Picking the winners | Asset management on The Gateway

Picking the winners

An investment manager tells Hannah Langworth what investment managers do, his biggest mistake, and where he'll be putting money in the future

What do investment management teams do?

We manage pools of money made up of people's savings or pension contributions. We aim to invest this money in companies that will provide a good return for them over the long term. I'm involved in managing around 60 funds, mostly North American pension funds, which together add up to approximately $24 billion (£15 billion).

What do you invest in?

International equities - shares in companies from all around the world. I find equities interesting because there's no limit to how much money you can make. If you get it spectacularly right you can make ten or twenty times your initial investment. And you get to watch the companies in which you're investing grow and change.

How do you find out about the companies in which you might invest?

Analysts in particular go through lots of material about companies and pick out what is interesting. But people at all levels do company research. This is to avoid anyone becoming divorced from reality and because our portfolio building process is focused on individual companies. Our investment decisions are really all, "Do I like this company?" rather than, say, "Should we have more money in Japanese companies and less in German ones?"

It's not just about desk research. From an early stage here you're put in front of the bosses of big, interesting companies and told to ask them questions. We particularly like to go to companies' premises. The senior people are more relaxed and open, and you can talk to employees to get a sense of the company's culture and what's happening at ground level.

What process do you use to decide which companies to invest in?

Once someone has come up with a recommendation, it gets discussed by their team. We try to make sure that a team contains people with different academic backgrounds and temperaments - for example, some pessimists, some optimists, some detail people and some big picture people - because doing so means that obvious weaknesses in a proposal get spotted. Beyond that, because we're thinking about the future, there are no absolute right and wrong answers. A graduate in their first year here has just as much chance of being correct about how a particular company will fare going forward as I do.

If somebody is still excited about a company after this discussion process, we generally invest in it. It's always easy in investment management to find what might be wrong with an idea, but we want to back people's enthusiasms.

Could you describe your best investment decision?

When everything was going wrong in the markets in 2008, we felt that our views about the future nevertheless hadn't altered so we resisted the temptation to make major changes to our investment portfolios. The share price of many of the companies in which we had invested fell by up to 50 per cent, so selling them at that point would have been the worst thing we could have done. In the three years since then the investments we've been holding have performed exceptionally well overall. One which has been particularly successful is Spanish company Inditex, which owns fashion chain Zara.

Have you ever made an investment mistake?

In this business things change very quickly so you're always dealing with imperfect information and you make mistakes every day. You've got to be prepared to have a go, fail and try again. It's part of the learning process. No-one here will criticise you for mistakes because you've got to stick your neck out in this business.

We made a mistake with our investment in German carmaker BMW. We decided to sell our BMW shares in 2008 because we felt that many consumers here and in the US were buying cars with borrowed money which would not be available in the future. We were largely correct, but BMW's share price has done very well since - we failed to foresee the huge boom in demand for BMW's products in Asia.

There are also investments which aren't mistakes but which go wrong for other reasons, for example because a significant event that you had no chance of predicting adversely affects a company.

What investment opportunities are you interested in right now?

We're spending a lot of time researching China - its politics, environmental issues, and the companies operating there. We're particularly interested in some of the Chinese internet businesses.

We're also interested in the effect growth in China is having on non-Chinese companies. High-end engineering businesses and luxury goods companies are doing well because they have levels of technical expertise and brand recognition which Chinese companies have not yet been able to equal.

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