Citywealth Investment Manager profile: Jonathan Blain, IPS Capital

Date: 08 Sep 2010

Citywealth

Jonathan Blain grew up in Kent and followed his elder sister, who was at Citibank, into the finance world. He started out in FX trading and carried on in the business for ten years from 1990 to 1999. Blain says he realised two things during this time: he had a good instinct for managing money and also that he was in a young mans game. He set about honing his skills and developing his knowledge whilst keeping an eye out for other opportunities.

He eventually made a move, initially as a consultant to a finance boutique advising small pension funds which a friend was running. He joined, what was IPS Capital fully in 2000 providing asset allocation advice. In 2003 as the markets moved out of the dot.com crash, Blain felt the business had capital preservation synergies with the private client business so they decided to expand and diversify. Blain says at the time “private clients were pretty much left in equities and bonds by financial advisers which meant increased volatility and more chances of losses. We knew there was more that could be done for them.”

IPS looked at other ways to do things researching as far afield as Yale to review strategies that had been successful. They also reviewed broader bases of liquid assets and decided to target their strategies on the ¬£1 to ¬£20million market where they saw a gap. The private client business went live on 1 January, 2004 and their first port of call was their current client list who gave them money to start investing with. “We promise to give the lions share of the upside and protect the downside, says Blain, whose philosophy was able to give clients returns of between 10-17% per annum during the bull market.

IPS Capital say their unique selling point is a sophisticated piece of proprietary software which was developed by a new joiner ex Goldman Sachs Chris Brown, who is Co Chief Investment Officer with Blain and who also boasts a double first from Cambridge and was in the hedge fund world. “He was used to seeing all his positions in one place and wanted the same for the IPS Capital software.” Says Blain. “He worked with our head of risk, who was previously at Cantor Fitzgerald to get things right. We now have a risk policy programmed into the software which sets off alarm bells if any of the funds we are using go above our normal pre determined risk tolerance. When this happens we review the funds we are using (IPS put most of their client money into funds) and if they are known to be a higher risk asset then we scale back our exposure or put the client on a red flag warning to keep an eye on the situation. It means we have all client portfolios under control at all times, which many managers especially with large numbers of clients just don’t have the capability to do. A lot of investment manager expertise sits with the individuals rather than software. Our capability is commonly shared throughout the organisation, although we only let our senior partners deal with clients directly. We also keep an eye on clients lifestyle and spending requirements. We know that institutions rarely need their money back but private clients often do, so we have personal contact with clients so that we don’t execute trades unnecessarily.”

The IPS allocation strategy is currently 15% to commercial property; 5% to commodities, 10% to credit, 17.5% into long only equities, 25% trading strategies, 10% into macro and the balance in cash. Blain adds, “in general we’re in an uncertain situation economically where the upsides versus downsides are unclear so we’ve balanced assets between those that work if the world grows with no-double dip and those that offer protection if we’re wrong.”

“We don’t operate like other managers who may for example prepare across the board for inflation,” Blain explains “we just keep our spread, then constantly look for changes. We have a core of assets which will give returns irrespective of market direction and then phase in and out of equities, property, bonds and other assets when we feel that their potential rewards meaningfully outweigh their risks. It’s more flexible so we don’t have a fixed view, which we think is important, especially at this volatile time.” IPS clients are made up of offshore and onshore trusts, private clients , pension funds, underlying beneficiaries and clients have come from word of mouth and law firms and trust companies.

Another point Blain is careful to stress is that they take the risk profile idea seriously. “We sit with clients and show them what happened to similar portfolios in the last fifteen years when events like Lehman, the ’87 crash, Enron and LTCM happened. We let them know exactly what they would have lost at these difficult times and really work out what their appetite for risk is. Nothing is lost in translation at IPS Capital. We have a common sense investment proposition with clients dealing with senior members of our team who are incentivised long term so that clients can build long term relationships with us.”

www.ipscap.co.uk