Work with Sanlam

According to Dunne, persuading investors to take a risk with a boutique firm is one of the biggest challenges smaller firms face, particularly when trying to gain institutional assets. This was one of the initial factors which attracted FOUR to partner with Sanlam International Investments (SII) in 2009.

“We funded the company privately at first but, as the credit crisis unravelled, it became clear it was going to be a challenge. It would have been a stretch for trustees of pension schemes to take a risk investing in a new privately-owned company. Lots of people liked the idea of using a boutique, but there were very good reasons for them to go for a tried and tested fund,” he explained.

“Sanlam is a very solid company, and the name helps with the reputation, so people know we have that backing behind us.”

SII first took almost a 30% stake in FOUR in 2009, and recently increased this to just below 90%, in a move which will see the firm rebranded as Sanlam FOUR. The move will see an increase in total assets under management and allow further assets to be allocated to the existing FOUR funds. It has also meant an increase in headcount, with seven SII staff moving to FOUR’s Farringdon offices.

Having received Financial Conduct Authority approval this month, SII will be dissolved and both companies will initially operate under a holding company before becoming a single regulated entity, while the FOUR funds will be rebranded Sanlam FOUR next year.

It has also been announced SII’s Fund Solutions division will take over fund research responsibilities from Sanlam Private Investments, following the departure of SPI’s head of managed funds Paul Surguy in November.

Capacity limits

The firm has strict capacity limits on its funds. It runs £1.4bn across segregated mandates and its retail funds, though no strategies are in danger of reaching those limits as it stands.

“We are always open to new ideas, and can accommodate further teams. We made a conscious decision at the start to avoid having a consistent investment process so each team can work on its own individual merits,” Dunne said.

FOUR’s most recent hire is Adour Sarkissian, who joins from ING where he ran a $1.7bn US High Dividend fund for seven years. Rather than searching for a US manager, Dunne said the firm was approached and, having met with Sarkissian, decided there was a gap in the FOUR range for a US product.

FOUR is now launching its own US Dividend Income fund for Sarkissian in mid- December, seeded with $100m from Sanlam. This will be split into two pots: $75m in a segregated mandate and $25m in a pooled fund for retail investors, and will be run along similar lines to Sarkissian’s former ING fund.

Dunne said FOUR Capital’s unusual ownership structure is a significant attraction for new managers wanting to join the business. As well as a base salary, investment teams own 30% of their own business line and all employees own 11% of the business. This approach is unchanged by the SII deal.

“This approach allows us to get airtime with very good people, and also motivates managers to achieve good performance. We do not suffer from a lack of choice when it comes to hiring new managers.”

US focus

The US fund will be the first dividend-paying fund the company has launched and Dunne noted clients are desperate to receive an income, “often to the detriment of anything else”.

FOUR is also considering adding an enhanced income share class to certain funds. It is also hoping its closer link with Sanlam will increase awareness among retirees. “Through their financial advisers, Sanlam is looking at decumulation strategies, and anything with income would be good for that as retirement can be a long time. They think [our] Multi-Strategy fund is an interesting option as it offers definite downside protection, as is the new US fund, which will have a dividend yield of 4%.”

Dunne is full of ideas for the new Sanlam FOUR business. In its capacity as an equity specialist, Dunne feels there are still gaps in the market for FOUR to fill. Sarkissian’s US fund is due to launch in mid-December, and Dunne’s next target is opportunities in the areas of Asia ex Japan, which he has been considering for a while, and global listed property.

In five years’ time, Dunne said he would like to see the same investment teams in place managing money, having achieved their client objectives and reached their stated maximum assets under management. Highlighting that a boutique firm does not necessarily have to mean a small firm, he can see plenty of areas for development ahead of FOUR Capital.