CITY veteran Terry Smith is today set to launch his new fund management venture Fundsmith, which aims to shatter preconceptions about the industry by offering investors low fees and a risk-adjusted long term strategic focus.
Smith said he aims to capitalise on a “groundswell of opinion” against what he views as the “utterly unsupportable” industry standard of applying a two-and-twenty fee structure – where the manager takes a two per cent management fee and a 20 per cent cut of any upside.
In comparison, Fundsmith will charge direct retail investors a sole management fee of just one per cent.
“Other people will struggle to understand how we are able to do that,” Smith said. “But the truth is that usually, firms’ cost bases expand if they have more money to burn… We are starting with a blank sheet of paper and we don’t have a bloated infrastructure.”
Fundsmith will also concentrate on delivering a stable, long term return for its investors rather than following short term bubbles, Smith said, adding that the fund will target companies which have an established brand name and are resilient to change – especially those selling small-ticket, non-durable items to consumers on a regular basis.
It will not touch companies in the financial services sector.
“It requires real emotional discipline not to chase after the latest fad,” said Smith, who will personally manage the fund alongside head of research Julian Robins. “We will not market time, hedge, trade, short, invest in sectors we don’t understand or panic when markets fall. We will only invest in companies that have attractive valuations, high barriers to entry and are extremely resilient.”
Smith has initially invested £25m of his own money into Fundsmith, which he said would be his main investment vehicle.
TIME LINE | TERRY SMITH
Terry Smith joined the stockbroking world with W Greenwell & Co, and for the next five years was the top-rated banking analyst in London.
Smith became head of UK company research at UBS Phillips & Drew, a role from which he was dismissed in 1992 after the publication of his best-seller “Accounting for Growth”, which criticised accounting practices used by some huge firms, including UBS clients.
Smith joined Collins Stewart, moving up to become a director in 1996 and chief executive in 2000. He then led a management buy-out of the firm, which was floated on the LSE five months later.
Collins Stewart acquired Tullett Liberty, and a year later snapped up Prebon Group, creating the world’s second largest inter-dealer broker. The firms were demerged in 2006.
Smith handed over the chair of Collins Stewart to ex-Caledonia Investments boss Tim Ingram, remaining as deputy chairman to support the transition.
Smith announced his retirement as a director and deputy chairman of Collins Stewart from December, in order to focus on Fundsmith. He remains as chief executive of Tullett Prebon.