BOSS OF THE WEEK: HAMISH BUCHAN
HAMISH Buchan might be seen as having taken on a bit of a poisoned chalice when he replaced Alex Hammond-Chambers as chairman of the Association of Investment Trust Companies (AITC) in December.
After all, the split-capital investment trust debacle — which wiped out about £600 million from investors’ portfolios as certain types of high-risk investment trust went down the tubes — is still fresh in many investors’ minds. Arguably, the episode has tainted some investors’ impressions of the investment trust sector as a whole.
However, Buchan, an affable 60-year-old who lives in the leafy Edinburgh suburb of Barnton but commutes to the London-based AITC for board meetings, believes the episode could have done much more lasting damage to the sector.
Indeed, he seems confident the AITC has put the debacle behind it.
“The wounds are healing but they are not completely healed. There are some people who will probably never come near investment trusts again. But that’s the reality of life. I feel extremely sorry for the people who lost a lot of money in these things. But we move on, and lessons have been learned. We just have to make sure that the lessons that were learned never get repeated.”
Hamish Buchan sees one of his key goals at the AITC as bringing greater transparency to a niche area of the long-term savings market that has, for many years, suffered from being seen as opaque. Investment trusts are specialist companies which exist to invest in other businesses. “I want to be open, available and communicative. I’m a great believer in transparency.”
He certainly seems to live by these words. He is, for example, refreshingly honest about his own reasons for abandoning attempts to qualify as an actuary while working for Scottish Widows in the mid-1960s.
Hamish Buchan describes how, as an 18-year-old school leaver in 1963, he joined the Edinburgh life insurer with a view to gaining an actuarial qualification. So why did this not come to pass? He says candidly: “I suppose I wasn’t bright enough.” But he adds: “Also, I became more interested in the investment world, and I realised I was after a career in that area.”
Buchan was introduced to the world of finance by his Scots-born father, who ran Bank of London South America (today part of Lloyds TSB) in the remote town of Punta Arenas in Chile’s far south. “Farming was a big thing out there. I used to spend a lot of time on sheep farms; one had access to a horse.”
Oddly Hamish Buchan, who spent his teenage years as a boarder at Dollar Academy, has never been back to Chile since going out to visit his parents during a school vacation in 1959 — partly for fear of being “roped into doing Chilean national service”.
On leaving Scottish Widows, Buchan joined Wood Mackenzie, then one of the UK’s leading institutional stockbrokers, just as it was entering a growth spurt under the leadership of John Chiene.
Hamish Buchan was given the task of analysing investment trust companies, a small subset of the London stock market, something he did for the next 30 years. During his WoodMac years, he and his colleagues won just about every award for investment analysis in the book. He also rose through the ranks to director, and then chairman of the group’s Scottish operations.
“During the 1970s we were on a bit of a roll and the whole firm had a dynamism about it and you just felt you were getting somewhere. It was a very exciting era and a fantastic time to be in that firm.”
But the dynamism started to evaporate after WoodMac was taken over by a succession of institutions including Hill Samuel, NatWest, Bankers Trust and Deutsche Bank. By the time he was 55, Buchan felt it was time for a change of scenery. He saw the takeover of WoodMac by Deutsche Bank as a “natural exit point” and left to embark on a “portfolio career”.
TODAY, in addition to his AITC role, Buchan is a non-executive director of six investment trusts: JP Morgan Fleming American (where he is chairman), Scottish Investment Trust, Aberforth Smaller Companies, Personal Assets, (former WoodMac colleague Robin Angus is also a director), Standard Life European Private Equity and Shires Income.
Buchan, also a trustee of the charities Scottish Community Foundation and Stewart Ivory Foundation, has two self-imposed rules when offered directorships. He says he would never join the board of two trusts which are managed by the same asset management firm, and neither would he go onto two trusts with the same investment policy.
He believes there has been a “step change” in the type of people joining investment trust boards over the past five years. In the past, non-executive directors of such trusts were often members of a small but clubbable elite, who sometimes lacked the skills to really look after investors’ best interests.
Today he believes the widespread use of head-hunters is widening the skills base. Another change bringing better corporate governance since 2003 is that trust boards have been required to explain why they retain the services of their appointed asset management group in every single annual report.
Hamish Buchan says wryly: “That’s not always so easy, particularly if they’ve just had a sustained period of poor performance.”
But he believes that in 10 years’ time, the accusations of cosiness and incompetence levelled at some trust boards will have evaporated. “Most of the diehards will have gone; most directors of investment trusts will have grown up under the new modern style.”
One of Buchan’s other goals at the AITC – which employs 20 staff and is led by director-general Daniel Godfrey in London – is to increase the membership, and he is trying to persuade certain offshore trusts to sign up. He is also looking at enlarging the constituency of fund types that are eligible for membership.
“Currently 70 per cent of [investment trust] companies are members, but I would like to get that to 90 per cent.”
Buchan also wants to highlight the merits of investment trusts as saving vehicles. “We’ve got to persuade people that our product is not high-risk. At the end of the day, investment trusts look to produce superior performance, which is made easier by our lower charges and the gearing.
“Some of the more recent numbers on investment trusts versus unit trusts are very, very positive towards the investment trust sector.”
He is confident that investment trusts have a healthy long-term future, if only as a niche area of the savings market. “I don’t think we’ll ever be as big as the unit trust market and I don’t think we should even attempt to be. But what we should be doing is making sure that the products we’ve got are quality products and that we have got managers who are justifying their existence, which is where boards have a very strong role to play.”
He says unit trusts and open-ended investment companies (OEICs), unlike investment trusts, have no boards of directors to keep fund managers in check.
“In the next 10 years there will be a period when investment trusts are taking in some serious new money.”
HAMISH BUCHAN – NEED TO KNOW
CAREER: Hamish Buchan became the chairman of the Association of Investment Trust Companies in December 2005. He started his career with Scottish Widows in the 1960s, but for 30 years worked at Edinburgh-based institutional stockbroker Wood Mackenzie, where his team was consistently voted the UK’s highest-rated for investment trust analysis. Today, Hamish Buchan is a board director of six investment trusts.
MENTOR: John Chiene
DRIVES: Mini Cooper S
FAVOURITE BUSINESS BOOK: “Haec Olim” by Robin Angus
FAMILY: Married in 1989 to Lynne. Four step-children and nine grandchildren.
This article was published in the Sunday Herald on 5 March 2006. Read it on Herald Scotland