Slater and Slater – following your father’s investment advice

Succeeding your father in the asset management can be a daunting experience, particularly when he happens to be remembered as an investment guru.  But Mark Slater achieved the transition well enough, following the death of Jim Slater in 2016, at 86.

Mark was already steeped in investments, after being given pocket money to invest at the age of 16.  He went on to develop his own boutique, Slater Investments, with Ralph Baber in 1994, absorbing a corporate data service originally set up by his father. It helped that the growth style Mark Slater developed with his father has been in tune with its time over the last decade.

He referred to himself as a “minus millionaire” after running up a string of debts but paid them off, ahead of expectations…

Assets managed by Slater Investments recently hit £1.2 billion.  Like most successful investment boutiques, its costs are low and Slater Investments’ operating profit margin was 66% in the year to December 2018. This was achieved despite a 30% fall in pre-tax profits to £5.13 million, as performance fees were hit by market volatility. Holding company Northglen Investments suffered write-downs.

But Slater’s growth fund is nicely placed, offering a total return of 559% since inception, against 179% from its peers. The fund is a top-percentile performer over one year and ten years. This is a rare feat for any equity manager. It remains to be seen where the current shakeout leaves his stocks, but Mark Slater says he has become a selective buyer, in anticipation of the recovery which will follow a resolution of the conovirus crisis.

Slater’s clients include several family offices and a quasi-sovereign wealth fund.  Quite separately, Mark Slater is a director of Sir James Dyson’s Weybourne family office. He is a regular donor to the Aspinall Foundation’s wildlife charity. 

He is happy to segregate portfolios and provide advice to wealthy clients on an occasional basis. He points out it can be hard for family offices to justify using industry pay scales to retain their own investment talent.

Following an early career as an executive in the motor trade, Jim Slater hit fame, and notoriety, as head of Slater Walker investment bank prior to 1974, when it was bailed out by the Bank of England as a result of the secondary banking crisis.

He referred to himself as a “minus millionaire” after running up a string of debts but paid them off, ahead of expectations, through an array of ventures centred on the stock market and real estate. He went on to become involved in internet start-ups, children’s books, gold mines and Brazilian agriculture. 

But Jim Slater’s ruling passion has always been the stock market and he retained a reputation as a champion share tipper to the end of his life. He wrote books on investment, including the Zulu Principle, where he argued that if you read every book about the Zulu race, you would become an expert.

Few, if any, people go to the same lengths. This implies that if you research narrow niches, and invest in the smart growth companies within them, at a reasonable price, you will make money at the expense of less-informed investors. He gravitated to smaller stocks, believing they would offer exposure to a successful sector undiluted by other activities.

Jim Slater sponsored chess for related reasons, believing this was a sport where small sums make a big difference.  Slater Investments currently sponsors the extremely niche Keynsham Town Women’s Football Club of Somerset, which performed rather well last year.

Of late, the Slater approach has been boosted by low-interest rates and technology-driven intellectual capital, which is at the heart of every growth company. 

Mark Slater has sought to industrialise his father’s investment approach with a view to winning business from institutions and family offices by investing for over the longer term on their behalf. He is more prepared to buy large-cap stocks, like Tesco, Prudential and Barclays. 

He says he is less impatient than his father:  “He tended to be short term in his viewpoint. A bit too keen to find a quick profit.”

Mark Slater has also balanced out his business with income and recovery funds, which have performed well, though not as well as his growth fund. After the crash of 2000, he hoovered up a string of ailing internet stocks. Ralph Baber also manages a fund which generates income from property shares.  

Slater Investments is prepared to tailor segregated portfolios to offer more exposure to capacity-constrained stocks.  But Slater says there is a limit to this process: “There’s always going to be some overlap with our existing funds.”

Slater also runs a ten to fifteen stock hedge fund, against his standard 40 to 50. The fund can go short and use leverage when required, though it rarely does. Occasionally a single stock makes up a quarter of its portfolio. The fund has risen by 18% compound since inception in 2006 and retains capacity to take on new clients.

“We developed screens, so we only need look at 5% of the UK equity market in depth. We have talked about buying global stocks, but that would mean looking at an awful lot of them. Staying with the UK puts limits on our ambition, and it UK listed companies can be quite international.” 

He is somewhat wary of venture capital, insisting he won’t back loss-makers. “Disruption is great but it is important to be on the right side of it. Cash flow matters. Fads don’t work. For every successful loss-making venture, there are many others which have been unsuccessful.” 

He concedes the US market is deep enough to produce more venture capital winners. “But no one knew that Facebook would succeed, while MySpace wouldn’t.”

Slater puts a premium on discussions with company management. 

He likes to see them investing in their business but doesn’t like the excessive rewards they often pay themselves for short-term performance. Family ownership can be positive which facilitates a longer-term approach, he adds, but not always. 

Agility also matters. Slater likes Liontrust Asset Management, for example, because it has proved adept at spotting business trends.  

He expects to see growth companies making the most from modern technology. His biggest exposure is publishing group Future, adept at acquisitions and squeezing commissions out of goods sold online.

Slater has always liked publishing. He started his career as a financial journalist on Investors Chronicle, the UK’s leading stock-picking magazine, and later tried to buy it: “ I couldn’t believe they only wanted £15 million. I didn’t see why it couldn’t be worth £100 million.” He never bought it, but his valuation wasn’t far off the mark. 

On the technology front, he likes computer game supplier Codemasters: “Television will be important going forward, but games could be even more so.”  Next Fifteen is building a technology marketing businesses which is much to Slater’s taste.

Another investment is IWG, formerly Regus, which operated serviced offices long before WeWork, whose cash flow problems handed IWG an opportunity, when it failed to achieve the crossover from the VC to listed status, as can often be the case.