London-based Independent Franchise Partners LLP is both an unlikely money manager for the times and an apt example of how to establish an independent boutique in the current environment, according to sources.
The traditional long-only equity manager invests in franchises that can earn sustainable, high returns based on hard-to-replicate intangible assets such as patents, trademarks, brands and distribution networks.
IFP has an average holding period of about seven years at a time when most active equity managers have a more short-term view. For example, the average annual turnover of long-only active equity strategies is about 72%, and about 20% of the portfolios have a turnover rate of 100% or more, according to a recent survey published in February by Mercer LLC, New York.
IFP doesn't use leverage and is fully invested — even during the financial crisis of 2008-2009. At a time when the trend in asset management was to be big — as evidenced in New York-based BlackRock Inc.'s acquisition of Barclays Global Investors, San Francisco, creating a $3.35 trillion investment management behemoth — IFP officials decided in June 2009 to spin off from its global parent company, Morgan Stanley Investment Management, New York.
Despite having launched in the middle of the recession, assets under management reached $1.2 billion by year-end 2009, and IFP has a healthy pipeline of asset inflows expected this year. Officials at IFP declined to name the firm's pension fund and endowment clients, but said they include several U.S. corporate pension funds; a sovereign wealth fund based in Asia; a European corporate pension fund; an Australian superannuation fund; and an Australian corporate pension fund. The firm also subadvises funds for other institutions, including Macquarie Group Ltd., Sydney.
“On the one hand, (the investment strategy) is based on an intuitively logical investment criteria applied in a very transparent way. Secondly, the long-term investment experience has produced very attractive returns with lower-than-average volatility.” said Hassan Elmasry, partner at IFP. “That combination makes it an attractive diversifier for broader plans.”
IFP is also among a new group of money managers that have emerged at a time when it's easier than ever to launch an asset management business, according to several sources who advise such companies. In the case of IFP, it took 72 days to launch. At Sanders Capital LLC, the firm launched by former AllianceBernstein LP Chief Executive Officer Lewis A. Sanders, officials were able to “to hit the ground running” in three months, said Camie West, senior vice president and head of relationship management for investment operations outsourcing in North America at Northern Trust Corp., Chicago. Both IFP and Sanders Capital outsource certain back-office activities such as custody, fund accounting and performance measurement to Northern Trust.