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The firm manages a U.K. equity fund, a Europe ex-U.K. equity fund and a global income & growth equity fund. South African giant Sanlam International Investments, with approximately USD60 billion in total assets, bought a 29% stake in FOUR Capital in 2009 and now owns 89.7% of the equity in a new holding company, Sanlam FOUR. Associate Reporter Anjie Cai Anderson interviewed Dunne to ascertain how FOUR Capital's focused boutique model can deliver its partnership with Sanlam the comfort institutional investors seek from big asset management houses.


GMMQ: How would you describe Sanlam FOUR's investment style?

Dunne: There is no single investment style within Sanlam FOUR. Rather each of its investment teams operates independently and follows the investment approach developed by the specific investment team in question. Within the direct investments teams (Europe equity, global equity, U.K. equity and U.S. Equity), the teams follow bottom-up stock selection approaches. However, the investment style differs from one to the other. The global and U.S. teams have a valuation bias whilst the European and U.K. teams tend to have a growth bias. The Multi-Strategy Fund invests across assets classes and employs active asset allocation. The fund solutions team employs a wide array of investments including Sanlam FOUR strategies and external managers.


GMMQ: If you are true believer of the more focused specialist asset management model, how is it that your boutiques end up being bought by large firms?

Dunne: I am definitely a believer in the focused specialist approach, the multi-boutique model if you like. My previous firm, MM (Attica), was a multi-manager firm and therefore not directly comparable to FOUR. It is a less compelling argument for that model. At Sanlam FOUR, I believe we have the perfect marriage. Clients are very much in favour of the qualities associated with a boutique-small teams focused on producing performance for clients and that are owners in their business. But very often they are deterred from investing with them because they almost always require the comfort associated with a large firm when hiring managers for pension schemes, charities and foundations. With Sanlam FOUR, the client can have both. This is the key reason for the Sanlam FOUR marriage.

GMMQ: What was behind FOUR Capital Partners' decision to be acquired by Sanlam?

Dunne: We first started conversations with San lam at the height of the credit crisis in 2008, although I had previous contact [with them] as far back as 2002. Sanlam was looking to expand its interests in asset management. It had not been affected nearly as much as other financial institutions as it had little or no exposure to sub-prime. As we had plenty of capital and had just been appointed by Russell Investments to manage a GBP150 million mandate for SWIP Multi-Manager UK. Equity Growth Fund, we politely declined to sell equity.

Conversations continued throughout 2009, and Sanlam appointed us to manage U.K . equities for it. We were very impressed by our interactions with the firm's management team and decided that FOUR, and FOUR's clients, would benefit from having Sanlam as a long-term strategic partner. We believed that the credit crisis would make it very difficult for institutional investors to appoint a privately owned asset management boutique going forward. The relationship has lived up to all our expectations and I believe Sanlam is also very satisfied with FOUR.


GMMQ: What changes will happen after the merger with Sanlam?

Dunne: San lam FOUR Investments U.K. received approval from the Financial Conduct Authority on Dec. 1. The investment teams and investment processes at FOUR will remain unchanged. The integration of Sanlam will give rise to an additional fund solutions team within Sanlam FOUR. This team will provide investment solutions for the Sanlam Group and its subsidiary companies.


GMMQ: Does the size matter when the clients are choosing investment managers?

Dunne: I think it does matter in practice. Clients need to feel comfortable that they are investing with a solid corporate entity. We give that comfort through our parent, but we are still in a position to provide the performance potential associated with focused boutiques.

GMMQ: Having worked at both small specialist boutiques and large fund management firms, what are the advantages and disadvantages of both? How does that affect investors-are they better off with specialist boutiques or large firm managers?

Dunne: FOUR's portfolio managers are very experienced and have typically come from larger firms. In general, the disadvantages [they see in] larger firms is bureaucracy, which can be detrimental to investment decision-making and liquidity and capacity constraints. The advantages, which helped us attract [those PMs] in the first place, are more direct ownership and the ability to manage money as they believe it should be managed. An advantage not usually expected by teams joining FOUR is that our back-office infrastructure and support is generally seen as being as good as if not better than they experienced previously. This is because we don't suffer from legacy systems and out of date procedures.

At FOUR, we are attempting to give clients the best of both worlds: We are committed to the boutique model as we believe this is the environment under which investment managers thrive and are able to focus on managing money, rather than be distracted by [other aspects of] the business or the next stage of their career. This, and our assets under management capacity for each team, ensures we preserve current and future performance potential. This can be a disadvantage for clients with large firms that are already suffering the diseconomies associated with large asset pools. And at the same time, we provide the comfort associated with large firms though our parent ownership.


GMMQ: How did your team diversification come about?

Dunne: It was our stated intention from the very beginning that we wanted to establish a multi-team boutique. So it was a natural progression of our original business plan. In terms of how we hire, it varies. The U.K. team joined from Schroder Investment Management. Colin McQueen and Stephen Walker of the global team were together at Morgan Stanley and UBS before joining us. Dino Fuschillo joined to start forming the European desk. Mike Pinggera joined from Insight Investment to build our multi-strategy capability.

We are currently in discussions with individuals and teams that could lead to us adding listed property and emerging markets capabilities.

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