Investment Management Blog - Montague Capital

Julian McGinnity tells us how his disappointment with the investment management industry led to a complete change in direction

July 2006

I spent the first twelve years of my working life with the family business based in the Black Country of the West Midlands. The area had seen better days. Local restaurants had limited menu options and a common theme (drive-through’s!) but at least this kept the local health inspectors and pest controllers in work. But the business – producing shop fittings – made it all worthwhile. It was a specialised and a highly competitive market, but we were recognised as the best, which was just reward in many respects.

At the turn of the millennium, as with many businesses, manufacturing was changing and a different direction had to be sought. I had reached the milestone of turning thirty and realised that birthdays become much more significant when the first number changes! I decided I needed a new challenge. My aim was simple, to repeat the excitement and success of the old business but in a new industry. Twelve months of lengthy negotiations and some eye-watering consultants’ fees later, the deal was completed.

One chapter had finished and another about to begin. But in between the two I spent time evaluating plenty of new ideas. The priority was to enjoy my new vocation whilst being involved in a business which really did put the customer first – something many companies had forgotten while being swept along during the boom period of the nineties.

My high street bank had shown little interest in me when I was involved in a manufacturing business, but a glimpse of the sale proceeds brought forth quite a different attitude. Now I had them falling over themselves to help. My friendly, local private banking account manager may not have been based in Mumbai, but to learn more I had to approach an investment adviser in the City of London. Off to London I went.

The bank’s investment adviser made a valid point about the efficiency of having my investments centralised. But my questions about what lay behind the selection of in-house funds to which I would be consigning my capital rang alarm bells. It was pretty clear that this was a process designed to manage money with minimal inconvenience – for the bank that is – whilst keeping me blissfully uninformed and charging me extravagantly for the privilege.

Fortunately I had arranged other meetings to justify the special journey to London. Next I met a hedge fund manager in Canary Wharf. Like alchemists of old my host could make me money from nothing. Like a manufacturer of today I knew that you couldn’t. The only phrase I could remember as I left the building was “arbitrage of cross-collateralisation”. I had no idea what it meant and I wasn’t sure that the hedge fund manager did either. Experience suggests this rarely results in a happy business relationship.

So it was back to the City to an old-fashioned stockbroker for what proved to be an old-fashioned lunch. Unfortunately his investment ideas were about as up-to-date as the port which rounded off the meal. “Dear boy, we never touch manufacturing companies because they never make any money.” This chap clearly had not done his sales homework. “We’re buying dotcom stocks now.” Had he said he was an old Etonian or an old Estonian? I decided it was the latter for all the sense he’d talked.

Finally I met an investment advisor specialising in offshore funds for high net worth individuals. It is the part about fees I remember most. I was going to be charged a massive entry fee, an even bigger annual management charge and yet more still should I ever want to get my hands back on my own capital. The conversation was very short on just how I was going to make any returns to pay the fees.

Having had a thoroughly frustrating day I met up with an old school friend, Bill Roden, to chat the day through over a beer or three. Over the years, what was now left of Bill’s hair had turned grey, but he had gained an impressive list of professional qualifications and industry awards and was now managing “a billion or so” for a top fund management company. I asked Bill for the secret to the investment performance that he had achieved. He explained how he focused on businesses that generated cash and how that can differ from published profits. He only considered companies which could lay claim to a dominant industry position or a specialist niche. Finally he said he waited to pay the right price for these companies and not what market thought they might be worth. Simple, but it made perfect sense to a former manufacturer.

On my way home from London the next day I made my mind up. I knew I wasn’t the only person in the UK having trouble finding an investment service worthy of the name. People say if you want a job done properly do it yourself. So I have. I’ve dragged Bill away from the City and together we have set up Montague Capital to manage customised investment portfolios for individuals. It’s really not that different from a manufacturing business after all. Work with your customers to understand what they want, deliver that service and they will be happy to pay a sensible charge.

Oh, and remember, when a potential client asks for an appointment, offer to travel to see them at a location convenient to them. After all, they are the most important people in any organisation.