Anthony Bolton managed one of the UK’s most successful and largest mutual funds, Fidelity Special Situations, from 1979 to 2007. Over that period the fund generated an annualized return of 20% (against some 8% for the FTSE All-Share Index). He graduated from Cambridge University with a degree in engineering and entered the City as an investment analyst at investment bank Keyser Ullman. In 1979, Bolton was hired by Fidelity, the Boston-based investment group, as one of its first London-based investors, and has since pursued a contrarian and bottom-up approach to investing with immense success. In surveys of professional investors, he is regularly named the fund manager most respected by his peers, and earned the sobriquet “the quiet assassin” for his role in preventing Michael Green from becoming chairman of the newly merged ITV in 2003. Since stepping down from day-to-day fund management in December 2007, Bolton has focused on mentoring Fidelity’s younger fund managers and analysts and overseeing its investment process. In his spare time, he composes classical music using the Sibelius function on his laptop computer.
What is the future for the investment management business? How do you think that it is going to evolve?
Hedge funds have suffered a really hard blow, which is going to set them back quite a few years. However, I don’t think that they’re going to disappear altogether. The fittest will survive and do well.
There was a bubble in the hedge fund business, which also affected private equity and other alternative asset classes. A huge amount of money flowed into hedge funds in the bubble years, partly the result of investment consultants advising institutional investor clients such as pension funds to put 15% to 20% of their portfolios into alternatives. As always happens in such situations, this meant that less good quality talent was sucked into the hedge fund sector.
Hedge funds are also having to contend with a sudden loss of leverage. Prior to the Lehman Brothers collapse, they had access to almost limitless amounts of leverage and were able to borrow on very good terms from their prime brokers. Since the Lehmans collapse, that has disappeared, and I suspect it will take a while to come back. You’re also seeing big redemptions; funds are either being closed down or having to impose restrictions on redemptions. The troubles facing the hedge fund sector cannot be anything other than good news to long-only managers.
We’re also seeing a blurring between long-only funds and hedge funds. One example I give is that the Fidelity Special Situations fund, which I managed until December 2007, was given new powers under the EU’s UCITSIII regulations, which meant we could short-sell for the first time. More and more long-only funds will take on such powers, which implies a further blurring of the boundaries between long-only funds and hedge funds. Most fund managers are, over the next five years or so, going to have to become as proficient in being short as in being long.
Asset management groups are going to be offering investors a range of products—some pure long-only, some pure hedge funds, and then some that bridge the two. Within that you’ll also see a convergence in fees. The traditional 2 and 20 model used by hedge funds is going to come under increasing pressure, while there may also be some upward movement of the very low fees seen in long-only.
- Page 1 of 3
- Next section Are you confident about the outlook for traditional long-only asset management groups?