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Sunday, 18 September 2011

Make money fast #94

You too can become one of the wealthiest people in the country if you follow these simple steps:

  1. Find something you are good at, preferably where there isn't too much competition.
  2. Work hard at it, very hard, for a long time.
  3. Get lucky.
Follow these tips and you may end up like Mark Coombs, who this week paid himself £45 million in dividends from his share of the public listed company, Ashmore.  Mind, you that was only half of his share of the £245 million profits for the year, and peanuts compare to the £1.2 billion market value of the shares that he owns. And all that in little more than a decade. Well not quite, because while Ashmore may have only been around since the late '90s, Coombs has been building up his business model for the last 20 years, and a very simple one it is too.

Coombs is in the Investment Management business, but he is no Warren Buffett.  Buffett and his hordes of analysts scour the developed world looking for mature companies with strong underlying businesses and investing in them to maximise their potential.  Coombs on the other hand is no MBA analytical type.  Nor is he a barrow boy trader, but a Cambridge law graduate who got into banking in the 1980's, a while before the Big Bang and yuppie frenzy.  Nor did he join one of the long disappeared UK-focussed merchant banks of the time nor one of the incoming US investment banks, but Grindlays Bank, a relic of earlier times with a  a vestige of a reputation but not much more in many UK colonial outposts.  Grindlays was owend jointly by Lloyds and Citibank, but operated largely independently of both banks.

Grindlays did have an appetite for foreign country risk unlike many of their larger UK counterparts who if they did any business in exotic climes were more focussed on export finance or banking the cash for foreign subsidiaries of UK multinationals.  After a few years Coombs was given trading limits to buy and trade distressed government debts.  Holding Sudanese government debt at 4% of face value can be smart if you think it is going to jump to 6% next week on some good news, and the interest payments can be even better news if they ever happen. While various groups campaigned for debt amnesties on subSaharan government debt, Coombs and other speculators had already bought those debts at a substantial discount, making the protests largely in effective.

But Coombs didn't just buy into those markets, but also into whatever were were termed the emerging markets of the day, South America, Asia and Eastern Europe, trading paper based on the political events of the day.  By this time, Grindlays had been bought by ANZ, a Melbourne bank, who eventually sold the Grindlays overseas business to Standard Chartered in 1990, but whilst they saw Coombs and his team operating a $200m book in London quite profitably, they were a relatively conservative bank and were reluctant to expand their proprietary trading.  

In 1992, Coombs started EMLIP, the Emerging Markets Liquid Investment Portfolio, an open ended fund which "which targets high total returns through specialist  active value management of a highly diversified portfolio of primarily liquid emerging markets debt" (i.e. trades high yield paper)
http://www.ashmoregroup.com/fileadmin/uploads/ashmore/pdfs/funds/EMLIP/EMLIP_September.pdf.  This allowed his business to expand and eventually outgrow the small and capital base that ANZ could provide. Rather thatn taking the obvious step of taking the operation to a larger financial institution, Coombs preferred a buy-in, which suited both ANZ and the management team, and created Ashmore, with Coombs holding a substantial stake.

And the rest is history; Ashmore's assets under management have grown to $65 billion. How did that happen?  The simple answer is that in the first decade of the new millenium, the relative importance of emerging markets in the world economy has grown enormously, and hence so has the investor appetite for exposure to those markets.  Now any old investment bank could set up its own emerging market fund, and many of them do, but very few of those talking heads have the appetite for research and analysis that is undertaken by Ashmore, and while many of Wall St's finest brains may spend their days trying to shave milliseconds off decision making on exchange based trades or figuring out pricing anomalies in exotic securities using fancy models, Ashmore's decisions are driven largely by an understanding of foreign country politics and economics, knowledge which they employ on behalf of their investors for a management fee.

So there you have it kids.  You too can be a billionaire, just like Mr Coombs.  Did I mention that he works very hard?

3 comments:

Henry Crun said...

A minor correction Alex, ANZ sold Grindlays to Standard Bank of SA Ltd., not to Standard Chartered.

Alex said...

I think you will find ANZ sold its African Grindlays operations which were pretty small to Standard Bank (Stanbic) around 1993. It's much larger Asia branch network, mostly on the Indian sub continent and Middle East, was sold to Standard Chartered around 2000. ANZ kept some of the wholesale businesses, which no longer traded under the Grindlays name, and to complicate matters ANZ bought many of the RBS assets in East Asia in 2010.

(Standard Chartered also sold their South African business to Standard Bank at the time of apartheid, just to confuse matters more.)

Henry Crun said...

Apologies Alex. It was the African operation that SBSA bought...I was part of a team that ported the Grindlays banking software platform onto a new system in the early 90s.