What this former Magellan money manager has learned about going it alone

Note: This interview was taped on Wednesday 27 November 2024.

In the nearly three years I've worked at Livewire, I have learned that it is one thing for fund managers to learn, hone, and master their craft over many years and market cycles, but it is a totally different thing to then go out on your own. Setting up your own investment boutique, with all the growing pains that come with it, and garnering fund inflows to make it viable, is challenging. But that's exactly what Kris Webster of Canopy Investors has done. 

Webster, who spent 14 years managing money at Magellan, has just started out on his own with fellow portfolio managers and Magellan alumni Michael Poulsen and Jack McManus. It was a particularly big gamble for Webster, who, until recently, was head of Magellan's small and mid-cap team, head of global investments, and chairman of its investment committee. 

So what has Webster learned about running his own funds management business? And how has he changed his investment strategy now that he and his colleagues have more independence and control over their process?

Find out in this episode of The Pitch.

Edited Transcript

What are some major lessons you've learned from the early period of being in business for yourself?

Webster: I started at Magellan in the very early days, around 2008. What I took from that period was that you need great investments to build a fund (obviously). But to build a great investment business, you also need operations and distribution. And so early on, we decided that we were going to partner with Bennelong. They've already got great distribution, already have high-quality operations, and we can leverage that and then focus on what we do best, which is finding great investments and managing the portfolio. That's been a great decision.

Have you innovated your strategy from when you were at Magellan?

Webster: Mike, Jack, and I had been working together for over 10 years at Magellan. We built our philosophy and process over that period, so a lot has stayed the same. For instance, what has stayed the same is that we focus on quality above all else. We think that's where the greatest ability to generate returns is found. We focus on the margin of safety - [that means] being valuation-focused. We are risk-aware, so we're trying to minimise the risk of permanent capital loss. We don't consider risk to be volatility. And we like concentration - our portfolio is 20 to 40 of our best ideas. 

That's where we're the same, but we're also a bit different. I would say a major difference is that we're not as macro-focused as we once were. We think you've got to think about it, but we want the portfolio to do well under a range of circumstances and not just one.

How important is the macro to your process?

Where are you seeing the most opportunity today?

Webster: Our universe is 7,000 stocks, so there's always opportunity somewhere. I've thought of a couple that I thought might be interesting to share. 

The first one is called Tradeweb (NASDAQ: TW). It's a fixed-income trading platform. Equity trading is typically done electronically, so think of CommSec or something like that. Whereas fixed-income trading is not yet at that level. One of the biggest markets they deal with is interest rate swaps for US Treasuries. Multiple trillions of dollars are traded every day and yet only 30% of it is electronically traded. The rest is done over the phone. Tradeweb is the biggest company that is facilitating that shift to electronic, and it's benefitting a lot from that. That's got a huge runway to go. It's not only doing it in that interest rate swaps, but it's expanding to different asset markets. In the shorter term, if you do see Trump policies lead to more interest rate volatility, that also generally leads to more interest rate trading or fixed income trading, which is beneficial to Tradeweb. 

Where are you seeing the most risk today?

Webster: There's always pockets of excess. What we would say is post-election, there's been a lot of excitement in the market, especially in certain pockets, particularly [ones] that are exposed to Trump's policies such as lower US taxes and lower regulation. One of those areas is US regional banks, that part of the market is up about 15% since the election. So, US regional banks aren't a particularly high-quality part of the market. It's very competitive, it's highly regulated, and every few years there's some sort of crisis. So last year, it was Silicon Valley Bank. What we would just say is that these companies will benefit, if the policies are enacted. But given the level of uncertainty, we'll just be cautious in overly extrapolating the benefit they're going to receive, particularly in low-quality areas of the market.