We are a bespoke provider of investment services, building portfolios around clients’ precise requirements, which we define together with them before the commencement of the account. We recognise that many large investors began life as small investors so we welcome smaller investors and are pleased to accommodate them in one of our funds – including SIPP investors.
HLI specialises in fund management. We decide on the investments. We do not allocate funds to other money managers (unless requested by clients to do so). We invest directly into securities. We navigate carefully. We invest for the long term. We work with a number of external suppliers of ancilliary services including trustees, brokers and custodians. These relationships are important and require maintenance. We advise clients on the appointment of service providers and counterparties and we act as an impartial layer between the two.
Our clients include high net worth individuals, family offices, charities, trusts, private banks and smaller clients including SIPP investors. Although they are all different, they share certain needs which we aim to meet. They tend to be long term investors looking for capital growth, in some cases also income (which has become harder to generate of late). Invariably they need help in protecting their assets from inflation.
Management of client expectations is important. No one enjoys a negative surprise and our clients are no different. So they feel comfortable with our safety first approach and with our control of risk. They enjoy the visibility which they have over their accounts, over which investments they hold and over how the funds are managed.
Our investment philosophy is guided by The Austrian School of Economics and The Austrian Explanation of the Business Cycle. This is the only school of economic thought which provides understanding and analysis of accurate, useful predictive value.
A century ago, Ludwig von Mises asked: “Why do entrepreneurs always seem to make the same mistake at the same time?” He concluded that the monetary system was to blame since it is the common link in the entire economy.
In particular, the government thwarts the free market in banking by legalising leverage in the form of fractional reserving and by abusing its self-awarded central banking powers to combat the resulting inflationary effects. This is extremely technical but by understanding the system one gains vital insights into the whole economy which can be highly profitable.
For example, in 2008 HLI was able to avoid the financial crisis – our portfolios did not lose value that year – and move early to catch certain important trends such as the rise in the price of gold and government bonds, while avoiding the insolvency of banks. Fortunately our competitors follow other schools, primarily Keynesianism, which is an active supporter of concentrated Central Bank power but which has a dreadful predictive track record.
We are based in London. Our investments and our clients are international.
At the asset allocation level, our Core Portfolios are balanced and diversified. These accounts are exposed to global equities, international fixed income, gold and foreign currencies. Our investment approach uses a measure of volatility to help determine the mix of assets.
At the individual security selection level, our portfolios are quite concentrated. We apply fundamental research to identify attractive opportunities within asset classes and we then back our views with meaningful unit sizes.
Currencies are managed as a separate asset class using an overlay to adjust portfolios’ currency exposure to the reference currency of the client.
World economic conditions change extremely quickly. We think that this forces investors to choose between two investment styles – trading or diversifying. We have chosen the latter.
Under a trading plan, investors must be confident that they can time the ebbs and flows of markets and that they will be right more often than they will be wrong. Trading oriented investors must be able to predict successfully the actions of officials in government and central banks.
This is not the case for a risk spreading approach such as ours. A diversified plan builds upward from the assumption that we cannot predict these peoples’ behaviour and therefore we must be ready for anything. “Anything” can include the collapse of banks, default by governments, the debasement of money, warfare, attack or environmental catastrophe. There again, it could include the return of prosperity and the abundance of opportunity.
The tactic is to own a variety of dissimilar investments so that whenever some are down others are up. Examples of dissimilar assets are shares, government bonds (both conventional and inflation indexed), currencies and commodities – particularly oil and gold. Shares and bonds are international which can spread the risks a little further. The trick is to know how much of each asset class to put in to the portfolio – we have a proprietary method – and to implement changes to allocations systematically and with discipline.
We describe it as a policy of care and balance .
Risks of investment losses are managed at the asset level through balance, diversification and by reference to volatility and at the security level, through incremental dealing (known as pyramiding) and the implementation of stop losses.
Risks of operational losses are managed through a strict controls environment and disciplined procedures which include documented dealing, direct market order placement and regular account reconciliations with custodians.
More funds fail as a result of operational issues than through poor investment strategies.
So we take this part of our business extremely seriously and we are pleased to say that we have an excellent track record on our operations side. In our view, low or zero errors and omissions signify good risk control, healthy procedures, and diligent and motivated staff.
Volatility as a single measure does not tell you whether a security is going up or down; whether it is a good investment or not. It merely measures by how much it is “swinging around”. Just as by observing a drunk, you do not know where he wants to go but you can still make some observations about how he is getting there.
But in an investment sense this insight is vital. Most rational investors would select the less volatile out of two otherwise identical ivestments. Volatility is a measure of risk, so in technical terms the investor prefers the option which gives him the best return for a given amount of risk .
HLI invests across a broad range of assets such as shares, bonds, gold, oil and currencies each of which is fairly volatile. But by putting the assets together in a way which takes account of volatilities and by managing our positions actively we aim, and have so far succeeded in eliminating most of the volatility from clents’ portfolios.
This has given us and our clients superior risk adjusted returns.
Our style is bespoke. Clients have tailor made portfolios and a level of personal attention from us that large investment companies are unable to provide. Clients speak directly with us, not with account managers. Explanations are full. Accounts are transparent. Reporting is personalised. Requests are met. Smaller clients also receive a high level of personal service.
In our experience, clients are realistic and know that not even the best investment adviser will get all of his strategic and tactical decisions right all of the time and most do not expect this. We think this is right. But on the other hand, we do think the client is entitlted to expect that their investment advisers care for their accounts, that they are looking at them every day as if through the client’s own eyes and that they feel the joy and pain of good and bad decisions personally. This is something that the smaller investment management companies tend to be able to deliver better than the large.