football – something that was fairly easy for him to do.

He’s a fan of table-topping Manchester City, who are well-ahead of bitter rivals Manchester United and could still be on for a glittering season despite losing to Wigan Athletic in the FA Cup, with a League Cup final against Arsenal to play this weekend.

Like his beloved Blues, some could say Philbin is also flying high at the moment, having spent his entire career trying to gain an edge on his own rivals.

After leaving Architas in 2010, he set up Harwood Multi-Manager with old pal Alan Durrant, the former Skandia chief investment officer (CIO), in 2013. The firm bought Wellian Investment Solutions in 2015, with Philbin made CIO of the business.

Since it was acquired, Wellian’s assets under management (AUM) have grown from £180 million to over £260 million today, something which Philbin says is continuing to expand.

In addition, the company just won a contract to manage the vast majority of assets within Frenkel Topping’s discretionary service, totalling £250 million.

Like Manchester City boss Pep Guardiola and his team, things are going well for Philbin and Wellian.

But it wasn’t always this way.

From the moment he started out, Philbin’s career was on an upwards trajectory. After joining Berkeley Fund Managers in 1994, he was first poached by Towry in 1999 and then by F&C in 2001.

He joined Axa in 2008, where he was tasked with growing what was then a little-known multi-manager called Architas.

In his two years there, he came up with the famous traffic light system: a fund filtering tool which aimed to identify the most consistent managers over random time periods, and which he believes is still used by the firm today. He also grew Architas from zero to around 50 staff.

But by the end, he says the ‘French politics’ at Axa became too much.

Despite rumours swirling around at the time that he had been sacked, Philbin insists he walked away, having foreseen issues ahead.

He says: ‘I’m a big believer in “it takes 20 years to build a reputation and 20 seconds to lose one”. I could foresee something happening where – as a man of morals and principals and ethics – I would come head to head with something and have to fall on my sword and then not know whether I’d get another job.’

Even after all these years he is still reluctant to expand on what that ‘something’ was. But he says he is proud of what he did at Architas and that it was ‘a shame’ that his time had to come to an end. This he put down to the ‘politics’ one has to get used to when trying to move up the career ladder in a large organisation.

‘It is a shame’, he says. ‘I was the CIO of one of the most rapidly growing fund manager businesses in the world at the time, and I was in my 30s.

‘I was really proud of what I’d done, but the French politics were far too much, I’d been asked to do things that I didn’t necessarily ethically agree with.

‘I didn’t like the direction [parts of the business] were going in, I didn’t like the fact I had to sign off on things I didn’t agree with. It was safer for me to say: “Thanks very much, but this is going down a road I don’t want to go down”.’

It’s been a long career for Philbin, who has seen many changes along the way, especially in fund selection.

When he first started in the industry at Berkeley Fund Managers, smartphones and tablets were non-existent and the CD-ROM was about to become king.

Philbin had a bike courier send him a floppy disc every Monday morning containing the latest performance of the 1,300 or so funds in the UK space.

Now, it’s around 40,000 funds. ‘I’d sit there and spend about two hours on a Monday morning updating our systems to be able to say a fund had done 16% over the last four months,’ he says. ‘But now you do everything online, overnight and can see what a fund did at 27 weeks and three days to a week last Thursday. There’s so much more information now.

‘One thing that has changed dramatically is that most funds used to be unit trusts, and now there are so many structures. The choice is immense. ETFs didn’t really exist. The explosion of opportunity is massive.’

Despite the transformation of the industry in general, he says the art of fund selection has not changed at all, because it’s all about the human element.

‘Interviewing a fund manager, you’ve still got to understand how a fund gets managed, what their objectives are, what their driving factors are, whether they’re a 30 stock or 300 stock portfolio,’ he says. 

‘So in reality 20-odd years of interviewing fund managers is incredibly good for the library of knowledge, but the processes are pretty much the same.’

He compares the process to football management, in that tactics and execution may evolve but the ultimate strategic goals remain the same. ‘I am not screening for the best footballer, I’m screening for the best midfielder.

‘And then I’m taking everyone and saying who’s the best attacker, and the best goalkeeper and so on. Then it comes down to, do I want Harry Kane, or Sergio Aguero, Mohamed Salah, Romelu Lukaku. 

‘There are always funds available because I am screening for the most consistent and the best fit accordingly. Ultimately we are aiming for consistency and we want consistent managers. Ones that aren’t afraid to remain out of the limelight for a while.

‘If all of your funds were performing at the same time, the odds are they are all going to underperform at the same time. So we are quite happy to see, in the short-term, a number of our funds in the lower quartiles in performance rankings.

‘But over the medium to longer term, we expect them to be in the higher quartiles. We like to measure over three to five years not three to five minutes, because we like to give fund managers enough time for them to put their portfolio in place for today and tomorrow.’

Another area Philbin has seen change is around inducements, and not necessarily for the better. Like many in the industry, it is an area he could talk for hours on.

He says: ‘You know, I’m a big boy; I have the ability to say no to corporate hospitality, I have the ability to say: “No, I can’t play golf I’ve got to do some work”.

‘It has changed out of all recognition on the inducement side and, to be honest, I think it has changed for the worse. I’m not saying this because I was a beneficiary of playing golf at The Grove or whatever, but I think the regulator has spent far too much time looking at the word financial not enough time at the word services.’

Using the classic example of an adviser or wealth manager going for a round of golf and a beer with a fund manager, Philbin argues such activities help build a ‘level of understanding’ it would otherwise take ‘many more meetings’ to achieve.

He also believes it has not resulted ultimately in benefitting the end client.

Critical of both the regulator’s view and what fund firms are doing with the seemingly saved cash, he says: ‘If someone took me to a game of golf or a football match and that influenced me to buy their fund, the regulator must think so little of you that you’re willing to give your clients a worse performing fund because you went for a game of golf at the Grove. It’s just utter nonsense.

‘It’s a part of the industry which is dying and shouldn’t be allowed to, but everyone is too scared to be the first ones to get fined by the regulator.

‘But the money they save by not doing it, they’re not passing onto clients in savings anyway. So what came out of the marketing budget now goes straight into the company’s bottom line. Clients aren’t benefitting in any way, shape or form.’

While it’s clear he likes to reminisce fondly about the ‘good old days’ as it were, no one can accuse Philbin of not keeping up with the times. In fact, his career was made on being an innovator.

The traffic light system stayed at Axa, but at Wellian there is now the Semafour system, which Philbin is equally as proud of.

Like all of his innovations, the Semafour system is designed to save time. It covers different time periods, compares the marketplace, looks for consistency factors in funds, and ranks them using a colour scheme.

Its output is designed to show the user the particular strengths and weaknesses a fund has without the need to do additional due diligence. This gives the user the ability to see, for example, a fund that has consistent high performance but might come with consistently high volatility.

Efficiency is at the heart of it, but Philbin concedes there is also another reason.

‘I worry that should I get hit by a bus, then I have no legacy,’ he says. ‘It’s trying to build something that either wasn’t there before, which gives us an edge over our competitors, or so that advisers remember us for what we do and why we do it.’

He then becomes undecided over whether ‘legacy’ is the right word, but when he does leave the industry, that sort of innovation is probably how most will remember Richard Philbin.

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