In this exclusive interview, City Financial CEO Andrew Williams talks of how the firm’s push into Asia will play out in 2014 and how two UK acquisitions could add another billion to the firm’s bottom line.

London-headquartered City Financial has had an exceptionally good 2013, as the asset manager increased its number of employees significantly and saw its assets under management jump to over $1.3 billion at the end of November 2013. In this exclusive interview, chief executive Andrew Williams tells WealthBriefing how the firm’s much anticipated push into Asia will play out in 2014 and how two key UK acquisitions could add another billion to the firm’s bottom line. 

The privately owned, independent investment manager was founded in 2006 by Rob Hain and Andrew Williams - both having worked together across several Invesco firms since 1998. Since October 2012, the firm has seen a high rate of growth, adding about $1 billion in assets and adding significantly to its compliance, risk and legal teams. 

“It is rare to have that kind of AuM growth, so we have the corresponding number of people to make sure the infrastructure is correct and of a sufficient calibre. So we’ve seen sufficient growth in the legal team, the compliance team, the risk team as things like AIFMD and other regulatory initiatives come along, there’s a lot more work to be done in order to make sure that we stay ahead of those,” said Williams when this publication met him at the firm’s offices in the City, London’s financial hub.

The Asian move

As part of this growth, City recently opened a new office in Hong Kong led by fund manager Geoff Barker and his six-man team, who joined the firm in late 2013. The addition of the team is part of a major Asian push, which will see City launch an Asian macro fund on 1 March 2014, in addition to the firm’s capabilities in Japan, where a team has managed the two Akamatsu and Akamatsu Bonsai equity funds since October 2012. The move, and the fund launch in particular, comes down to the demand for Asian macro Williams says, now that the two biggest Asian macro funds, Singapore’s Fortress and Danny Young’s Dymon fund, are at or near capacity. 

“I see a natural demand niche for Asian macro and I see it being a category that a huge swatch of the marketplace it unlikely to do themselves. And also it’s tough to replicate with an index - Asian macro actually involves judgement calls, a type of skill that Geoff has demonstrated over the years with his track-record,” Williams said when explaining the push into Asia.

“Secondly, there is liquidity in Asia from US and European investors going into Asia and there is liquidity in Asia itself. So to the extent that anyone building a business wants diversification and a revenue stream, why wouldn’t I want a vehicle that can access that kind of liquidity?”

To this end, Williams is keen to add to the newly opened Hong Kong office, which he purposely overbuilt in order to accommodate more potential employees.

“Hong Kong is filled with guys who have sub-scale fund complexes, who have launched under their own banner and are sitting with 50, 70, 100, 200 million bucks, but who can’t get on to the radar of the big institutional investors, simply because the first question they get is “do you have $1 billion under management?” I don’t want to build out a huge Asian operation, but I would very much like to hire a second team or do a deal with one of the guys who feels that he’s stuck between $100-150 million, who would like to join the City Financial umbrella and do something that is non-competitive to Geoff’s team,” Williams explains.

As part of the Asian expansion, the firm is currently in the finishing stages of constructing an institutional global operating platform based in Hong Kong and has secured Goldman Sachs as the firm’s prime broker. In time, the CEO also sees Hong Kong becoming a marketing centre for the broader City range in Asia. 

Bolstering capabilities post-crisis

However, for the meantime, City Financial’s main capabilities will remain in its London headquarters, where employee numbers have skyrocketed in recent months. On the day of the interview, Williams revealed that the firm had hired yet another three fund analysts. Other high profile hires include Anthony McDonald as a senior investment analyst to its multi asset team, as well as former Morningstar heavyweights, Peter Toogood and Gillian Hutchinson, who joined City Financial in October 2013 as investment director and head of investment research respectively. According to Williams, expertise-based hires like these are crucial in the post-crisis investment industry.

“The days of three man and a Bloomberg in Mayfair with $50 million - that’s over. That chapter from 02 to 06 where you got some money from your old prop-trading desk and had your old track-record and then people came along and allocated to you on that basis, that doesn’t work anymore. The major hedge fund allocators won’t look at those institutions because they lack the right risk processes, systems and people that are necessary to assure them that they’re not going to find themselves in another difficult situation. So is that stuff necessary? Yes, it’s essential,” says Williams when explaining the recent slew of hires. 

The CEO has big plans for City Financial, which he hopes will see significant growth in assets under management in the near future. However, that type of growth will demand some major investments in the organisation, Williams said.

“Life is very, very tough for guys under the $500 million mark, I know how much our operating, IT and compliance infrastructure costs us at $1.5 billion AuM, and it’s expensive. So to the extent that we want to be a $3 billion, $5 billion or $10 billion firm some time down the road, I have to invest in that organisational and operational capacity in order to credibly sit across from a major institutional investor and be confident that our team can deliver what they want. So it’s an investment for growth, but it’s also a requirement for servicing the new complexity of the business”. 

Geneva office and two acquisitions

The surge in compliance issues post-2008 aside, Williams assures that City Financial will be taking a break from hires and allow time for the firm to digest. 

“Managing growth is difficult and the main thing I want this organisation to do is to deliver to investors what we have committed to doing. So if that means moderating the pace of growth for a minute in order to meet those returns, then that’s what we need to do. I think we might do a modest presence in Geneva in 2014 at some point, and we already have a little office in Guernsey, but that’s about it,” explains Williams.

Instead, the firm will be taking advantage of the surge in M&A, which has coursed through the investment industry ever since the implementation of the retail distribution review has put many smaller IFA’s under pressure. The talkative chief executive remains somewhat tight-lipped about the possible acquisitions, but admits to WealthBriefing that City is actively negotiating two UK-based transactions that could add up to $1 billion assets under management to the firm’s portfolio by 31 March 2014.

Looking ahead, Williams sees the firm doing more deals in the future. 

“I don’t do predictions, but I can tell you that we have a team focused on acquisitions, and that our investment performance and marketing efforts will do well in 2014. I’d love to see us north of $2 billion - that seems to be a happier range, but I don’t want to stress the golden goose that is the investment talent and investment competency in that process,” says Williams.

Having seen his firm through the financial crisis of 2008 and learnt some valuable lessons along the way, Williams insists on erring on the side of caution.

“Diversification of revenue, diversification of geography and diversification of investment capability are all really important. Getting big for the sake of getting big is not the exercise, delivering a superb investment performance that our clients are expecting, that’s the priority,” concludes Williams.