David Bellamy: Woodford’s fund drifted widely from his SJP mandate

Former SJP boss touts the benefits of segregated mandates as replacement managers turnaround performance

St James’s Place executive David Bellamy has touted the benefits of segregated mandates as he reveals in an exclusive interview that the SJP funds run by Neil Woodford ended up with very little overlap with his flagship Equity Income fund, which is now in the process of being wound down.

In June, the week Woodford Equity Income suspended, SJP dropped him as a manager on UK High Income Unit Trust, UK Equity (Life and Pension), Income Distribution (Life) and SJPI UK High Income funds. It said at the time that abandoning the mandate would “ensure its clients’ investments continue to be managed effectively”.

This came just six days after SJP issued a statement reaffirming its confidence in Woodford.

“We took the view at that point that Neil could no longer pay due attention to the £3.5bn he was running for us and so we parted company with him,” Bellamy (pictured) told Portfolio Adviser sister publication Fund Selector Asia.

SJP fund and WEIF had just 20% overlap

The former SJP chief executive used the example of Woodford to explain the firm’s rationale for adopting segregated mandates. SJP famously moved its money to follow Woodford when he left Invesco to start up his eponymous firm.

“Neil Woodford was running £3.5bn of our clients’ money at the time when his other world had started to digress,” said Bellamy, who led the firm for 11 years but stepped down in 2017 for an advisory role in its Asia operation. “We’d given him a mandate to buy equity income stocks for us, but he started to move into other things like illiquid stocks.

“We said we weren’t happy with that. The two funds [Woodford’s and SJP’s segregated] started to drift apart and in the end, there was only 20% overlap.”

Despite the divergence between portfolios, the SJP mandates still suffered from poor performance.

In May, the month before the Woodford fund suspension, SJP UK High Income fund was revealed as the second-worst performing fund for the month, losing investors 9.32%, slightly more than the 9.14% fall in Woodford Equity Income. The fund was later revealed the “worst behaved dog in the UK Equity Income kennel” in Bestinvest’s Spot the Dog report, although SJP bit back at the accusation.

SJP UK High Income performance improves under new managers

The mandate was handed to Columbia Threadneedle and RWC Partners and, according to Bellamy, performance has since improved “with no lockdown of client money, no harm to clients”. “We simply moved the £3.5bn to other managers,” he said.

Woodford Equity Income vs SJP UK High Income performance

LF Woodford Equity Income C Acc GBP in GB2.40-10.18-24.50-28.30-32.87-19.81
SJP UK High Income L Acc in GB5.735.44-7.00-6.04-8.12-3.21
Index : FTSE All Share TR in GB3.554.432.688.8025.6140.48
Source: FE Analytics

Bellamy said the firm can also get wholesale rates in the retail market using the segregated mandate model. “Neil would charge 60 basis points (bps) on most platforms, but was charging 25bps for the £3.5bn he was running for us and the 25 is what clients paid. Essentially it was a bulk discount.”

A number of larger wealth managers have introduced segregated mandates to reduce costs for investors despite the fact some institutional investors are indicating a preference to use third-party funds.

Financial Conduct Authority chief executive Andrew Bailey recently floated the idea of separating retail investors from institutional funds in the wake of the liquidity issues that led to WIM’s collapse, triggered by Kent Pension Fund’s decision to pull its £263m investment from WEIF.

Bellamy said: “We select fund managers, we monitor them every trade and if we get at all uncomfortable or they retire or switch investment houses, we can change the management.”

‘The idea we give people diamond-encrusted cufflinks is rubbish’

Bellamy also addressed recent criticism in the UK media about how SJP rewards advisers for attracting new money, charges that have prompted the firm to do an internal review of its own incentive practices.

He explained that 50% of all new money comes from existing clients and 40% from referrals.

“We’ve always been a meritocracy organisation. To our top achievers, what we think is appropriate is to get them together during the year in a nice place and talk business. We don’t see that as outdated or wrong, but positive for the organisation.”

He said £300 cufflinks, given to some top achievers, should not elicit charges of lavish rewards. “The idea that we give people diamond-encrusted cufflinks [a media allegation] is rubbish.”

For more insight on asset and wealth management in Asia, please visit www.fundselectorasia.com

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