The future is bright for Colin McLean, SVM Asset Management chief, despite the loss of top personnel and a drop in AUM. Ian Fraser reports
Colin McLean was once the “enfant terrible” of Scottish finance. In the 1990s, he caused consternation among members of the “Edinburgh mafia” by mounting dawn raids on underperforming investment trusts.
The aim was to benefit his own, mainly retail, investors by forcing change in the trusts, including a narrowing of discounts, changes of manager or even wind-ups. His Scottish Value Trust, which performed well, played a part in shaking up a cosy backwater of the investment industry.
At 54, the Glaswegian has lost none of his revolutionary zeal but is aiming at slightly different targets. One thing Colin McLean cannot abide is inadequate investment performance.
In autumn 2005, there was what looked to outsiders like a haemorrhaging of talent from his Edinburgh boutique, SVM Asset Management. Two of Colin McLean’s long-serving colleagues, David Stevenson and Andrew Kelly, departed to form Cartesian, a joint venture with Resolution Asset Management, and two other managers also left.
Losing four of SVM’s seven investment professionals seemed a big blow at the time. However, Colin McLean seems happy at how things have worked out. He was latterly dissatisfied with the performance of some of the departees and pleased it created space to bring in new talent.
Soon after the quartet jumped ship, Mr McLean raided rival Edinburgh firm Kempen Capital Management to hire Neil Veitch (to manage SVM UK Opportunities) and Hugh Cuthbert (to manage SVM Continental Europe).
He also appointed Hector Kilpatrick from Standard Life Investments (to manage SVM Alpha) and David Dodds from Blue Planet Investment Management as an investment analyst.
His wife Margaret Lawson, with whom he co-founded the business in 1990, took over the reins on UK100.
The new line-up has created a renaissance of performance at SVM that has attracted the attention of IFAs. Colin McLean singles out the performance of the SVM UK Opportunities Fund. In the year to December 2006, Veitch’s first at the helm, this was the best performer among 324 funds in the UK all-companies sector, returning 35.8 per cent.
The share price of investment trust SVM Global (formerly Scottish Value Trust) climbed by 18.7 per cent over the same period, compared to the FTSE World Index’s 4.2 per cent rise. SVM Global is a fund of funds, a mechanism that enables Colin McLean to use managers who are close to the ground. The £211m fund’s biggest holdings include Eurovestech, Firebird Republics Fund, Real Estate Opportunities Trust, Petra Diamonds and Cadogan Alternative Strategies.
SVM Asset Management remains 100 per cent owned by McLean, Ms Lawson and their co-founder Donald Robertson (who co-manages SVM Global).
Colin McLean dismisses suggestions that the spate of departures he suffered in 2005 was connected to the inability of his fund managers to access their own equity stakes in the business. “We have issued convertibles, so effectively 25 per cent of the equity can go out to staff at any one time.” He adds that the hiring of Messrs Veitch, Cuthbert, Kilpatrick and Dodds proves SVM’s remuneration policy must be “pretty competitive”.
Colin McLean has also had to contend with a fall in total assets under management in recent years. In 2003-04, the firm had virtually £1bn under management, a sum which has since fallen to about £600m.
“The main reason was that a multi-manager fund we managed for an investment consultant was withdrawn. It was a 20 basis point fee, which was too low for us anyway,” says Mr McLean.
More painful was the major exodus of money from SVM’s two hedge funds – Highlander and Saltire – at around that time.
Mr McLean believes such products are cyclical but believes that running hedge funds from Edinburgh may not make sense. “Those type of clients need to do more diligence, they need to do on-site visits and you have that extra 400 miles to bring them.”
However,McLean has put these disappointments aside and is buoyed up by the group’s performance recovery since the events of 2005.
He is confident SVM can break through the £1bn barrier again relatively soon, saying: “There’s no reason why, over the next five years, we cannot build the asset base up to £2bn. But it’ll be important to do it on the right fee basis.”
He has no current intention of selling out, as fellow Edinburgh boutique Walter Scott & Partners did recently to Mellon Financial. Even though SVM’s profitability has fallen slightly since 2003, he says, the business is well capitalised, with £20m in the bank.
“It’s not something we’re planning to do in the next five years, which is as far as our equity schemes and incentive plans go.”
This article was published in the Financial Times’ FTfm section on 9 April 2007