Managers who invested after the ‘tech wreck’, and certainly since the global financial crisis, have had it easy,” says BMO Global Asset Management alum Gary Potter.
“Those who joined post-2008 have never had to manage money to maintain its value; they have been managing money to make money.
“But it’s not ‘gravy for free’ every day of the week. Proper economic and stock market cycles do exist and I think we’re at the start of one, which I’m pretty sure won’t be as kind to investors as the last one.”
One of Potter’s enduring messages since he retired earlier this year is that managers “must be prepared to change their minds, adjust to the conditions and remember what investing is really about”.
“I was told by a good fund manager that investors tend to have ‘two-week/too-weak’ memories. It’s not about gambling, it’s not about the short term. It is about the long term. But there are periods when you have to change the way you think about managing money. In my book, that is managing for protection and defence, rather than for attack and to win.”
Having experienced M&A first-hand during his 40-year career, Potter has reservations about deals that prioritise scale over substance and how that ultimately affects a manager’s ability to perform.
“For companies, it’s all about assets and flows. But when I talked to clients, it was all about performance and consistency. I’ve seen it time and again, when companies get too big, too quick and kill the goose that laid the golden egg.”
Without wanting to detract from the importance of risk and compliance, Potter believes this rush to scale has resulted “in huge growth in the number of people servicing investment management rather than manufacturing performance”, which he says is a “function of the regulatory backdrop”.
“Ultimately, that will prove to be a problem,” he adds. “You’ve got an entire company often dependent on maybe one or two investment managers, who we load massive amounts of pressure on.”
Valuation, valuation, valuation
Potter goes on to quote Nigel Thomas, formerly of ABN Amro and Framlington; Artemis’ Adrian Frost; and Angus Tulloch, formerly of Stewart Investors, all of whom repeatedly told him the same thing over the years: ‘Valuation, valuation, valuation.’
“What you pay for a company matters. Investing is about common sense, not blue-sky thinking. I have met hundreds of managers in my career and the really successful ones consistently have very strong valuation discipline.
“A lot of people are going to have egg on their face when they look at their valuations in as soon as six months’ time, when the concept stocks and growth stocks they all thought were going to be a gravy train to riches potentially turn into rags. And that won’t be because of the quality of the stock, but the price and valuation on which it is held.
“We are in for a very challenging couple of years and how one manages money has to be vastly different from the past five to seven years.”
One thing Potter is emphatic about is the “serious duty of care” managers have to look after the money entrusted to them. “We are looking after someone’s hard-earned savings, their pension, and I think sometimes that responsibility is underappreciated, relative to punting on the next idea that might double its money in five years. This is their lifelong savings, let’s not forget that as an industry.”
View from the long grass
More than six months into his retirement after a four-decade career, does he miss it? “I miss the intellectual stimulation of talking to really good fund managers. I loved my team and what we did, finding funds before anyone else.”
But, as for the day-to-day, “not half as much as I thought I would”, Potter admits. “I am enjoying reading dispatches and observing from the long grass. But doing interviews like this really brings to the fore what is important, which is that running money is not easy and looking after people’s wealth is a big responsibility.”
Gary Potter retired from BMO Global Asset Management in March 2022 after 41 years in fund management. He joined the company in 2007 with long-term business partner Rob Burdett, with whom he worked for more than 25 years.
The duo ran the multi-manager team at BMO. Potter got his start in private client fund management in 1981, before moving into the multi-manager arena in 1992. His career took him from Rothschild AM to Credit Suisse, then Thames River Capital and F&C Asset Management.
This article first appeared in the November edition of Portfolio Adviser Magazine