Sandy Nairn saw through the dotcom bubble. Now he’s booming in the Scottish fund management scene, finds Ian Fraser
WHEN Sandy Nairn, chief executive of the investment boutique Edinburgh Partners, was living through the dotcom bubble in America, he struggled to get to grips with the Alice Through The Looking Glass nature of the stock market at that time.
The thundering investor stampede into the technology sector was inflating the share prices of a select band of firms to bursting point, yet Nairn knew their real worth was probably only a tiny fraction of their official stock market valuations. With a PhD in economics from Strathclyde University, he was puzzled and exasperated in equal measure.
At the time, Sandy Nairn was global head of research at Fort Lauderdale- based investment group Franklin Templeton. The bubble meant the much more boring stocks which he had been recommending were, despite their intrinsic strengths, being left standing by the likes of Nortel, BT, Nokia, Cisco Systems and Amazon.
“If you didn’t own those stocks, your performance went nowhere, while funds that were invested in such companies were shooting the lights out. I was coming under a lot of pressure from clients, their advisers and my peer group to buy stocks which I believed to be overvalued and unsustainable.
“It’s hard to explain how hard that time was. Your feeling of your own self-worth suffered, as it’s invariably tied up with the returns you’re offering to your clients. You just feel like an idiot. You get a sick feeling in the pit of your stomach.”
Sandy Nairn’s response was to stick with his investment approach, not go with the flow. That’s his style. You don’t earn a formidable reputation as a “contrarian investor” — as he has — without standing up for what you believe in.
Nairn started doing some serious historical research of his own. With a book in mind, he had a close look at major technological breakthroughs of the past, including the railways, the telephone and electricity, in order to assess how such developments had effected the long-term shareholder value.
“The book was, in a sense, a form of therapy, ” says Sandy Nairn.
Within a few weeks of starting to write, which he did in evenings and at weekends, he started to feel better, realising he wasn’t going crazy. It was the world around him that had lost touch with reality.
Writing the book, which was eventually published as Engines That Move Markets in January 2001, enabled Nairn to become more confident about what should motivate an investment decision.
“The philosophy is simple. Buy an asset for less than it’s worth. To do that you’ve got to work out what it’s worth, not rely on somebody else telling you. That means research is the key.” Like other Scottish-based investors, Nairn has little time for the US market at the moment. “Last year our exposure to the US was two per cent. We couldn’t find much that was cheap over there, ” he says.
The unforgiving approach has won Sandy Nairn, who quit Scottish Widows Investment Partnership (Swip) where he had been chief investment officer, in March 2003, quite a following.
One is Sir Angus Grossart, chairman of the Edinburgh-based investment bank Noble Grossart. Grossart has invested around £1 million in Edinburgh Partners Ltd, the investment boutique which Nairn and a group of former colleagues set up in July 2003 after leaving Swip. This gives Grossart some 15 per cent to 16 per cent of equity in the new fund management business.
“I’m very glad to have him as an investor. When we have needed advice he has been very helpful, ” says Nairn.
Another admirer is Sandy Nairn’s former boss Sir John Templeton, founder of the eponymous global fund management group where Nairn earned his stripes.
On Edinburgh Partners’ website, a quote from Sir John is prominently displayed. It reads: “My former colleague Sandy Nairn and his team, who are the new firm, have outstanding individual talent and investment discipline. It seems likely that they can produce excellent long term investment returns.”
With the unpleasantness of the dotcom era, and the politicking of Swip, behind then, Nairn and his colleagues who include the UK equities specialist Graham Campbell seem to be having fun.
Since launch in July 2003, Edinburgh Partners has amassed some £70m in funds under management. In December 2003 it raised £22m for the Edinburgh Partners Global Opportunities Investment Trust, despite torrid markets at that time. This most traditional of vehicles turned in a strong first year’s performance, with net asset value per share rising by 20 per cent in the year to February 2005.
Nairn says he established EPGOIT because he believed the bear market had created some excellent growth opportunities for undervalued stocks, with price anomalies being corrected over time.
These early successes, along with some referrals of institutional business by investment consultants, probably played a part in the Anglo & Overseas investment trust’s recent decision to switch the management contract for a trimmed-down successor vehicle to Edinburgh Partners. The £340m trust is currently managed by London-based Deutsche Asset Management, and the decision to shift the contract followed Deutsche Bank’s decision to hive off its fund management arm.
Nairn is surprisingly modest about the Anglo & Overseas win, even though it is going to lift his firm’s assets under management from £70m to around £400m once the new Anglo assets are transferred in around August.
Sandy Nairn says: “The team here is used to running billions of money. What’s important is that you have fun when you come in in the morning. And you only have fun if you are producing good returns. And if you produce good returns eventually you get more clients. That’s the sequence of events. Don’t focus on assets, focus on doing the day job and the rest follows.”
“The challenge now, on the management of Anglo & Overseas, is that the trust trades at asset value, and the performance is good, which helps the former happen. You could say that in a public sense, winning Anglo & Overseas is very gratifying, but we are already beginning to get recognised on the institutional side.”
Sandy Nairn detects a new vibrancy in Scottish fund management after the negatives of the loss of independent players such as Ivory & Sime, Murray Johnston, Edinburgh Fund Managers and Stewart Ivory.
“Walter Scott & Partners has been extremely successful, very quietly. Aberforth are extremely successful; Artemis have done very well; there are a host of companies that appear to have come from nowhere and that’s very important for the future of the industry in Scotland.”
“Some of them, arguably, weren’t there 10 years ago. It is regeneration that is important.” Sandy Nairn is currently putting together a second book, in partnership with Jonathan Davies, the investment columnist on The Independent, on his own investment style. This is also likely to examine the investment style of his mentor, Sir John. “I have been heavily influenced by him, ” said Nairn.
Sandy Nairn would like the title for the new work to be It’s Different This Time. According to Sir John “those are the four most expensive words in investment history”. Not a lot of dotcom investors knew that.
SANDY NAIRN MINI PROFILE
Alasdair “Sandy” Nairn, 44, is chief executive and investment partner at Edinburgh Partners, the investment boutique he founded with several departees from Scottish Widows Investment Partnership (Swip) in July 2003. Before that he was chief investment officer at Swip. November 2000 marked the end of a 10-year stint at Templeton, latterly as head of global equity research at Templeton/Franklin Group.
This article was published in the Sunday Herald on 15 May 2005