Tcam is also seeking to improve the manner in which it invests client assets.
“At the moment, you have people managing assets and you have wealth managers and then you have the client,” Bathgate says. “We are going to try and cut out a layer of cost.”
To do this, Tcam will start to do more of the investment itself, which will cut the total expense ratio (TER) paid by clients.
“We are looking over time to buy more baskets of direct equities. We have been analysing active fund managers for 18 years and we are pretty good at distinguishing between good and bad active managers. What we have found is that style bias accounts for a great deal of the returns for a long/only active manager.”
As a result, he says, some of the exposures the firm would previously have got from a third-party manager can be replicated by screening out companies that fit the style the firm is looking for.
Cutting costs
“You may need to do a discretionary overlay, but we think we can then generate the performance directly. We can cut 30 basis points off the TER by doing that element ourselves,” he says.
That is not to say it will not use third-party managers, but it will become a great deal more discerning. “As the scale of our business increases, so we can recruit more specialised resources. The aim is to control more of the value chain.
“We will become more sophisticated in how we analyse managers and how we implement the underlying strategies.
“We will still use underlying managers but they will represent a decreasing proportion of the total assets in time and, in aggregate, the client will get better performance because they will have a lower TER and over time they will get better performance because we will get better performance.”
And, while the initial emphasis will be on its own clients, Bathgate says the firm does hope to start focusing on the adviser market.
“As an adviser either you can do things yourself, in which case the compliance burden is pretty hefty, or you can plug into some totally automated solution that totally emasculates you. You have the relationship with the client but the actual investment side is wholly out of your hands.
“There has to be a better half-way house. We have been developing these systems and processes for our own team but there must be some way to badge that up and offer it to advisers so they can put their own influences and client variables into it, and make it a bit more interactive.”
For Bathgate, the final part of the puzzle, is culture. “We want everyone to buy into where we are going but the only way they will do that is if they have some upside in the performance of the business. As a result, everyone, from employees doing the filing to the senior guy, is on the bonus scheme.”
The importance of culture also has a bearing on how the firm grows, however. “We are trying to encourage like-minded people or people who are frustrated in their current shops to come and speak to us.”
Bathgate says to do this Tcam is planning to increase its presence in London. “But we are more likely to grow through the acquisition of people than companies because integrating different cultures from different firms is very difficult.”
