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The Bedlam Approach |
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Bedlam exists solely to manage long-only equity portfolios for both institutional and retail investors. We understand that every investor has exactly the same, rational goals - to preserve capital, then make absolute returns. We have imposed on ourselves several overlapping disciplines to ensure that as managers we remain focused on generating these positive gains for clients. Thus investors with Bedlam have a higher probability of success than with most other fund managers, for whom the emphasis is usually on large 'index stocks' (which are often ex-growth) and an obsession with a whole host of other benchmarks (even including what their competitors are buying!). All successful businesses operate on similar criteria, the most important of which is to make a return higher than the cost of capital. Where Bedlam is unusual is in the structural alignment of returns for its own shareholders with the gains enjoyed by clients. This may not appear so radical until it is appreciated that the majority of fund management businesses are structured as 'asset gatherers'. This means that shareholders in the company, and the investment managers, can reap substantial rewards even though the underlying clients are receiving poor returns and a bad service. Bedlam's staff are not phenomenally well remunerated; there is a high reliance on bonuses which are paid only when investors have enjoyed good returns. As most accounts under management have a performance fee component, the company's shareholders will only see a significant increase in their investment if client returns are consistently good. Thus clients, staff and shareholders are truly aligned In addition to its single, clear, proprietary Investment Process, Bedlam has three key disciplines to reinforce this emphasis on making investors absolute gains. Primary is the performance-based fee structure (see Fees & Charges) which we pioneered back in 2002 with the 'No Gain, No Fee' approach in our public funds, then developed further as regulations evolved. Next is our unique transparency. Investors can see on this site the full, up-to-date portfolios for every fund, including the details of each investment and position, the purchase and target prices and the reasons behind every transaction. This visibility ensures that we stick to our investment process and reinforces the hunt for absolute returns. Many fund managers (less so amongst hedge funds!) claim to be committed to transparency and client service, yet steadfastly refuse to publish in a timely manner, for all investors, a fund's complete holdings and detailed attribution data affecting its performance. The reason for such opacity is simple: most large fund managers are severely conflicted. Within the same house there may be many different investment processes; it is normal that one client will be selling a given share as another is buying it. This is why most fund management publications are so bland - they cannot give genuine views on companies and markets when some clients will be selling and others buying, often on the same day. We believe that being paid for active investment management is precisely about taking a view on each underlying investment, not about agglomerating funds and switching holdings between various clients. The third crux in our structure which reinforces our prime purpose is the imposition of various limitations on size and capacity. There is a pre-set ceiling on the maximum size of each public fund (e.g. the Global Fund will be capped, at £350 million, to new investors). This is to prevent our funds growing too large to be able to invest efficiently. Then there is a ceiling on the number of fund managers, at 9-14, as historic data proves that more is not better, but rather results in bland, 'committee' investment. Likewise we have resolved not to manage more than 100 accounts in total (each public fund counts as one account), so that good, personal client service can be maintained and total funds under management do not grow so large as to lose investment flexibility. We have also set a ceiling on the number of intermediaries and consultants with whom we will deal, so that service to them and their clients can stay focused. Most important of all, we have set a maximum for the total number of investments we will hold on behalf of clients at 250; good investment is about focus and knowing each company well. |
A brief history of Bedlam |
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Bedlam Asset Management plc was incorporated in the United Kingdom on 12 September 2001. The initial share offer in August 2002 raised £2.8 million of capital; a further £1.1 million was raised in April 2004. The FSA requires that an investment management company must have approximately three months' expenditure in liquid assets on the balance sheet. Much of the industry is frequently very close to this line. We have never had less than 60 weeks. Bedlam recorded its first profit in the third quarter of 2004 and has been profitable ever since. Bedlam received FSA approval as a fund management company in late 2002 and the first three funds opened for subscription on 10 December of that year. Bedlam Funds plc is approved by the Irish Financial Services Regulatory Authority (IFSRA) as UCITS III compliant and authorised to manage OEIC funds as well as, via the Financial Services Authority (FSA), institutional, private client and other segregated accounts. Given no other business interests or sources of income, we have no conflicting interests or other priorities. All directors and employees are shareholders, and between them own 51% of the issued capital. Seventy-seven external investors own the remainder. The great majority are City professionals, mostly from the fund management, legal and stockbroking industries. Fourteen shareholders live offshore and own 9% of the company. Apart from one institution which owns 4.5%, every shareholder has invested in his or her private capacity. This broad range of external investors is important for three reasons. First they ensure that Bedlam stays true to its founding principles. Second, given that many are professional investors, they bring a level of outside discipline often lacking in many fund management firms. Third, and perhaps most important, these external investors are a continuous source of ideas and information. Research data, from America especially, demonstrates that when a fund management firm has significant employee ownership, typical returns over most meaningful periods are considerably better than those where the fund managers are journeymen employees. All employees took significant pay cuts to join Bedlam. Many people will happily move for a significant pay increase; we believe that lower initial remuneration means staff are more likely to subscribe to the company's ethos and to be rewarded through making good gains for clients. We are not puritans, but we do believe good bonuses must be aligned with client and shareholder returns. There are no plans or intentions either to sell significant stakes to third parties, nor to seek a public listing, thus to 'cash out' on the back of investors' trust. |
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Copyright (c) 2005 Bedlam Asset Management PLC |
Authorised and regulated by the Financial Services Authority |
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