Report of the Investment Committee 2008 - St James's Place

The strength of Partners’ relationships with their clients has meant that both are taking a longtermview which in turn has led to our business having one of the highest retention of fundsunder management in the industry – currently 95%. The advantages of this are not alwaysimmediately apparent, but, as I was reminded the other day by one of our independent fundmanagers, it has meant that he (and the other managers) has not been forced to sell investmentsfrom his St. James’s Place funds to meet investors’ redemptions. This contrasts sharply with hisother retail funds where he has been forced to sell good quality investments at depressed pricesto raise liquidity to meet client withdrawals. He went on to say that in the longer term this wouldundoubtedly increase the chances of superior investment performance from the portfoliosmanaged for us because his longer-term investment strategy had not been disturbed.As well as helping to retain funds, our relationship led business has continued to attract newinvestment into our funds, despite the tough market conditions. Again, how does this benefitexisting clients? Well once more it helps our fund managers because they continue to experiencenew flows of money into their funds which in turn, allows them to implement short-term tacticalmoves to protect longer-term strategies. For example, they can accrue these new inflows andbuild up liquidity in the funds to help mitigate short-term volatility – which many of themanagers have. It also means they can, when they feel the timing is right, use these higher levelsof cash to buy stocks in quality companies at lower prices and thus take a longer-term view fortheir investors. Again, these are actions the managers have been engaged in recently. Thisapproach has been one of the factors enabling us to deliver consistent, superior investment resultsover the longer term.So, corporately, the benefits of our advice-based ethos go far beyond creating long-termrelationships with our clients.The second part of my answer sets out how the work of the Investment Committee has helpedcreate a safer – but not, I hasten to add, risk-free – environment for our investors’ wealth.Firstly we endeavour to avoid what we see as short-term investment fashions – those investmentopportunities that carry the hall marks of potentially large gains achieved in a short space of timewith little perceived risk but that ultimately go horribly wrong. The Technology Funds of the late1990’s come immediately to mind and there have been many others such as Split-CapitalInvestment Trusts and Precipice Bonds. All have cost investors (but not clients of St. James’sPlace) dearly. More recently we have chosen not to follow other companies into launching fundsin the highly specialist areas of China, India and Russia. Their economies may be growing stronglybut their stock markets have fallen sharply by anything up to 70% this year on fears of economicfallout from the credit crisis. Our preferred approach is to concentrate on selecting high qualitymanagers and then to allow the individual fund managers to make their own judgement aboutwhich area they wish to invest in and crucially, the timing of their decision.4