Crystal Asset Management fund manager David Morley has 25 years of experience in the financial industry. In 1990 he relocated to Jersey to manage a fund for Ashburton Securities and then five years later moved to Royal Bank of Canada (RBC) where he headed up the US Equity desk and was responsible for managing £600m of client assets.
Morley also managed RBC's staff pension fund and sat on the committee of the Jersey Branch of the Securities Institute for three years and was awarded a Fellowship for his services to the industry earlier this year.
We spoke to David Morley and started by asking him to explain the background of the company?
A: "Crystal Asset Management was set up specifically to run five cells of an ICC, (Incorporated Cell Company), which is a bit like a PCC but it is a Jersey-type structure. Both the Sequoia Balanced and Global Trend funds are standalone funds that have their own corporate identity as they are each ICs (Incorporated Cells). Legally, they are funds in their own right – they just happen to be managed by Crystal Asset Management Ltd. CAML is the investment manager."
David Morley, fund manager, Crystal Asset Management
Q: What was the motivation behind setting up firstly the equity Sequoia Balanced Fund?
A: "That was primarily to manage an inheritance tax mitigation scheme for Barclays in Spain, which is where I am based too. I was based in Jersey for 16 years and we needed a very low risk balanced fund for the purpose of the scheme."
Q: What was the motivation behind setting up firstly the Global Trends hedge fund?
A: "It operates with a 100% systematic automatic trading programme, which we have adapted. It is a programme that has been around for about twenty five years but we have adapted it to our needs and requirements. "
Q: Have you attracted different types of investors to the two funds?
A: "Our investors invest into both funds. We have institutional investors in London, pension funds and SIPPs, plus high net worth individuals and life companies so quite a wide range really."
Q: Did the reputation of the original fund attract new investors?
A: "I don’t think it was necessarily the fund it was more to do with myself, because I had been in the market for a very long time, and a lot of people knew me so they knew if I was going to launch a fund it was not going to be on a whim."
Q: What is your investment strategy with regard to the Sequoia Balanced fund?
A: "The strategy is to manage multi-strategy, multi-manager, multi-asset so it is a blended combination of the asset classes to try and achieve a smooth line."
Q: Are there any strategies you are avoiding?
A: "Most of them at the moment and most asset classes. Certainly we came out of commercial property maybe six months ago. We went very light on bonds and we went very heavy into cash. We lightened our equity exposure and increased our alternative strategies and hedge fund exposure more than anything really."
Q: What about in relation to the Global Trends hedge fund?
A: "The Global invests in 26 different markets currently and that is interest rates, currencies, commodities and metals and energy as well. That is more of an energy commodity type play but we are not actually looking for fundamental value in anything. We buy price movement so if something is going up it does not matter if it is jellybeans or Milky Bars we will buy what ever trend is developing and going up, but what we are doing is buying things that are very liquid and easy to get out of."
Q: Are there any strategies you are avoiding with that fund?
A: "No, I would not say so. What have been the key drivers of asset growth with regard to assets under management? I think people are just fed up with the existing asset classes that have been invested in for the last five to ten years. A lot of us those have reached a bubble situation and not performing further. It is generally a rotation of money so it is coming out of other funds and into ours."
Q: What have you done differently from other similar hedge funds?
A: "Because it is systematic I can not wake up this morning and get out of bed and think ‘oh I quite like gold this morning, let’s buy gold’ so it takes all the human emotion out of investing. We have very tight stop-losses http://www.investopedia.com/terms/s/stop-lossorder.asp which is generally no more than 0.5%, so if we buy something and it goes wrong when ever we have an open position we also at the same time have a stop-loss in place 24/7, and they are 24/7 markets that we trade in. We will be out of that at 4 o’clock in the morning if it hits our price level. So we have taken away human emotion from investing."
Q: Do you have a particular investment philosophy?
A: "Our philosophy is that we can not predict markets, and that no one can predict markets. But what you can do is you can identify trends going up. You can identify gold going from 400 to 1000 dollars – and oil going from 20 to 124 dollars, and dollar sterling going up and then down. We identify movement in price and our job is not to determine why there is that movement in price. Why did we double over the last eighteen months? To be honest we do not care – it just does and you just latch onto that increase in price movement."
Q: Is there a danger that everyone does the same thing at the same time?
A: "No, because there are very few people that have got the dedication, knowledge, resources and analytical skills that can put a programme together to identify when you buy something and at what price level you come out at.
"What most people do not tell you is that if I am a stockbroker and you are an investor and I said to you today ‘go out and buy Marks and Spencers – this is a really good tip.’ There are three things that a broker never tells you is – how much of your money should you invest into it, how do you exit that trade if it becomes a winning trade, and how do you exit that trade if it becomes a losing trade. Most brokers just say this is undervalued, buy it.
"But those three fundamental things about investing - how much of my net worth do I put into it, when do I sell it on a losing position and when I do I sell it on a winning position and that is what 99% of investors do not even think about it. They just try and buy things they think are undervalued. You have got to have strategies in place to get you out of them and lock in profits or cut your losses."
Q: Would you say that is your value proposition to investors?
A: "Exactly and I would say there is only 1 or 2% of people actually doing that."
Q: Do you have any predictions for the funds looking ahead?
A: "No, the philosophy that we follow is that you can not predict markets."
Q: "Do you have targets for assets under management for the Trends fund?
A: "I would like to think that within two years we will probably be around £50m. Our feeling would be somewhere around £250m to £300m before we could hit some liquidity issues. There is no limit with the Balanced fund."
Q: Do you have anything else you would like to add?
A: "They are very strong, robust programmes. We launched the Trends fund 1st September 2007, we are currently up 8 or 9%. I can not think of any other asset class in the last year that is actually in positive territory so I think we have had a good start. I
Q: Is there any particular reason that you have been able to do that?
A: "Yes, because we cut our losses as soon as things start to go wrong."