Fund management founders on why they set up their business
Three founders of fund management firms have shared what prompted them to break away and set up their own businesses.
Michael Skinner of Blackwattle Partners, Steve Johnson of Forager Funds Management, and Andrew Mitchell of Ophir Asset Management all appeared on the Relative Return podcast to discuss running their firms.
Prior to setting up their businesses, the trio worked at Renaissance Asset Management, research firm Intelligent Investor, and Paradice Investment Management, respectively.
Johnson, founder and chief investment officer at Forager, said: “We saw an opportunity to invest at that smaller cap end of the market, to be nimble and get out there and find these special situations. It literally started with $10 million and a fairly small number of clients and we just kicked things off and said, ‘Let’s see how we go, and if it works, great. And if it doesn’t, it doesn’t’.”
Johnson noted he has helped by his age, setting up the firm when he was only 30 that made him more open to taking risks and trying things out. The firm now runs a $163 million Australian Shares and $219 million International Shares fund.
“I started this business very young, I was only 30 when we started the funds management business. I’m 46 now so we’ve already made a lot of mistakes but have learned a lot of things and have the luxury of a nice runway ahead of us. We’ve thought long and hard about succession but we also still have a long time ahead of us to get it from here,” he said.
Skinner, managing director at Blackwattle, said: “What the company and its founders did was look at the funds management landscape in Australia. We spent a lot of time recognising where things were done well by managers, but we also identified where things were done very poorly. And we set out to create a better model, a better platform for our clients and better returns.”
Blackwattle has been extremely active in its first year since launch and now runs six funds: Small Cap Quality, Small Cap Long/Short Quality, Mid Cap Quality, Long/Short 130/30 Quality, Large Cap Quality, and Global Quality.
“We did a lot of market research on where we think there is investor demand, first of all, then we looked at some of the industry surveys on fund manager performance and we sought out investment teams that had top quartile performance,” Skinner said.
"We’ve got a pretty strict criteria. First and foremost, it has to be a product or an asset class where we see investor demand. The team has to have a clear track record of outperformance. They have to be driven and willing to invest their own capital alongside our clients. And they have to be a cultural fit, so they have to exhibit drive, intellectual curiosity and most importantly for us, integrity and humility.”
Like Skinner, Mitchell set up Ophir with his former Paradice colleague Stephen Ng because he foresaw a way to do things differently in the market. Ophir now runs an Opportunities, Global Opportunities, and High Conviction fund.
“We were looking to execute the same way as we had [at Paradice], there was no particular niche but we did think there was a different way to run a business,” Mitchell said.
“There’s a lot of small cap funds but what we thought was there was a better structure, better way of going about things where you get very strong alignment. You don’t go about raising as much money as possible, you keep it small so you can get the best performance.”
When selecting companies for the funds, he said Ophir looks to gain an edge by analysing whether earnings will beat market expectations.
“We want to see a business that’s growing earnings and return on capital greater than the market expects. We want the valuation to be cheap relative to the earnings growth that we think, and we want to have that optionality, because if it plays out, you can really be handsomely rewarded,” Mitchell said.
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AUTHOR
Laura Dew
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