When we go in search of young 'star' fund managers, we usually find investors who are part of a large fund management group and are in their mid 30s or 40s - so not actually that youthful. But this month sees the rare launch of a UK equity Buffett-style hedge fund by a 24-year-old fund manager, whose prior performance is impressive.
For the two years until the end of October 2013, William Barker was a fund manager at Downing, where he put in strong performance as co-manager of the PFS Downing Active Management Fund (ISIN: GB00B2403D34).
His two-year cumulative performance was 64.8 per cent net of all fees (69.9 per cent gross) versus a 24.4 per cent uplift in the FTSE All-Share Index. This relates to a 30.3 per cent compounded investment return for the fund versus an 11.5 per cent compounded return for the FTSE All-Share Index. It's not as good as some other smaller companies funds, but it's not a bad start.
Now he is trying to emulate his hero, Warren Buffett, in starting an unconstrained fund - called the Barker Partnership - in a similar structure to that of the early Buffett Partnership. "Buffett started at 26," says Mr Barker. "He said if he could live his life again, he would do it earlier."
Warren Buffett worked on Wall Street in his early 20s - as a stockbroker and then at Benjamin Graham's partnership. He left aged 26 to start his own venture.
Mr Barker is launching a Cayman Based Mutual Fund. "I've chosen to locate in the Cayman Islands because under UCITS regulations [which apply to UK regulated funds], you can only take certain positions and have to hold under 20 per cent in cash.
"The style will be very similar to that of my previous fund at Downing. However, I will be the sole owner of the management company and so this is set to be my 50-year investment vehicle." The fund will launch with between £5m and £10m funds under management. "This is all of my money, plus contributions from family and friends." But he doesn't want it to get above £30m-£40m.
The fee structure will be performance fee-based with no rising annual management charge (just a fixed cost of running the fund). Half of his performance fee has to be held in the fund for five years.
William Barker CV William Barker started his career as a management trainee at a private conglomerate company before joining Winterflood Securities as trainee UK equity trader. Previously, he had founded a recruitment and consultancy company. For the last two years, Mr Barker was the co-fund manager of a UK FCA Regulated Small Cap Fund for Downing LLP, and co-manager of several LSE-listed VCTs. He studied mathematics at the University of Birmingham. |
Although Mr Barker is young, he has been entrepreneurial from an early age, has plenty of experience and is well read. He first read Benjamin Graham's The Intelligent Investor aged 13 and learnt accountancy by helping manage his father's business when he was in his teens. At university, he founded a consultancy and head hunting company providing tailored services for students and graduates eager to start a career in banking and finance. Before Downing, he also had a year's experience as a trainee equities trader, which he says gives him "emotional stability", pointing out that fellow Buffett-follower Gary Channon, the successful UK small cap fund manager at the Phoenix UK Fund, also worked on the trading floor.
"I have only been in the financial markets for five years, but I've noticed that everyone is focused on the short term," says Mr Barker. "But long-term trends matter."
"You don't have to be that good to be good in fund management," he argues. "You need to be disciplined and look to the long term. In fund management companies you are thinking about losing your job and so you are looking to the next six months.
"I am trying to become a better fund manager every year. If I make a mistake I think this is really good - I can build it into my model."
He relates two mistakes, both related to management. "I bought Stanley Gibbons (SGI) and sold it a week later. I really believed in the company because they had a great model. But I realised they were empire-building. They raised more money than they needed and needed to focus on more stable revenue base."
He also regrets an investment in China Food Company. "The people you speak to in China are not the management team. Chinese companies can manufacture cheaply, but they are not necessarily good manufacturing businesses. It wasn't one I could hold for 10 years and make good money. Although I didn't lose money on it, it was nearly impossible to get out."
"If the stock market closes for 10 years you want a company that will make good money. You need to get the report and accounts and know what is going on.
"Many fund managers spend their time making manager visits. That's a nice life and you have lots of fun. But you also need to do the detective work. Every month I try to clear out my diary. I look at 10 annual reports a day. Companies say that fund managers often completely misunderstand the business.
"Questions that you should ask a fund manager are how many holdings do you have? What is your strike ratio - that is how many calls did you get right or wrong? How many annual reports have you read this year - including the notes?
"If a company started in 1970, I have a great track record to look at, and especially if the management has been in place for 20 years. You need to read at least five to six years of reports before investing."
Mr Barker warns that there may be prolonged periods of inactivity in his fund. Investors could experience periods with high cash or no new investments.
He quotes American economist Paul Samuelson: "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Vegas."
HOW TO INVEST
Investors with smaller sums to invest will be able to access the fund via the AJ Bell You Invest platform. The minimum direct investment in the fund is £100,000 and you have to contact Mr Barker before investing on email: applications@barkeram.com, so that he can make sure you share his long-term perspective. Investors will need to take a five to 10-year view and be happy with certain restrictions on access to their money - there will be quarterly redemptions and you will need to give two months' notice to get your money out.
