How does one live up to the memory of Nils Taube: Britain’s longest serving fund manager, a former board member on George Soros’ Quantum Group of hedge funds and a favoured adviser to Lord Rothschild for nearly 15 years?
A legend of the City, with a performance track record to warrant it, Taube is the man responsible for much of Simon Edelsten’s love of investing and fund management.
He is also the man Edelsten credits with taking him out of a “pretty awful” job running both research and sales for Kleinwort Benson by offering him a role at THS Partners as a fund manager where he worked for nine years.
Now at Artemis, where he has been since 2011, Edelsten uses much of the philosophy and process he learned at THS under Taube to run the £30m Global Select Fund.
“About 90% of the way we ran money at THS I still use,” he explains, and the other 10% is subtle differences he picked up during his year of gardening leave before joining Artemis.
Fine-tuning
Running solely his own money for a year he tweaked his process and prior to joining Artemis made sure his co-managers on the Global Select Fund, Alex Illingworth and Rosanna Burcheri, fully subscribed to it.
So far so good, he says. The fund, which launched in June 2011, is first quartile since inception and over one year. Edelsten recognises it is early days and is aware of the significance a lot of fund pickers put on three-year track records.
For this reason he is patient about building up his reputation, admitting he is relatively unknown to a lot of the retail market. This is despite having just shy of three decades experience in the industry.
Fresh out of Oxford University, in 1985 Edelsten started at Philips & Drew stockbrokers, where he worked for 12 years. It was during this time he first bumped into Derek Stuart and John Dodd, the co-founders of Artemis who he now works for.
“My route into investment management is pretty unusual. I was a stockbroker for most of my career, mainly at Phillips & Drew where I looked after a selection of unusual and independently mandated fund managers in London,” he explains.
Nils Taube was one of these and was working on funds for Jacob Rothschild, who had bought a stake in Taube’s firm Kitkat & Aitken reportedly just to get a slice of his investment management prowess.
Highs and lows
Many of the attributes Taube was famed for have been passed onto Edelsten, who says his worst period in fund management was when he was working with the great man in the final quarter of 2002 and the beginning of 2003.
“For the first time in 30 years, equities were yielding more than bonds. We took that as a trigger and bought a lot of equities. Our performance went from being the best fund managers in Europe to the worst. Nils had been running funds for St James’s Place at that stage for 15 years without as much as a whisper from the clients and now people started to challenge what we were doing.
“In the last quarter of 2002 we came bottom, by 2003 we were top again.”
It is these moments, when clients lose confidence in your ability to run their money, Edelsten finds the most challenging: “Making a fundamental decision against the crowd is stressful and so it should be. But the last thing you need is someone ringing you up and questioning your decision.”
But it is also these writing-on-the-wall points that make the manager and Edelsten believes working in global equities is more conducive to presenting such opportunities.
He said he timed the turning point in 2009 when stocks rallied from the worst of the financial crisis because he had seen bank crises elsewhere in the past. He does his best to learn lessons from one market and apply them to another. This does not mean Edelsten buys solely on a valuation basis, and there are huge swathes of the market he ignores because he views them as cyclical or in permanent decline, such as airlines and chemicals.
Eyes on the road
Together with his co-managers Illingworth and Burcheri, he uses ‘roadmaps’ to narrow their investable universe, looking for long-term trends. Edelsten ensures the trio rotate sectors and countries so nobody gets too attached to one theme or story.
“A lot of global equity managers have gone into it from doing European equities and tend to be overweight Europe, or from running Japan so are heavily overweight Asia a lot of the time,” says Edeslsten.
He, on the other hand, has only ever run global mandates so feels he has avoided having any inherent biases.
At the end of last year when recovery stocks were running high, Edelsten said Artemis was unable to keep up with the market.
This does not bother him because he wants to be invested in long-term trends, such as growth companies in Asia where the burgeoning middle class consumer is hard to ignore.
“Lots of people present demographics as a reason for investing, but that doesn’t mean we do not respect the data that is there. Once we have found the long-term themes, we are a lot more rigorous than many thematic investors in terms of valuation.
“We find enough themes and enough stocks, so by applying a little bit more self-control and discipline we are content to be selling out of themes where everyone is in them and prices are high.”
Like many before him this means Edelsten positions himself as a manager unlikely to shoot the lights out in any given year, but also unlikely to lose the family silver.
This is a quality he feels has become more important to investors than ever as they seek capital protection in tough times.
Three, the magic number
He is as concerned with volatility as he is with returns and is frustrated that until the fund has a three-year track record, the volatility of the index is substituted for the two years it lacks.
Luckily he has patience and knows it will take time to become known to retail investors given his lack of reputation on that side of the market.
He can also take inspiration from Taube in this matter: a man that saw fund management as a true vocation, never retired, and passed away in front of his Bloomberg terminal doing what he loved.
Taube had one of the best track records ever held in European equities and was little-known to the retail investor. Go figure.
