Shaper: Giles Hargreave

Show aired on 7th November 2015

Transcript

Elliot Moss
The delightful and gentle sound of the Blackbyrds with Walking In Rhythm. Good morning this is me, Elliot Moss on Jazz FM with Jazz Shapers, your regular appointment where you get to hear the very best of the people shaping the world of jazz, blues and soul alongside their equivalents in the world of business, a Business Shaper. I am very pleased to say that my Shaper today is none other than Giles Hargreave. He is the founder of Hargreave Investment Management which then merged with the family business called Hargreave Hale & Co and since 2001 and until very recently, he was the CEO of Hargreave Hale – they are the investment and management business and they also do lots of other things as well which you will be hearing about very shortly. In addition to hearing from Giles you will be hearing from our programme partners as usual from Mischon de Reya, some words of advice for your business. And as well as all of that, I promise you some great music and there will be, we are going to be hearing from Ella Fitzgerald, Robert Glasper and this from the late Mark Murphy, it’s Milestones.

The upbeat sound of Milestones from the fantastic Mark Murphy. This is Jazz Shapers as I said and Giles Hargreave is my Business Shaper today; founder of Hargreave Investment Management, merged with the family stockbroking business called Hargreave Hale & Co to create the all new, wonderful back in I suppose it was 2000 or so, Hargreave Hale and now I have here the eponymous hero himself, it’s Giles Hargreave. Thank you so much for joining me.

Giles Hargreave
Pleasure.

Elliott Moss
Tell me a little bit about what you do. Let’s start there. Tell me about what an investment management company does when it’s at home?

Giles Hargreave
We spend most of our time looking at companies, meeting companies and analysing companies and that’s the fun part of the job because you get – particularly in a small captures, which is where we specialise – you get a whole variety of companies coming in to see you and it’s, it’s fun.

Elliot Moss
So you basically decide who are going to be the winners in the world of business and then you suggest to other people that they may want to put their money inside of those companies?

Giles Hargreave
Yes I suppose you could look at it like that.

Elliot Moss
How do you look at it?

Giles Hargreave
Well we are only really interested in our clients and ourselves so that’s what we care about so we chose companies we think are suitable for the funds that we manage which our clients have invested in.

Elliot Moss
And the funds you manage importantly there is a very big name in there and you manage a number of funds for them, it’s the Marlborough fund and there is the Special Situations Funds, UK Microcap, Multicap, Extra Income – I love these names by the way – and I know they mean lots to people in the industry but I imagine some clients come who are relatively naive about what they all might mean but then you explain that to them?

Giles Hargreave
Yeah, I mean we have a joint venture with Marlborough who do all the administration and the marketing which leaves it to us to do the investment management and it works extremely well so we don’t have to spend our time going out selling our funds, we can spent the whole time, as I said before, just looking at companies and analysing them and hopefully choosing the winners.

Elliot Moss
When you started doing this and let’s go back to around 1998 and talk about the value of some of the funds you set up then. Just give me a flavour of how well you have done for your clients?

Giles Hargreave
Well if you go back, we started managing what is now called the More Than Special Situations Fund in I think it was something like July 1998 and I think the price then was something in the region of £0.56 per unit and today it is about £12.00.

Elliot Moss
So if I had invested a tenner in 1998 Giles, well I would be a very happy man.

Giles Hargreave
Yeah you would, you would have been.

Elliot Moss
And that is obviously, and not working in inflation but if inflation is even included that is still a significant gain isn’t it?

Giles Hargreave
Yeah it’s about, I think it’s around about nineteen percent compound annual growth rate over the last seventeen years.

Elliot Moss
Just as an aside, one of the investments you’ve made was in Fever Tree which for those of you that remember, that were listening way back with Tim Warrillow who was one of the founders of Fever Tree was a Jazz Shaper many, many years ago, about 2012. They floated at about £1.50 – is that right?

Giles Hargreave
£1.34.

Elliot Moss
£1.34.

Giles Hargreave
About a year ago.

Elliot Moss
And now they are at?

Giles Hargreave
About £4.64.

Elliot Moss
So another good investment. I mean obviously you make more good investments than you do bad ones?

Giles Hargreave
Yeah I think one of the keys to investment is to maximise your winners and minimise your losers. It sounds very simplistic but when something goes wrong with a company it is almost invariably right to sell and get out and not to average down i.e. buy more at a lower price. But with the good ones, you want to average up so you make the maximum amount you can from them and Fever Tree is a perfect example. They came at £1.34, we got a reasonable allocation because we are quite big in the small cap world so we get good allocations for new issues and the stock came at £1.34, went up, first days dealings was about £1.75 something like that and it’s gone onwards and upwards ever since to £4.64 which is where we are today; which is a remarkable rise actually.

Elliot Moss
Remarkable.

Giles Hargreave
I mean, I stress not many shares behave like that. That’s absolutely exceptional because they appear to have a product which is not just a UK seller but is a worldwide hit you might say in your business.

Elliot Moss
Find out just what makes Giles Hargreave such a shrewd investor for his clients and of course indeed his own company which we are going to talk about in more detail in a moment. Time for some music though, this is the iconic Ella Fitzgerald with Manhattan.

Ella Fitzgerald with the fantastic Manhattan. Giles Hargreave is my Business Shaper today and we have been talking about shrewd investments. Giles you have been doing this for a long time and anyone listening will go well that sounds all very well for him and lucky him, they will be asking because I am asking it I believe – what enables you to make the right decisions. I know you have been doing it for and it has been your career, your work and therefore obviously there is a lot of practice in there but what enables you to make the right calls in your team?

Giles Hargreave
Well first of all we don’t always get it right. I mean I stress that. If you can get two out of three right and make the best of them then you are doing well I would say in our business because very unexpected things happen. Only yesterday one of our companies that I couldn’t bear to name them, came out with a profit warning out of the blue having told us about three or four weeks ago that everything was fine and the shares actually halved. So there are disasters round the corner but as I said before, if you make the best of your good ones, you can easily pay for any of the bad ones in spades and clearly anything that goes up three or four times is going to make up for many shares, even if a share halves, you are only losing half whereas if you go up three or four times you are making three or four times your original investment. So maximise your winners is the key. How we pick them, we have a team around us which all the good investment managers have and picking them is perhaps my better skill has been picking some of the people who work in our organisation as opposed to actually picking the stocks myself because we seem to have acquired some very smart people who are extremely good at it. Otherwise some of the rules are fairly simple in terms of analysing a company, in terms of the quality of the balance sheet, the quality of the management, the record over the last few years and the ambitions really of the company is really quite important.

Elliot Moss
You mentioned crisis is always round the corner. How does one cope with that from a disposition perspective? You seem calm. You are going to tell me you have seen it all but in seriousness, this is not a job that is for everybody is it because I imagine it is a nerve wracking business. So what does one need to be successful in your business? Apart from the analyst?

Giles Hargreave
Well I think, I think a good temperament is very important. I think you have got to be able to… what did Kipling say ‘triumph and disaster’. I think you’ve got to be prepared for that but you’ve also got to be fairly tough with your investments. If it is not working you don’t want too much money hanging around doing nothing i.e. the stock is not going anywhere. You know, you need to be fairly dramatic and you need to cut your losers and you need to maximise the good ones and good companies tend to go on being good companies for a long time and you can take stocks like that, Reckitt and Coleman springs to mind, one of the largest companies in the footsie (FTSE) and you could have been invested in it for the last thirty or forty years and you know, the same with many of the good companies. So hold your winners.

Elliot Moss
You’ve heard it hear and its good advice. I would hold my winner if I had one to hold. Latest travel in a couple of minutes but before that some words of wisdom from our programme partners at Mishcon de Reya for your business.

You are listening to Jazz Shapers with me, Elliot Moss every Saturday morning at 9.00am here on Jazz FM, I get the chance to talk to someone who is shaping the world of business. If you have missed any of the crackers and there have been quite a few, Cityam.com is your destination and you will find lots of good ones over there. Giles Hargreave is my good one today, he is the founder of Hargreave Investment Management, they then merged with Hargreave Hale as you were hearing earlier and they look after five billion pounds, that’s right, you heard me properly, five billion that’s under management which makes them pretty important to those people who are investing their money with them. You’ve got a number of offices that you have grown over the last fifteen years. Just tell me a little bit about how you managed to grow and why it was important to have coverage across the country?

Giles Hargreave
It’s not actually so important to have coverage across the country, the important thing is to have the quality people working in the organisation who can advise clients successfully and intelligently and I suppose increase our brand so people know us and therefore hopefully realise if they come to Hargreave Hale they will be well treated, they will be well advised in a professional manner.

Elliot Moss
Have you enjoyed the expansion process? Have you enjoyed having more people to look after and to nurture? Do you see yourself as sort of a patriarch in a positive way rather than a sort of a…

Giles Hargreave
Well we have got quite a large organisation now, we have about two hundred people so there is lots of other people involved including HR plus compliance plus our management team.

Elliot Moss
But in the early days when you were kind of back in 2000, 2001, I imagine you were pretty instrumental in making some of the big decisions about expansion.

Giles Hargreave
Yeah, yes I mean, I spent most of the time doing investment management which I have been doing ever since I started in 1969 at James Capel, an awful long time ago so I have concentrated more on that and to begin with actually we didn’t really expand with the new offices, it’s only recently we’ve added a number of new ones.

Elliot Moss
So your craft skill as it were is fund management and it sounds like you brought in excellent people to help run the other part of the business?

Giles Hargreave
For sure. Yeah, yes indeed from that point of view but also excellent people to work with me on the investment management side.

Elliot Moss
And it sounds like that’s important to you if you were advising other people in business and you see lots of them because you invest in them, team is critical?

Giles Hargreave
Absolutely crucial yeah and you’ve got to have a good atmosphere. I mean the one, I think the most pleasurable thing about going to work at Hargreave Hale is, is it’s fun and we have been very lucky, we’ve had very few people leave and its been a very happy place to work.

Elliot Moss
You are obviously doing something right because you are also helping your clients grow their investments. You will be hearing a lot more from Giles in a moment but we would like to play some music and this is The Robert Cray Band with Fine Yesterday.

That was Fine Yesterday from The Robert Cray Band. Giles, we have been talking about team and obviously that is critical and it is sort of an obvious thing to say but I think many businesses get it wrong. Your own enjoyment of what you do, is it predicated on the success of your investments for your clients or is it predicated on that happy environment that you’ve created or is it – what do you look back on and go ‘wow I’m really proud of that’?

Giles Hargreave
Well I think that one produces the other. I think, I think yeah, I think to have helped build a business which has prospered and much more important than anything else has delivered good value to the clients so that when people think of us, they smile. Let’s put it like that. If someone thinks ‘okay it was great being a client of that firm’. Listen I don’t want to be smug about it because things go wrong as I described to you, mistakes, at the beginning of the programme so it’s not always a wonderful place but over the years you know, if you have built up a good relationship with your clients and with the investors in the fund and you can go on delivering, its stressful but it’s, it’s our ambition.

Elliot Moss
And you mentioned the tough times. In the tough times over the last however many years since ’69 that you’ve been working in your business, where do you go? Who do you go to for advice or solace or whatever it is when those times have been a bit difficult? If indeed anybody or do you look within and carry on?

Giles Hargreave
Well you certainly carry on. I mean we have a team, we spend an awful lot of time in meetings discussing companies and discussing sort of the macro-economic conditions in the market etc., so basically that’s our fall back you know, we can talk amongst ourselves and hopefully come up with the right conclusion as to what’s happening.

Elliot Moss
Final chat up with Giles plus we will play a track from Robert Glasper’s covers album, that’s after the latest traffic and travel.

The thoughtful sound of Robert Glasper with Reckoner. Giles Hargreave is my Business Shaper just until the 10.00 o’clock news. Giles, lots of places where you invest, one of the best places for young companies I believe and the smaller companies is the alternative investment market. Just explain a little bit about why that is and (a) why it gets a bad press and (b) why you believe it is a good place to be?

Giles Hargreave
Yeah I mean we do a lot in small companies and most of the UK small companies are quoted on what we call AIM, the Alternative Investment Market and that market has had a certain amount of bad publicity because there have been one or two duff Chinese companies that have been quoted on AIM which have effectively run off with the shareholders money which wasn’t a very good idea and that hasn’t helped but what I would like to say today is that there are many really high quality companies on AIM which have delivered terrific performance to the investors over the years and is a place where small companies can grow up. Where people like us can invest in them and assist them and help them develop and at the same time make a great deal of money for the shareholders so and aside from that, as it happens, AIM is encouraged by the Government and has some terrific tax advantages. So for instance, if you own an AIM share for more than two years you pay no inheritance tax. So a lot of people have very quite extensive inheritance tax portfolios consisting of a number of AIM stocks. You can also put an AIM stock in your ISA and you can pay no capital gains tax. You can pay no additional income tax on the dividends, you actually pay no stamp duty when you buy the shares so it’s a highly attractive market provided you can pick your winners and the obvious thing to do is to have a portfolio of AIM stocks which will protect you from inheritance tax and at the same time hopefully deliver you some very good results.

Elliot Moss
I know we talked about temperament being important and being calm and as you referred to Rudyard Kipling and treating friend and foe and all that and the triumph and disaster in the same way but you, where does the excitement lie in the investments that you make. Is it in the smaller companies through AIM and similar things? Is that when you go, ‘that’s fantastic, I feel good, I am excited by what that business has said they are going to do’.

Giles Hargreave
Absolutely, absolutely and the best thing is if you have been investing in a company for a long time and you know the management well and you expect them to go on delivering and they do go on delivering.

Elliot Moss
Feels good?

Giles Hargreave
Yeah it feels extremely good. The other thing is it is a very competitive world that we live in you know, my funds are mainly small cap funds although we have some pretty good large cap funds as well just in case anybody thought we didn’t.

Elliot Moss
Now they know. That was Giles Hargreave confirming exactly what it is that Hargreave Hale does.

Giles Hargreave
I was just going on to say that it is very competitive and you know, some years we have done really well, we’ve actually been top fund I think two, in a couple of years over the last seventeen and some years it’s been a struggle to keep up because there are some other extremely good fund managers around. But I would just finally mention just to get rid of small cap forever, small cap is the out performance of the small cap funds as against larger cap funds is extraordinary over the last however many years you want to go back.

Elliot Moss
So small is beautiful?

Giles Hargreave
Small is beautiful…

Elliot Moss
Now just before I let you go.

Giles Hargreave
…in a portfolio.

Elliot Moss
In a portfolio.

Giles Hargreave
Not just a single company.

Elliot Moss
I have got the picture. I have definitely written down portfolio and make sure I am hedging. You have become the chairman in the last sort of just over a year, you were CEO for a number of years. As you look towards the future now, what’s the chairman going to do that the CEO couldn’t do?

Giles Hargreave
Well the CEO is a very demanding job and the regulator would expect the CEO to know everything about the business and I am not saying I didn’t know everything about the business but you know, at my age it was time to step down and just concentrate on the investment management and let more, how shall we say, energetic people manage the business. But obviously as chairman I will keep an eye on what is happening throughout the business, chair the board meetings and hopefully be able to add some value to the future of the business.

Elliot Moss
Mr Chairman it has been very nice having you here with us today. What is your song choice before I let you go from this board meeting and why have you chosen it?

Giles Hargreave
It’s a song called I Put A Spell On You by Nina Simone and it reminds me of a relationship earlier in my life.

Elliot Moss
And here it is just for you – thank you so much.

Nina Simone with I Put A Spell On You, the song choice of my Business Shaper today, Giles Hargreave. A very honest man, really wasn’t scared of telling you just how it was in the investment world. Very measured too. The importance of disposition, that calm temperament that enables you to treat friend and foe in exactly the same way and incredibly informative as well. Some really good advice from someone who has been doing it for over forty years. Great stuff. Do join me again, same time, same place, that’s next Saturday 9.00am sharp here on Jazz FM. In the meantime though stay with us coming up next it’s Nigel Williams.

Giles Hargreave is Chairman of Hargreave Hale Ltd and manages a number of funds under the Marlborough brand which include investments in the AIM market. He is now one of the most experienced and successful smaller company fund managers; his intimate knowledge of companies in this under researched part of the UK stock market has led to considerable added value over time.

Giles was born in Preston and educated at Harrow and Cambridge University. He started his career in 1969 as a trainee and then analyst with James Capel, going on to join Management Agency and Music (MAM) as a private fund manager in 1976. At this well-known music agency he managed investments for the company and artists such as Tom Jones and Engelbert Humperdinck.  Chrysalis did a reverse takeover of MAM and Giles left to set up him own investment company, founding Hargreave Investment Management in 1986, before merging the company with Hargreave Hale & Co, a provincial stockbroking firm controlled by other members of his family, and later taking over as Chief Executive. At this stage there were 30 people working for the company in Blackpool and London.  Today 200 people work for the company in nine offices across the UK. In 1998 Giles took over the management of what was then the MW Hargreave Special situations Fund which at that time has assets of about £100k; today that fund has assets of £1 billion and the unit price has risen from 56p in 1998 to £11.54. There are now seven Marlborough unit trusts managed by HH with total assets of approximately £3 billion.  In total, Hargreave Hale currently manages assets of just under £5 billion. In June 2014, Giles relinquished his role as CEO of Hargreave Hale to focus more on fund management – he remains as Chairman with Hargreave Hale.

Listen live at 9am Saturday.

“We spend most of our time looking at companies, meeting companies, and analysing companies – and that’s the fun part of the job.”

“I think one of the keys to investment is to maximise your winners and minimise your losers.”

“If you can get two out of three right and make the best of them, then you are doing well.”

“I think a good temperament is important.”

“…some years it’s been a struggle to keep up because there are some other extremely good fund managers around…”

“Small is beautiful…in a portfolio.”

“CEO is a very demanding job….at my age it was time to step down and just concentrate on the investment management and let more, shall we say, energetic people manage the business.”

“We are only interested in our clients and ourselves.”