The firm offers discretionary management of family wealth and private banking, alongside a stockbroking service, and has been running real money since 1 July.
Lincoln’s approach encompasses giving each client unique asset allocation, and then running all portfolios as whole, as Ross Elder, founder and managing partner, explained.
“If, as a firm, we decide to go 10% overweight in UK equities, so will all of our clients,” he said. “So we are looking for capacity-constrained, even closed, interesting and niche fund managers. Nothing is at the managers’ discretion.”
Following prior agreement, clients’ money will be split into the discretionary and advisory sides of the business – 70% discretionary, 30% advisory – comprised of liquid assets and illiquid investments respectively.
“We split people’s money into the discretionary part of the portfolio for liquid assets – bonds, equities and also regulated liquid absolute return funds, which allows us to be responsive to those markets where there is often more volatility,” Elder said. “They are mainly actively-managed funds, but also some passives to allow us to go in and out of the markets more quickly.”
Elder believes that this unorthodox approach is necessary to avoid volatility that is usually incurred by having illiquid assets in portfolios.
“It is our core belief that you should not have illiquid assets in your portfolios,” he said. “You should be able to trade volatile assets, so they’re not best managed on an advisory basis – if people are away they can’t take the trade so they give us responsibility and discretion to manage those core liquid, maybe more volatile, assets.
“Also, with the clients at the level of wealth that we look after, some the illiquid investments do fit some, but not all, of our clients, where they are illiquid, potentially more volatile, and have the potential to drive higher returns. We go back to the clients and confirm that they are suitable and appropriate, and ensure that they have the time horizon and the situation hasn’t changed. Although we advise with authority and set out a personal asset allocation, we make sure the clients are aware of any additional risk involved – they have the final call.”
“Each client will have active and passive exposure assuming they are comfortable with that. Certain clients may not want active or passive, but our core clients want both.”
The discretionary portfolios will contain 12 to 15 funds on average, with the majority being closed or capacity-constrained – a facet which Elder explained.
He said: “For example, if the manager of a small-cap fund attracts additional AUM, at a certain stage they will get beyond the size where they can still invest in small and micro-cap investments. The fund gets too big and the performance can be negatively impacted. We like to say ‘this strategy works up to this capacity’ and we see that they demonstrably stick to their original commitment and keep the fund small.”
On the other hand, the advisory portfolios lean towards higher-risk investments.
“The illiquid investments aim to drive higher performance but generally have higher risk with them, such as private equity, commercial property and traditional hedge funds. We run these on an advisory basis. We advise with authority but we make sure it fits with the individual client’s situations and goals.”
As well as managing funds across a variety of asset classes, the advisory board members will also invest their own personal assets along with their clients’ – a trait the firm looks for when selecting fund managers.
“We like funds where the managers have put a significant amount of their own wealth to work – that’s important for aligning interests,” Elder explained. “We want people that are less benchmark-focused and have an ability to outperform. When it comes down to it we want to avoid the downside – often it adds more value to investors than upside growth; we are focused on avoiding significant drawdowns. We give precedence to performance over style.”
Lincoln was formed after demand from the founders’ existing clients, and while the company is only just off the launch pad there are already plans to expand in the next year or so.
“It came from our clients, who asked us to do what we were doing at Berenberg, but genuinely independently,” said Elder. “The client base was already there.
“We have seen significant demand for the structure we have in place, so we will be increasing clients but always looking after a select number. We will also be adding partners to the business, but sticking with the existing business parameters.”
Co-founders Fred Hervey and Becky Robbins take respective berths of chief investment officer and chief operating officer, based in London. Hervey founded Berenberg UK Private Bank with Elder, while Robbins was head of operations at the same company.
They are supported by an investment advisory board, composed of Hugh Sloane, founder of Sloane Robinson, Dipankar Shewaram, a former senior portfolio manager at BlueBay Asset Management, and Alan Carruthers, who was formerly head of equities at JPMorgan Cazenove.
Lincoln is entirely internally-owned, with every client offered the opportunity to become a shareholder but under no obligation to do so.
