Wealth Manager: How Cornelian will thrive where others fail

Edinburgh’s investment scene has been far from quiet in the past few years, with some established players struggling, start-ups aplenty and one national wealth manager announcing plans to exploit the ‘turmoil’ facing the region.

Against this backdrop, an altogether quieter but nonetheless ambitious project is underfoot at Cornelian Asset Management. The wealth manager, with a single office in Scotland’s capital and around 500 clients, has plans to double its £450 million in assets under management (AUM) within the next five years, and is working to expand its reach beyond the Scottish borders.

‘We have the capacity now in place to grow on the private client side but equally we have made a big investment in the intermediary side,’ says chief investment officer Hector Kilpatrick. ‘We have increased our footprint so that we now have an intermediary sales and business development manager in the Midlands.’

One business development manager is spending a ‘substantial’ amount of time in London, working with intermediaries to increase Cornelian’s AUM, which has grown by around 50% in the last five years. ‘We see a great opportunity to get the message across about our investment credentials and we are investing a lot of time and money in doing that,’ Kilpatrick explains.

Crucial to any wealth manager’s expansion plans is the investment product, and in Cornelian’s case this is led by Kilpatrick, who had considerable fund management experience under his belt before he came on board in June 2010.

He gained a reputation as a decent fund manager at equity specialist SVM Asset Management, where he worked for nearly five years and ran the SVM UK Alpha fund. For several years from 2008, he regularly achieved top-decile performance and was often a recipient of Citywire AA or A ratings.

Cornelian Asset Managers approached Kilpatrick around the time it was planning to launch a range of risk managed funds.

‘That was really the reason for me coming over,’ he says, since he saw ‘tremendous’ growth potential in those funds.

Although Kilpatrick is now the chief investment officer, a director of Cornelian and responsible for stock selection, his early career began quite differently.

Having grown up on Scotland’s West Coast, he studied marine biology at St Andrews. He then started out in a rivers and fish-related career, but slowly became interested in life outside the sector. ‘As the big wide world encroached on me, I realised there was more to life than fish,’ as he puts it.

With his softly spoken demeanour, it is not hard to imagine Kilpatrick at home among picturesque scenery and quiet lakes. But he decided to try something else, and broadened his horizons through an MBA. From the areas he studied, he found investment best fed his curiosity about the world around him.

‘If you are naturally curious, investment management is a great way of exploring different models and meeting people who are doing things right or wrong.’

He began as a trainee fund manager at Norwich Union Investment Management and was placed on the Continental Europe equities desk. Shortly after he qualified, the business moved its dealing desks to London, but the city did not appeal so he left to take a position closer to home, at Standard Life Investments (SLI) in Edinburgh.

Moving to the Scottish capital gave Kilpatrick the best of both worlds – the chance to pursue an investment management career in a busy city, but one that was small enough to allow him to still live close to nature, spending his spare time fishing and clay pigeon shooting. (He also keeps hens.)

But more importantly, the speedier progression offered by SLI appealed to him. While many investment managers go to great lengths to emphasise the primacy of experience above all other considerations in investing, he believes that those who are talented and committed, but younger, should be given responsibility early on.

‘The good thing is [SLI] gives you a fund to manage very quickly. Although I had only taken my exams and passed them fairly recently, I was given a fund. I think that really, the only way to make things real is to manage real money,’ he said.

‘One of the other attractions [of investment management] was the very flat hierarchy. If you are prepared to contribute you can make an impact that might belie your years, and it is still the case,’ he adds.

‘I think it’s right that people are brought on quickly if they have the skills.’

Kilpatrick was later put in charge of SLI’s flagship pension fund and led the investment strategy of a team. However, he is unable to articulate why he decided to leave a place where he had progressed so quickly over six years and, after a prolonged period of umms and ahhs, decides to say nothing on the matter.

‘Gathering a unified house view was challenging and I felt that it would be... I’ll leave it there,’ he states, after much rumination.

Experience on the institutional side would nevertheless come in handy at Cornelian, which is mostly staffed by investment managers with an institutional background.

‘I think probably the focus on risk is greater within an institutional background,’ Kilpatrick explains. ‘And perhaps institutional processes may be more robust.’

But it sounds as if he found the change of culture he was looking for at Edinburgh boutique SVM, an outfit with one office that is tiny compared to SLI.

‘There was a lot more freedom of action, you could be a lot more nimble and crisper in decision making,’ he says, adding that he enjoys ‘the entire aspect’ of working at a smaller company.

With a CV distinguished by years spent working on UK equities, it is probably no surprise Kilpatrick is committed to the local market, and the average medium growth portfolio at Cornelian has 45% invested in direct UK equities.

Other markets and asset classes are accessed via funds, something he emphasises as a point of difference.

He thinks it makes sense to invest locally, since he is so close to the market and given his long experience in the area.

‘We think we’re good at it. We like the market feel you get from investing in UK equities,’ he adds.

Watching the movements of even a small selection of UK stocks keeps him better attuned to the market as a whole, and he says this was well illustrated by the movements of FTSE 250 engineer Cookson Group, which fell 5% on a single day last summer after posting a strong set of financial results.

‘That told me that the market psychology had changed quite dramatically. If you are a pure asset allocator between funds, that is information you are likely to miss.’

While many wealth managers would baulk at 45% equity exposure to a single market, Kilpatrick prefers this more traditional, back-to-basics approach and is also inclined to see thematic investing as a waste of time.

‘I think you can be in a theme for a very long time before it can come good,’ he says.

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