Northill brings a little focus to asset management world

As vice chairman of BNY Mellon Asset Management, with operational control of major fund groups Newton and Insight back in 2010, Jon Little was initially unconvinced when he took a call from a representative of the Swiss-Italian entrepreneur Ernesto Bertarelli, whose family  had made its fortune from pharmaceutical and biotechnology ventures.

Mr Little was told the offer on the table was his to refuse. “They offered me a clean sheet of paper. I could draw up my own business plan and set up my own investment shop with the family’s substantial backing.”

To start with, he was happy to walk away. “I was not initially attracted to this and quite sceptical about whether the family was serious or not,” says Mr Little, now looking comfortable as partner in the Mayfair headquarters of the Northill Capital empire which he was eventually persuaded to set up and now has $29.9bn (€23.2bn) under management.

Yet he made discreet enquiries and met up with Mr Bertarelli’s key advisers. “The more I spoke to them, the more I realised what a great opportunity this could be.”

His doubts about working for family-owned businesses were quickly dispelled. “Sometimes a family can be quite fickle, with 400 cousins who can’t agree about anything, but that was not the style here.”

He was also keen to spend a lot more time in a hands-on role within an investment management organisation. “I wanted to lose the bureaucracy that comes with being on the global management committee of a US bank, the form-filling and sitting in meetings without purpose. There was never much time to manage the business.”

As well as investing “millions of dollars from my own balance sheet” in the new venture, Mr Little swiftly persuaded three senior BNY Mellon colleagues – Rick Potter, Jeremy Bassil and Cathy Jones – to join him.

He had no hesitation recruiting former staff for the new venture. “This was an opportunity to do something new, without the old shackles. I had been promoting and grooming these people. We had bought Insight, [Scottish group] Walter Scott and Arx in Brazil, which was spectacularly successful, more than could have been projected. This team was instrumental in that strategy.”

Yet despite being able to recruit his chosen people, convincing potential clients and consultants proved an uphill struggle. “It’s quite difficult to be taken seriously when you are starting an asset management operation from scratch,” complains Mr Little. “I was bringing experienced people in around me and that was a key part of it. But even if you have got the money behind you, consultants and clients still take a lot of convincing.”

The way to make an impact he decided, was not to join the swathes of traditional managers shepherding investor’s money into stocks and bonds, struggling to edge ahead of the index, but into under-populated, style-specific asset classes where they could make a difference.

And rather than sounding a siren, signalling that they were ready to manage other people’s money, Mr Little decided instead to buy into existing asset management groups with their own track records, and then set up a central distribution hub to spread the word about Northill’s capabilities.

“My plan was not to manage the family’s money, but to make an investment, on behalf of the family, in the asset management industry.”

As the project took shape, he decided to locate likely-looking teams and seed them with equity capital, despite the regulatory rigour this required – including long-term business and wind-up plans – and the lack of enthusiasm among investors for new arrivals.

“Big funds of funds use to spray new managers with money,” he remembers. “But they are not there any more. Institutions want you to have been in business for at least three years. You can go bust just waiting for people to allocate their capital.”

The likes of superstar manager Neil Woodford leaving Invesco and immediately attracting a run of client funds is a massive exception to the rule, ventures Mr Little. “There used to be so many of us setting up and getting $1bn (€770m) from a standing start. That is not true any more.”

This is why Mr Little and his lieutenants decided to identify existing teams adhering to several “key beliefs”.

“Asset managers should stay focused on one thing only,” he states. “We like successful, low-profile companies who manage money, companies with just one product which does not change or deviate. Asset managers can fail when they diversify. We are looking for firms with 20 people, not the likes of Schroders, Fidelity or BlackRock.”

His approach is based around the “multi-boutique” structure he spearheaded with BNY Mellon, but minus the red tape. “All of the boutiques we used at BNY did one thing very well,” he claims. “At Insight, 95 per cent of assets were LDI [Liability Driven Investing] linked. Things go wrong when boutiques try to do too much.”

Mr Little says he was able to run “very focused” asset management companies, even in the context of a much bigger parent. “Now we are free from the shackles of a public company, where we were expected to grow assets each year.”

The challenge in combining different philosophies, such as quant, value or growth within a single firm is almost insurmountable, he believes. “The type of people they attract is different and they think and work differently,” he says. “If you try and combine them under one roof, you are roping together people with different mindsets. Once you merge these people, you compromise their culture.”

In large generalist firms, he calculates 90 per cent of staff work on tasks unrelated to investment, while only 10 per cent are specialist investors. “We prefer it the other way round,” he says. “We don’t have a product department, marketing people or an HR office. The firms that we like are very focused on fund management.”

Currently, his units are skewed towards certain strategies, with fundamental processes preferred ahead of black boxes and emerging markets. “We like all fundamental investments – equity, credit, bottoms-up and good old-fashioned stockpicking,” he says.

One of the flagship groups he purchased was global equities specialist Longview Partners, in which Northill has recently acquired a majority stake, allowing one of the older founding partners to cash in his investment. “We are talking about one product investing in 35 stocks through a single process. That’s exactly what we like,” says Mr Little, enthusing on the firm’s ability to choose large caps consistent earnings. “They don’t fall in love with their stocks. The moment they reach their price or earnings target, they immediately sell.”

Another acquisition is Securis, which invests in insurance assets, uncorrelated to the S&P index. In fact Northill has ran the rule over nearly 300 asset managers over the last four years, but only found five worth investing in so far, and is looking for another five before they close the books.

“There are a lot of confused people running asset managers,” suggests Mr Little. “They are stuck on ‘industrial revolution’ style mindset, thinking any business needs to keep hiring new people, adding assets and creating products. There is a lot of muddled thinking going on.”

The likes of BlackRock have “created their own reality,” by launching bulk ETFs and money market funds, to straddle both institutional and retail networks with a large-scale offer. “But beyond these megasize operations, people don’t know what they are doing.”

Many groups launch a new strategy to diversify rather than building on the core product which established the fund house’s brand. “A client can be alienated from a manager because of this,” suggests Mr Little.

“Launching a new product because the old one may not work any more does not send a great message to the client. I would rather see my manager up to their neck in the product they are managing for me and if I lose money, it hits them hard too.”

It appears there are only a small number of fund houses which share Mr Little’s thinking, which limits his appetite for expansion. “If you have 20 kids, you can’t claim to love them all exactly the same, as you can’t remember their names,” he says. “You would end up slowly and surely becoming the type of organisation we dislike.”

With his new approach to asset management, offering access to a handful of committed and focused firms, without the bureaucratic baggage, Mr Little feels the “spring is back in my step”. Yet occasionally he recalls wistfully his previous role.

“I had an apartment in New York, two secretaries and used to fly everywhere Business Class,” he remembers. “Now I have to sit in Starbucks in Manhattan with my iPad like everybody else.”

There is no driver to take him to the meetings and no assistant to arrange them. But after the brief reverie, Mr Little returns to an even more pleasing reality. “These days, I don’t have to say to people: ‘I know this is stupid, but we have to do it this way, because we have been told to.’ Other than regulations, we can change everything. It’s quite a nice feeling.” And of course, the endless round of meetings is a thing of the now distant past.