Freddie Lait, chief investment officer and founder of Latitude Investment Management, discusses the bounce back in European markets and the timing of the next Fed rate hike. He speaks on "Bloomberg Markets: European Open." (Source: Bloomberg)
Where do you start if you want to create a truly long-term portfolio? If you don't have the patience to hold a stock or fund for three to five years please turn away now. Those of you still here, you have the upper hand.
Patience is the golden rule of investing. If you can master longer-term thinking then you gain a number of advantages and avoid a number of pitfalls. Time horizon is the crux of the difference between long-term fundamental investors and financial speculators. It relies on determination of future value, not just future price, and on analysis of business models and process, not sentiment or short-term distractions.
So, why is it important?
Everyone (and that includes you and me) is hard wired to make bad decisions. These common mistakes are called behavioural biases and in no other field do they present themselves more frequently than investing.
It is not essential that investors study all of these biases but, in the same way that a few simple principles help sportsmen improve their swing, it is essential that you know what you might be doing wrong, and how to correct it.
So, what are the common mistakes and how does long-termism help?
The first point to make is that everyone believes they are better than average. Once a common pitfall is explained, the majority of investors believe awareness leads to sufficient prevention. It does not.
Take for example a fact of which I am certain - most investors are no better than average at predicting the future, and most admit as much. A logical conclusion is that most investors should never predict the future. It's futile. Yet almost everyone, to a greater or lesser degree continues to attempt the impossible. This is, quite plainly, referred to as "overconfidence bias".
Making investment decisions which play out over many years without making predictions about the future may sound like a contradiction, but it is far from it. Wise investors accept that they can't see the future and restrict themselves to doing things that are within their power. Principally this includes:
- Analysis of business and industries (or funds and fund managers)
- Avoiding emotional biases
- Behaving countercyclically
Paradoxically, thinking long term means predicting less about the future and focusing on where we are. This way we gain insights about what, in a highly unpredictable world, really matters.
The first implication of long-term investments is that we should buy better businesses, which we believe will survive and thrive into the future. Analysis should focus on whether a company operates in an industry in which I would like to run a business.
Excessively precise estimations of the future ignore the huge role that randomness plays. Critically the fact that the future is highly random means what matters most is having the right initial conditions to succeed. As a result, analysis should focus on process, and people.
A second implication of long-term thinking is that if we are agreed that few of us can predict the future with any accuracy then the greatest risk to investors is not what lies ahead, it's what lies within.
Portfolios often become thematic or style-biased in the hope that this high conviction differentiation will lead to long-term out performance. The result is essentially a concentration of risk; a dangerous build-up of latent downside potential should those high conviction ideas turn sour.
This is true also for portfolios which only invest in one "type" of company such as consumer staples. This not only leaves them susceptible to sharp draw-downs, but it also seriously impacts future expected returns as your opportunity set is dramatically reduced.
At Latitude, for example, our process is explicitly designed to construct a portfolio which is style-agnostic and not exposed too heavily to any one theme or macro outcome. We focus on companies' business models, what it takes to succeed in the long-term, and the current and likely future outlook for the industry in which they operate.
The result? A portfolio that is better balanced to deal with any random and uncertain future, and better positioned to avoid falling foul of over trading or excessive reliance on forecasts.
We have all heard the phrase to "think like a business owner" when choosing stocks, and this sage advice applies just as much to overall portfolio construction. Constructing an investment portfolio is like building a business, it takes time, patience and disciplined application of a sound process.
Consider your portfolio as a conglomerate business - like Warren Buffett's Berkshire Hathaway (BRK.A). It's helpful to have multiple sources of return, and we suggest a few key areas of focus below:
- some high cash flow mature businesses (dividend focus, staples etc)
- some high growth disruptive businesses (technology, possibly biotech etc)
- some cyclical businesses (ensure you purchase countercyclically, perhaps oil and gas and mining; we have US banks)
- some defensive businesses (because you always need some portion to do well through a recession, and you will not successfully time the recession)
Moreover, it's ill-advised solely to focus on stocks. Well-timed investments in bonds, index-linked bonds, gold and currencies can hugely improve the risk and return profile of your portfolio, often allowing you more flexibility to hold stock positions for longer than otherwise may have been the case.
Finally, don't be afraid to hold cash when opportunities do not present themselves, allowing yourself to act countercyclically when there is panic in the market and stocks are trading at discounted prices.
So, the ideal portfolio is one which balances its sources of return across stocks with different business models, uses funds and stocks to achieve investment aims.
In conclusion, investors often need to take a deep breath and step away from the bustle of the market in order to make sensible decisions about their future.
We have narrowed down some simple tips that any investor needs in their pursuit of investment success, whether you invest yourself or prefer to choose other fund managers to do it for you. All of them stem from the key principle of taking a long-term view, so if you keep one thing in mind, let it be that and the others should follow.
Stop focusing on forecasting the future or timing the market and focus on achieving a well-balanced long-term portfolio. Having a set of principles which help avoid common behavioural pitfalls helps you achieve this goal.
Simply focusing on these points will dramatically improve your chances of success. If you decided to choose other funds to invest your savings for you, then use these principles as a yardstick against which all good managers investing on your behalf should conform.
Never focus on outcomes alone, because long-term performance, without a consistent and sound process, is genuinely not a guide to future returns.
Freddie Lait is founder and CIO of Latitude Investment Management and Investment Manager of The Latitude Horizon Fund.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Former Odey fund manager Freddie Lait, who heads up the Latitude Horizon fund, breaks the misconceptions many investors have about how risk-adjusted return funds should operate.
By Lauren Mason, Senior reporter, FE Trustnet
Bottom-up stock selection, double-digit cash weightings and the avoidance of any short positions or derivatives are not strategies commonly associated with funds that have absolute return frameworks. But, for Latitude Investment Management’s Freddie Lait, these ideas are key components of his Irish-domiciled DMS Latitude Horizon fund.
The manager, who ran money at Odey Asset Management for several years before launching his own boutique business, focuses on portfolio diversification as opposed to leveraging or shorting in a bid to achieve the highest possible risk-adjusted returns for investors.
This is in stark contrast to many well-known absolute return mandates – such as the behemoth Standard Life GARS fund – which tend to use a combination of traditional assets, advanced derivative techniques, pair trading and short positions to minimise volatility for their clients.
Performance of sector vs index over 5yrs
Source: FE Analytics
In the below article, the manager busts some of the assumptions many investors have about funds with absolute return frameworks and how they should minimise risk for investors.
Funds with absolute return frameworks shouldn’t have concentrated portfolios
Many absolute return, total return and diversified growth mandates run hundreds of positions across numerous asset classes at any one time to ensure their clients are covered on all grounds.
Lait’s fund adopts a far more concentrated approach, however, with its equity allocation (which currently stands at 43 per cent of the portfolio), consisting of around 20 stocks. In fact, the fund’s top 10 equity holdings account for more than 28 per cent of the overall portfolio.
“We only own 20 stocks so it’s a very high conviction portfolio, but they are very diverse. We don’t follow thematic investing, which has become a bit of a buzzword,” the manager (pictured) said.
“A majority of people that I’ve found who are trying to defend active management defend it by taking bolder bets within active management, so they may take a large bet on one particular outcome or theme such as reflation.
“They tend to work as much as they don’t – the industry is full of people who are right once in a row. You can get those big calls right with your stocks, but then all you need to do is get one or two wrong and you have permanently impaired your shareholder’s capital in quite a meaningful way.”
Alongside equities, the fund has allocated capital to gold, emerging market debt, inflation-linked bonds, emerging market currency and cash.
Concentrated absolute return-framework funds aren’t diversified enough
While DMS Latitude Horizon has only 20 equities accounting for more than a quarter of the overall portfolio, Lait said it is still diversified enough to achieve strong risk-adjusted returns.
For instance, he will never hold a style bias within the portfolio in a bid to minimise drawdowns when they fall in and out of fashion.
“It’s about diversifying using across as many axes as you can think of,” the manager said. “We hold some things which are doing really well and some things which are not, and we don’t mind that.
“It is always going to be the case that stocks, even when the underlying business is doing fantastically, will have a couple of years where they can underperform quite substantially or lose a lot of money in the share price.
“We think about it more by business model as opposed to sector or region, because if you buy Unilever for example it’s not a UK or Dutch stock, so region is difficult.”
In terms of diversifying by sector, Lait said it is also possible to find a highly-defensive stock within a cyclical industry, which means it is therefore more important to focus on a company’s fundamentals first and foremost.
“We look at cyclicals and defensives, we look at turnarounds as well where businesses have been misunderstood or are undergoing corporate change because we can take that longer-term view,” he reasoned.
Examples of the fund’s largest equity holdings include Unilever, Alphabet, Nokia and Tesco.
Performance of UK stocks over 5yrs
Source: FE Analytics
Absolute return frameworks should always be fully invested
Many investors believe absolute and total return funds shouldn’t need to hold cash, as their chosen strategies should protect them from any downside. However, DMS Latitude Horizon currently has a hefty 22 per cent cash weighting.
While the track record on the named fund only dates back to November last year, its high cash level isn’t simply because its capital hasn’t been fully deployed yet (the mandate was carried over from Odey, when it was named CF Odey Atlas).
“That is a true reflection of where I stand today. That’s a sign of there being less than we want to buy,” Lait said. “If I could, I would probably want to put 10 per cent of that into equities but we can’t find anything at the moment and I am patient and will wait.
“To invest countercyclically is one of the key things for a long-term investor as well. You have to wait for those prices to come and that can take years. We will run with levels of cash at times, although this is probably as high as it will get to at any point.”
The manager described cash as a “great asset” because it allows him to utilise any market opportunities when they do present themselves. He also pointed out that it is better to hold cash than buy into assets he doesn’t truly believe will benefit investors over the long term.
“Patience is very important and our current cash level is a sign of that. Investors would need to be patient with that but I think it’s a great asset. For funds which can’t leverage, using cash as a tactical asset class is very relevant,” he added.
Absolute return frameworks need to use derivatives and long/shorts to minimise risk
Holding short positions allows managers to diversify their portfolios and make positive returns during falling markets. The use of other common absolute return strategies, such as pair trading, can also offer a portfolio market neutrality.
However, Lait has chosen to run a long-only mandate and argued there are several advantages to this.
“Firstly, additional fees and costs such as roll costs and option premium costs go into some of these more complex derivative strategies,” he explained.
“I have structured funds using them in the past so I really do understand them quite well. There’s a lot more money in those types of trades for the house than for the client.
“I think the overall fee for a more complex fund is going to be higher, so even if I’m just a similar level of ability to that manager, I think my return will be higher by virtue of not taking so much out.”
Lait added that a long-only strategy allows him to focus more on the individual components of the portfolio and trade less frequently.
“We can take that long-term time horizon and have that focus and patience to invest for the long term,” he continued. “We can say the only driver of price is value in the long term, whereas other funds could be focused on what is going to drive prices over the next quarter or so, whether it’s earnings revisions, sentiment or momentum.
“The only thing we’re going to be spending our time focusing on every month is value. If we see prices substantially below value we will invest, otherwise we won’t.”
Funds with absolute return frameworks shouldn’t hold too much in equities
Equities are traditionally renowned for being one of the highest-risk asset classes and, as such, many investors can be sceptical about funds with absolute return frameworks that have large equity weightings in their portfolios.
“As far as I’m aware, there’s never been a 20-year period where you’ve lost money on equities,” Lait said. “People say that the fact there’s no other alternative is not a fundamental reason to hold equities, but it’s actually a pretty good fundamental reason to think about allocating for the long term.
“You do not want to own bonds for a long period of time most probably and, if you do, that implies that bond yields are going down further not higher, so almost certainly back to zero.
Performance of index over 5yrs
Source: FE Analytics
“In a scenario where you do want to own bonds, you should want to own equities more because, even if they’re trading expensively today on – for instance - 16x earnings, that’s a 6.6 per cent earnings yield and it’s growing, it’s inflation-protected and, if you’re buying global companies, you are not at the mercy of one government regime or any targeted regional risks.
“You’re just in a much more sensible asset class which, on a relative basis, is looking increasingly attractive.”
While the fund has existed for more than six years, Lait significantly restructured the portfolio in November last year. As such, our data from FE Analytics only shows performance data stretching over the last few months.
Freddie Lait, chief investment officer and founder of Latitude Investment Management, speaks to Bloomberg Daybreak’s Mark Barton and Anna Edwards about the performance of the Stoxx 600, the Trump administration’s impact on equities and the likelihood of the Fed raising rates next month.
Pressure is building on Tesco and Booker after it was suggested that the former might be forced to sell off hundreds of small stores as they face an “uphill battle” to win competition approval.
Concerns around whether the deal can win Competition and Markets Authority (CMA) backing has emerged after two of Tesco’s biggest shareholders, Schroders and Artisan Partners, last week spoke out against its £3.7bn takeover of Booker.
Matt Evans, a competition partner at law firm Jones Day, said that in order to convince the CMA to allow the deal past a phase one investigation Tesco might have to sell a number of stores, probably Tesco Express outlets.
One challenge facing the firms will be convincing the CMA that Booker does not control its “symbol stores”, which are run by independent shopkeepers under the company’s brands, including Londis and Budgens, Evans told City A.M.
He added: “My hunch is that divestments will be needed, but Tesco has a shot at avoiding it come the end of a phase two review.”
“If the CMA clears the deal outright, assuming that it agrees with the Tesco-Booker stance, I think there would be a degree of uproar,” Shore Capital retail analyst Clive Black told City A.M.
“Given how the CMA has got into the very narrow details of the retail industry in recent years, it would be almost unthinkable that they could wave this through [without concessions].”
He added: “I don’t think it’s fanciful to suggest that the combined entities may have to dispose of quite a lot of space. And that would then cause a rethink of the whole merits of the deal.”
Senior industry sources told the Telegraph they thought the deal will give the combined group too much influence over the UK’s food supply. The Sunday Times reported over the weekend that Lansdowne Partners, Axa and Jupiter have strongly reduced their stakes in Booker since the Tesco deal was agreed at the end of January.
After it emerged that Schroders and Artisan were unhappy with the deal last week, Freddie Lait, the founder and chief investment officer of Latitude Investment Management, which holds a stake in Tesco, told City A.M.: “The timing of the merger is difficult for current Tesco shareholders to digest as it is a clear distraction for management, and will result in inevitable integration costs and other frictional issues.
Therefore, it is likely that the underlying turnaround story which was making solid progress will be masked or delayed to some extent.
However, there is certainly strategic merit in the deal that positions Tesco in front of a new customer base which is growing faster and appears to be far more resilient than their underlying big box retail business.
At this mature stage in the supermarket sector’s life cycle, consolidation and vertical integration are essential, and will add benefits in the longer term through further cost cutting, increased scale and greater diversity of customers.
Tesco and Booker declined to comment.
Lattitude Investment CIO Says Dollar May Soften From Here. Freddie Lait, chief investment officer and co-founder of Latitude Investment Manager, discusses his outlook for the U.S. dollar, his take on the failed U.S. healthcare bill and the impact of a border tax on markets. He speaks to Bloomberg's Guy Johnson and Matt Miller on Bloomberg Markets European Open.
Freddie Lait, chief investment officer and founder of Latitude Investment Management, discusses Japan's trade data and what it means for the investors and the economy. He speaks to Bloomberg's Manus Cranny on "Bloomberg Daybreak: Asia.
Freddie Lait, chief investment officer and founder of Latitude Investment Management, discusses the European and U.S. banking sectors with Bloomberg's Manus Cranny on "Bloomberg Markets." (Source: Bloomberg)
Freddie Lait, founder and chief investment officer at Latitude Investment Management, discusses U.S.-China relations, Trump's agenda and the steepening yield curve. He speaks to Bloomberg's Guy Johnson and Matt Miller on "Bloomberg Markets: European Open." (Source: Bloomberg)
Freddie Lait, chief investment officer at Latitude Investment Management, examines currency markets with a focus on the British pound and Japanese yen. He speaks on "Bloomberg Markets: European Open." (Source: Bloomberg)
Freddie Lait, founder and chief investment officer at Latitude Investment Management, discusses the price of oil and how it impacts his investment decision. He speaks to Bloomberg's Guy Johnson and Matt Miller on "Bloomberg Markets: European Open."
Freddie Lait, chief investment officer at Latitude Investment Management, discusses the global bond proxy trade and his current investment strategy. He speaks on "Bloomberg Markets: European Open." (Source: Bloomberg)
By Laura Dew, Investment Week
Odey Atlas fund been renamed
Former Odey AM manager Freddie Lait has restructured the absolute return fund he brought with him to start-up venture Latitude Investment Management, as he believes the long/short structure is no longer suitable for the vehicle.
Originally known as Odey Atlas, the fund has now been renamed Latitude Horizon and is a long-only diversified growth product, targeting an absolute return with low volatility.
Lait (pictured) previously ran the fund in this structure for three years at Odey before it became a long/short vehicle in 2014.
Now running his own firm - Latitude Investment Management - he has chosen to switch it back to being long-only as he feels this is a better option for investors.
Lait said: "This is a better strategy as it has lower turnover, no macro calls, lower fees and strong fundamental analysis. You can achieve better returns without the need for being long/short."
Latitude was set up earlier this year and Lait managed to complete the process in around seven months, despite the drawn-out regulatory process involved.
"I was previously running the fund at Odey but it was not a strategy they wanted to champion. But this is a fast-growing sector which is clearly in demand and it was a great opportunity to launch my own company and be a credible contender," he said.
"It has been fun but very challenging. I first spoke about it in April and have been very lucky by being well supported. The regulation was hard but it is not insurmountable. Finding clients has been difficult but we are gaining traction."
Lait benefitted from being able to bring across his fund from Odey and the firm also backed him as a minority investor in Latitude.
Following the Financial Conduct Authority's Asset Management Market Study and its criticism of absolute return funds, Lait highlights his fund does not charge a performance fee.
Going forward, Lait believes his fund is scalable, targeting investors who reject the complexity of rival absolute return funds and want a product they can understand.
"We are singing the mood music of the current market environment. We have ambitions to grow and build out the team, and we expect to make hires over the next few weeks."
As market risks rise, investors must adjust their profit expectations - gone are the days of 8% returns. But there are still growth opportunities out there if you know where to look.
Interview by Emma Wall, Moringstar
Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Freddie Lait, of Latitude Investment Management. Hi, Freddie.
Freddie Lait: Hello.
Wall: So, I thought we could talk today about returns expectations and reality. We are facing incredibly challenging times at the moment, not least because of geopolitical risks, but also because market valuations are very high. And I think there's a bit of a disconnect between what investors should expect to get and what they would like to get.
Lait: Yes, I think, you are right. I think since cash rates have come down from sort of 5% to nearly zero or less than that in some places in the world, investors haven't really recalibrated their expectations. And so, a lot of businesses are still targeting returns that may have been achievable with a sort of 3%, 4%, 5% carry underlying it with your risk premium on top, whereas now actually I think people will need to reset down their return expectations. Sadly, I think, at the same sort of time when rates went down to zero, most markets seemed to have lost their investment compass. And so, you've seen increased volatility in FX markets and most markets around the world now including bond markets. So, I think, you are into a lower return higher risk world and it's a very difficult one to navigate from here.
Wall: And you are now running a long-only portfolio. You used to be a hedge fund manager. Multi-asset and hedge funds tend to work towards the sort of target of cash plus a certain amount. But as you say, I think, people are still thinking about, cash 4%, plus 2%, equals 6%. But that's just not the case anymore?
Lait: I think that's right and you've seen a lot of more leveraged funds, a lot of hedge funds striving to take more risk, thinking that the risk-return curve continues to be linear and I think that's been the danger. I think the right thing to do is to plan your portfolios accordingly to take a little bit less risk than you're used to now, because risks are broadly higher, try and think about real-time correlations within your portfolio rather than the long-standing 20-year relationships because correlations are breaking down a lot at the moment. And seeking to eke out that kind of equity risk premium, sort of, 3%, 4%, 5% above inflation or cash which are both near zero at the moment and aiming a little bit lower.
Wall: And it's not all doom and gloom before people get too depressed watching this video. There are opportunities out there. You just have to be a bit more clever about where you find them?
Lait: I think so. I think one way to decrease volatility in your portfolio which is very commonsensical is to invest in the sectors that everyone isn't talking about. And it doesn't necessarily mean being hugely contrarian or taking a deep value call. I think you need to take a long-term call on all of your equity investments in particular. But I think one example is the commodity space where everyone seems to be piling into, sort of the Trump infrastructural bill, things like this. Actually, if you look at what's been driving the commodity markets is mostly Chinese financial demand as opposed to real production demand.
If you work through what Trump's policies are going to mean in terms of the demand side for copper or iron ore, it's a couple of percent a year incremental demand and I look at that industry and say, well, the supply side is still terrible. People are still brining new mines on. There's excess capital employed going in. Margins are falling. To me, for the next five years, commodity producers will run for cash and prices will stay very low. So, that's not a sector where I think one should be going towards and it's incredibly volatile. So, you cut out a lot of volatility by not investing in spaces like that.
Wall: And where are you looking then? Where do you find the opportunities?
Lait: So, I think, a great place to be investing has been the U.S. financials, the U.S. large-cap banks. We've had a large number of those in our portfolio at Latitude and they continue to seem to be very good value to me. The returns are increasing. The competition has been decreasing. They are all earning their – sort of their return on capital is equal to their cost of capital at the moment broadly across the space at a zero interest rate environment.
So, in the worst possible world of heavy regulation and low underlying carry for them. They are much better businesses, they are much leveraged and I think in any kind of rate cycle I think they will take advantage of the Fintech in the market and I think they are going to grow very, very rapidly and should re-rate 1.5 to 2 times book value depending on who you are looking at with some growth. So, that's a great space.
And I think ultimately in the U.S. the consumer is still the place to be investing. That's the cyclical sector of choice for me, not the commodity and the primary producers. But if we get a little bit of wage inflation, the market is quite tight in terms of the output gap. So, I think, you will get some wage inflation and those consumers will spend more on everyday goods. So, consumer discretionary at the lower end is probably a very attractive place to be.
Wall: Freddie, thank you very much.
Lait: Excellent. Thank you very much.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
Freddie Lait, founder and chief investment officer at Latitude Investment Management, discusses the outlook for currencies and bonds ahead of a Trump presidency. He speaks with Guy Johnson and Caroline Hyde on “Bloomberg Markets: European Open.”
London, 10 October 2016 – Latitude Investment Management (“Latitude”), recently founded by Freddie Lait, is pleased to announce the launch of its first fund, The Latitude Horizon Fund. The new fund will spin out of Odey Asset Management in early November.
The Latitude Horizon Fund (UCITS V) is a global long only Diversified Growth Fund targeting absolute returns, with lower volatility and lower fees.
The Latitude Horizon Fund will invest in a concentrated portfolio of stocks which have high-quality business characteristics and strong, or improving, industry dynamics. Alongside this, non-equity investments will be made to generate uncorrelated returns, reducing risk without compromising performance. The relative allocation of asset classes will be determined by analysing cyclical factors with a long term, capital preservation objective.
Prior to founding Latitude, Freddie Lait worked at Odey Asset Management for six years, having previously worked at NM Rothschild and Goldman Sachs. Mark Carter has joined as Chief Operating Officer from Vinci Zafferano, where he was Head of Operations and Risk Management. Emma Barrat, who has joined from Oppenheimer where she built out a third party fund distribution business, will be responsible for sales and marketing.
Latitude is heavily aligned with its investors, offering a clear, transparent, and fair charging structure. The Horizon Fund will charge low management fees of 1% and no performance fee, believing that strong performance should always be an objective, alongside risk control and preservation of capital.
Commenting on Latitude’s launch, Freddie Lait said:
“I am very pleased with the outstanding support I have received from investors in the fund and new investors in the management company. Latitude is well capitalised and ideally placed to provide a best in class Diversified Growth Fund to institutions and private wealth managers in the UK and Europe. Latitude’s investment strategy follows an absolute return framework - the fastest growing sector in the active management industry - with the belief that diversified portfolio construction, combined with strong risk control, generates more desirable risk adjusted returns than employing leverage or shorting strategies.
We believe there is a significant opportunity to provide investors with an experience that combines strong performance with low volatility, low management fees and transparent reporting and charging structures. The current environment of increased volatility and uncertainty is driving more institutional investors towards absolute return strategies, and we look forward to working with those investors in the near future and in the years to come”
Freddie worked at Odey for 6 years prior to founding Latitude Investment Management. At Odey his primary focus was managing the Odey Atlas fund with a focus on fundamental stock selection and asset allocation. Prior to joining Odey Freddie spent two years at NM Rothschild where he was a portfolio manager with a focus on US equity analysis and asset allocation. Prior to that he worked at Goldman Sachs where he was an analyst focussing on US equities and building long term asset allocation models. Freddie has a MA in Maths from Oxford (St Edmund Hall) and is a CFA Charterholder.
Mark has over 15 years of experience in the Asset Management industry and prior to joining Latitude Mark was Head of Operations and Risk Management at Vinci Zafferano (UK) LLP, a London based Emerging Markets Macro Hedge Fund manager. Mark holds a BSc with Honours from the University of Greenwich, London, the Securities Institute Administration Qualification (IAQ), the Investment Management Certificate (IMC) and is currently completing the Association of Chartered and Certified Accountants qualification (ACCA).
Emma has over 14 years of experience in the financial sector. Most recently she was in charge of building out the third party fund distribution business at Oppenheimer, targeting institutional fund investors based in Europe and the UK. Prior to that she worked in the cash equities businesses of Oppenheimer, and CIBC WM focussing on North American equities. Emma holds a Bachelor of Science degree from Loughborough University and the Security Institute Security and Regulation certificate.
By Julia Faurschou, FT Advisor
Odey spin-off Latitude Investment Management is to launch its first fund next month offering a long-only diversified growth strategy.
The Latitude Horizon fund will target absolute returns with low volatility and fees, according to the firm. It will be managed by Latitude founder Freddie Lait (pictured) who left Odey after six years to start the firm.
The fund, which will be spun out of Odey in November, will have management fee of 1 per cent with no performance fees.
Latitude said the portfolio will contain stocks with high quality business and will aim to reduce correlation and risk by investing in non-equity investments.
Mr Lait said: “We believe there is a significant opportunity to provide investors with an experience that combines strong performance with low volatility, low management fees and transparent reporting and charging structures.
"Latitude’s investment strategy follows an absolute return framework - the fastest growing sector in the active management industry - with the belief that diversified portfolio construction, combined with strong risk control, generates more desirable risk adjusted returns than employing leverage or shorting strategies."
Mark Carter, previously at Vinci Zafferano, has joined as Latitude’s chief operating officer and Oppenheimer’s Emma Barrat will be responsible for sales and marketing.
By Gemma Acton, CNBC
A new fund spun out from hedge fund manager Odey Asset Management will only charge investors a 1 percent management fee and zero performance fees, levels sharply lower than traditional industry standards.
The first fund from Latitude Investment Management, the Latitude Horizon fund, has been moved from Odey's hedge fund stable into a UCITS (Undertakings For The Collective Investment Of Transferable Securities) structure.
The fund's fees are being cut as part of the move and represent a steep drop from the historical hedge fund benchmark billings of 2 percent management and 20 percent performance fees. The move highlights the squeeze on revenues in an industry hit by performance woes and rapidly evaporating investor patience.
Latitude founder Freddie Lait told CNBC via email: "We believe clients are changing the way they perceive fees and value. Many absolute return strategies, in particular hedge funds charging 2 and 20, have not delivered value over the past decade. Average annual returns for equity hedge funds have been around 1.5 percent with average annual fees estimated at more than 3 percent per year.
Signs of erosion in fee levels have been mounting with reports in recent months that some multi-billion dollar hedge funds, including Brevan Howard, Caxton, Och-Ziff and Tudor Investment Corp. have implemented cuts to some of their funds and share classes.
Such is the momentum for lowering prices that hedge fund data provider Preqin last month reported the average hedge fund launching in 2016 charges just a 1.53 percent management fee and a 19.13 percent performance fee.
The result is that only 35 percent of hedge funds currently charge in line with the classic 2 and 20 percent structure, according to Preqin – a sign of the waning investor enthusiasm for aggressive costs, further reflected in its finding that 49 percent of investors claim fees are a key issue for the industry to tackle over the next year.
And it's not just hedge funds that are suffering from fee pressures.
Asset management firms Janus Capital and Henderson Group announced their tie-up this week to create a behemoth with $320 billion of assets under management. Facing a squeeze from passive investment funds which on average charge only a fraction of active management fees,observers expect the industry to continue to consolidate as active managers seek to preserve margins through exploitation of cost synergies.
Indeed, Janus and Henderson hope to generate meaningful annual cost savings of around $110 million per year within three years of closing the deal.
According to Amin Rajan, CEO of CREATE-Research: "Further trans-national mergers are inevitable as the asset industry faces two existential threats: the relentless rise of the passives and in-house investing by pension plans."
"The industry has chronic excess capacity, a third of which is unproductive. Consolidation has been long overdue," he told CNBC via email.
And passive funds themselves are far from sitting comfortably, with news out of leading exchange traded fund (ETF) provide rBlackRock on Wednesday that it will slice its annual fees to between 4 basis points and 14 basis points from a previous range of 7 basis points to 16 basis points. This part of an aggressive ongoing price war between leading ETF managers in the U.S., including Vanguard,Charles Schwab and State Street, each scrabbling to win business from pension funds.
While acknowledging the threat from passive solutions, Lait believes there is still a crucial role for active management in portfolios.
"Clients are increasingly looking for passive solutions for their directional investments,and active solutions for the absolute return element of their portfolio", he said.
"We believe strong performance should always be an objective, alongside risk control and preservation of capital, which resonates well with our clients."
Clarification: This article has been updated from its first publication following clarification from the company.
By Joshua Thurston, City Wire
Odey Asset Management has become the minority shareholder in a former manager’s investment boutique, Latitude Investment Management.
Freddie Lait (pictured), who previously managed the Odey Atlas fund, founded the new firm which will open its doors on 1 November.
As part of the move he will be taking the £11.9 million Odey Atlas fund with him and launching it as the Latitude Horizon fund, a global long-only diversified growth strategy targeting absolute returns with lower volatility.
‘It seemed to me multi-asset long-only, lower fees, transparent, and simplistic portfolios are actually what most people – from an individual with a £100,000 to very large institutions – want,’ Lait told Wealth Manager.
The fund will charge an annual management fee of 1% and no performance fee.
Prior to the six years he spent at Odey, Lait worked at NM Rothschild and Goldman Sachs.
He is joined by chief operating officer Mark Carter from Vinci Zafferano and Emma Barrat from Oppenheimer, who will be responsible for sales and marketing.
Orlando Montagu, a partner at Odey, added: ‘We absolutely wish him well. We are minority shareholders. We did not want to build the business in-house but we absolutely want to support him in building it externally. It is something we often do with people who have had a good career here and want to do their own thing.’