The UK investment industry is failing its clients, says Alan Miller, one of the world’s most respected fund managers.
Mr Miller, the founding shareholder of New Star Asset Management, believes there is a lack of transparency between fund managers and their clients.
He says: “Some do it in a solid, sensible fashion but unfortunately that isn’t the norm and many large fund management companies have grown by taking advantage of the trust which their clients have put into their brand. In essence, they have completely misled their customers.”
Mr Miller has one of the longest track records in money management in the UK, having spent 19 years playing principal roles at Gartmore, Jupiter Asset Management and, more recently, New Star, where he made more than £30 million as chief of its flagship hedge fund.
Mr Miller now runs SCM Private with his second wife Gina, a serial entrepreneur who has set up seven businesses. SCM was established in 2009 to give investors a better deal for their money rather than the high fees and underwhelming performance that Mr Miller believes are all too common. Four years on and the absolute return portfolio (run along the lines of an absolute return fund and may be all equity, all bonds, or all cash, in order to provide strong absolute returns while trying to reduce downside risk) is up 43.7 per cent and the long-term return portfolio (akin to a traditional pension fund with a broad diversification of asset classes that change as circumstances warrant) is up 54.1 per cent. The bond reserve portfolio, launched in June 2011, is up 17.4 per cent.
Last year, SCM launched its True and Fair Campaign, calling for 100 per cent transparency on fund management fees and transaction costs, and full disclosure of where savers’ funds are invested. Mr Miller believes savers are being ripped off, having to pay £18.5 billion a year in fund management and dealing costs — nearly 80 per cent more than savers pay in the US.
Other leading money managers have picked up the campaign, including Legal and General, CoFunds and the Treasury Select Committee.
“It’s astonishing that you have to produce a campaign to enable customers to see where their money is being invested and how much it’s costing. When you think about it, you couldn’t get more ridiculous,” says Mr Miller.
“Clients should be entitled to know what their investment is costing all in, from top to bottom, so that they can compare it to whatever they think the returns will be,” says Mr Miller.
“If you are investing in Western Government bonds that are yielding close to two per cent per annum and you think your return is going to be two per cent per annum, that strikes me as a slightly absurd investment decision.”
He recognises that there is a worry among managers that, if people knew how much it cost, they would not want to invest. “But that’s a fairly short-sighted approach, which doesn’t look at the long-term future of the industry.
“We need to provide investors with information on how much it is really costing. And because many customers realise they are being ripped off — and in essence defrauded — by many fund management companies, they are choosing to bypass the system completely.”
Mr Miller says because fund managers do not have a crystal ball investors should not rely on past performance as an indication of future returns. “But, as fund managers ,what we do know is that markets have just risen sharply and it is our view that the pace of change will be much less pronounced from here on in.
“The best strategies for investing in such markets are to reduce the overall cost of investing; focus on generating income and capital returns; increase the overall diversification; and actively manage the portfolios based on the fundamentals.
Mr Miller hopes his company — which has all-inclusive annual charges of between 0.5 per cent and 0.75 per cent plus VAT — together with the campaign could trigger change in the industry.
He says: “This will never come from fund managers directly. It will only come from politicians or regulators. The industry doesn’t want to change and will do whatever the regulatory minimum is.”
SCM Private is on course to manage £100 million by the end of 2013. The minimum investment is £250,000.
SCM recently partnered with Deutsche Bank’s exchange-traded fund platform “db X-trackers” to launch a fund of ETFs.
A former pupil at Haberdashers’ Aske’s school, in Hertfordshire, Mr Miller left New Star in 2007. His decision to do so followed a bitter public divorce from his wife of two years. Despite an appeal to the High Court and House of Lords, Mr Miller, earning up to £3 million a year at the time, was ordered to make a £5 million settlement to his ex-wife.