Giles Hargreave interview: Lessons from a top small-cap fund manager

Friday, May 20 2016 by
Giles Hargreave interview Lessons from a top smallcap fund manager

There aren’t many people who know more about successfully investing in small companies than Giles Hargreave. Along with Eustace Santa Barbara, the affable co-manager of his flagship Marlborough Special Situations Fund, we agreed to meet to chat about strategy, management and the intricacies of running a £1bn+ fund. The venue was a dazzling Michelin-starred Italian restaurant called Locanda Locatelli in Marylebone.

Apart from contending with a volley of questions from me, there were other matters to attend to. Between courses, Giles - who has a definite fun-loving streak - was on the phone directing Special Sits’ participation in an IPO the next morning of car retailer, Motorpoint.

At 68, Giles has stepped down from the day-to-day running of his investment management firm, Hargreave Hale. He continues as chairman and is hands-on in running £1.7bn across three of the seven Marlborough funds the firm handles. At any time he can tell you the precise details of any of his portfolio holdings, aided by a folded spreadsheet that he carries everywhere: Wherever I go, even at a cocktail party, you’ll find it tucked into my pocket.”

The joint venture with Marlborough - whereby Hargreave Hale manages the funds and Marlborough does everything else - works well. So well, in fact, that since the Special Situations Fund started in 1998, Giles has earned a reputation as one of the top performing smaller company fund managers in the UK.

What comes across more than anything is that Giles and Eustace have a determination for getting under the skin of the companies they invest in. In an area of the market that’s notoriously under-researched, they’ve created an edge by relentlessly meeting and re-meeting management teams and having a keen eye for detail. As for their strategy, they’re looking for fast growth and quality management in businesses that are simple to understand.

With a universe of 2,000 stocks, the £1.049bn Special Situations Fund has an eye-catchingly diversified 204 companies in it. But for anyone concerned about issues of liquidity and capacity, the answer is simple. Eustace believes the fund actually has the capacity to double in size without compromising the strategy or making any major alterations to the stocks it holds… 

Giles, it looks like you’re enjoying the freedom of focusing on managing these funds, is that right?

Giles: Absolutely, the funds is what I do! Over time the funds have got quite a lot bigger…

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22 Comments on this Article show/hide all

footsie 20th May '16 1 of 22


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Andrew L 21st May '16 2 of 22

Ben, Great interview. What is interesting is that he is quick to sell and that they are very well diversified. This makes sense in the small cap end and psychologically having small positions should stop an investor falling in love with them. The Buffett approach of 10% or more in a particular position probably isn't appropriate for these kinds of small caps.

Secondly, they try to figure out what a company does that gives it an edge i.e. as highlighted by the discussion about On The Beach. This should help establish which companies have a sustainable competitive advantage. Other investors often start off with the opposite approach which is to discuss the valuation first. I know that onus of the idea of Stockopedia is that it is data and not story driven. However, some of the stories on stocks are good and the story is inevitably a key long-term driver (i.e. competitive position, product strength etc).

Lastly, what is interesting about the approach is that ideas are constantly being tested against other opportunities. I also doubt that Giles and his team spend hours building theoretical discounted valuation models. It seems that they use a simple and robust approach of the type Jim Slater advocated.

I think I read that Giles once said that playing Bridge helps you to be a better investor (Buffett also said the same). His experience in Bridge definitely comes through in that he is trying to not be emotional by cutting positions quickly. I think Bridge and other games such as Poker teach us to keep our instincts in check and to only bet according to the odds.

I didn't get much of an investment philosophy coming through but Giles does have a team approach which is commendable.  This should enable the funds to continue to perform well and not be dependent on one person.  My impression with the Slater funds, and I could be wrong, is that they have a great focus on one person (i.e. Mark Slater).  

However, the size of Giles' fund must start to limit their flexibility given their strategy of cutting back quickly on losing positions.  This must be easier to do in a small fund than in a £1bn fund.

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About Ben Hobson

Ben Hobson

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