Opalesque Industry Update - |
• Odey calls an end to clients’ ‘raw deal’ at the hands of consensus driven underperformance
• Odey’s contrarian views do not support the belief of the high risk of double-dip global recession
• Odey’s bold asset allocation decision is to own corporate cashflows, rather than to hide in the illusory safety of fixed income
• Odey believes bank equity is under-priced
Crispin Odey, the renowned investment manager behind Odey Asset Management is to launch a wealth management proposition to address the ‘raw deal’ he believes the current crop of ‘bloated’ wealth managers provide to their clients.
Odey believes this is exactly the right time to launch his private client wealth management proposition. Whilst the consensus economic view believes that there is a high risk of double-dip global recession, Odey’s own economic assessment is more favourable, supported by evidence that the self-reinforcing mechanisms of a standard cyclical recovery have been accelerated by the preceding phase of global inventory replenishment. Odey favours for example some US and European banks, believing that bank equity is underpriced.
In addition to the considerable investment resource that Crispin has brought together over 20 years, clients of Odey Wealth Management’s portfolio based proposition will benefit from an investment strategist who successfully predicted the dotcom bust of 2000-3 and the recent credit crisis.
Odey Wealth Management has hired Tim Bond from Barclays Capital and Peter Martin from Rothschilds to work alongside Crispin Odey. The new company will, for the first time, offer private clients the investment research capability that has earned Odey his reputation and exceptional track by using asset allocation and stock selection to build and protect clients’ capital through tough markets and challenging investment environments.
Commenting on the launch Crispin Odey explains:
“I’m calling an end to the raw deal served up by many providers in the wealth management industry. The big bank model died in 2008. Too many so-called professional investors embrace mediocrity by seeking consensus views that starve private clients of performance whilst lining the managers’ pockets with high and often hidden charges.
“In addition, the fund of funds approach to wealth management has been outed as expensive, opaque and sub-optimal. The platform model is similarly doomed. Private clients want to buy a fund manager’s judgement not an endless choice of ways to lose money.”
“We abhor the lazy thinking of index relative returns. Our proposition will attract those private investors seeking long term wealth enhancement and long term relationships powered by a leading fund manager’s conviction. Investment styles need to adapt as opportunities change. Living in investment denial must be avoided – if an investment is not working, we won’t wait until it does.”
Odey Wealth Management has brought together a team of opinionated and ambitious investors whose focus is to make commonsense, bold and often contrarian calls on markets and individual stocks. Odey believes that investment opportunities are far more favourable than market consensus. Recent evidence points to a soft-landing in China, with leading inflation indicators rolling lower and no obvious requirement for further restrictive measures.
In addition, global asset allocation flows have strongly favoured "safe haven" assets, such as bonds and gold, over cyclically sensitive assets, such as commodities or equities. The relative pricing of bonds and equities incorporates a large - and in Odey’s view - exaggerated risk premium, reflecting elevated fears of a double-dip.
Commenting, Tim Bond said:
“Equity prices have lagged the recovery in actual and forecast corporate profits, leading to a decline in PE ratios and a continued de-rating of equities. At current valuation levels, bond yields are compatible with a long run nominal return of around 2% whereas equity valuation suggest a long run return above 10%.”
Turning to the specifics of the banking sector, Tim Bond says, said:
“Large portions of the US and European banking system now appear to have excess capital. With loan loss rates likely to decline fast, the appetite to lend is starting to improve. If the banking system is indeed as healthy as we believe, bank equity is underpriced. A revival in the appetite to lend and to borrow suggests that monetary policy will gain increasing traction on the real economy over the next few quarters. As a bank lending picks-up over the next year, effective financial conditions will become progressively easier, exerting a powerful stimulus for private demand. This factor should offset the anticipated drag on growth from public sector retrenchment.”
In summary Odey said:
“Our asset allocation conclusion drive us to move out of bonds and gradually increase equity exposure, favouring banks and cyclical sectors, particularly those most exposed to China, such as luxury goods, base materials and energy.”
Odey Wealth Management’s high conviction investment strategies will be constructed around a bespoke private client portfolio, long term returns model. The sterling based individual portfolios have the flexibility to invest in a broad range of asset classes with a long only focus. At launch the portfolios will have a heavy bias toward equity exposure (searching for value in developed economies and growth in developing territories) and a low weighting in bonds. The charging structure will be a flat 1.0%.
£1,000 invested in 1992 in the flagship fund would today be worth £13,500 against a benchmark return over the same period of £2,500. Notably the fund returned +12% in 2002 when the index was down -31% and +11% in 2008 when index was down -44%.
Odey has slowly attracted an investment team and a client base committed to these principles and today continues to focus on performance and not asset gathering. More than half of the 60 employees are investment professionals and the employees are amongst the largest investors in the strategies they run. www.odey.co.uk
Prior to joining Odey, Peter Martin was a managing director at Rothschild, head of investment management & manager of the Rothschild Preferred Income Trust. Prior to Rothschild, Peter was a director at JP Morgan Fleming Private Asset Management. Peter graduated from SOAS, University of London in 1983.