Hedge Magazine, 2012. Original article (p36-38).
Robin Bowie, founder and chairman of Dexion Capital
There is a refreshing frankness about Robin Bowie’s choice of words. He is deliberate and considered in his delivery, certainly, but the way he talks about “messing around” while finding his feet starting his own company, it sounds more like a synonym for “experimenting”, and that of the fruitful kind. This was back in 2000, when the hedge fund industry looked very different from today, and the fact that Dexion Capital is still here and going strong suggests this frankness has served its founder, now chairman, well: “It really forced me to scratch my head and work out what investors wanted. If you know what investors want and you are able to surface it, you can build a business.”
Before founding Dexion at the age of 38, Bowie was a treasurer and had been a trader for 15 years. He felt compelled to go it alone after starting to feel his career going “sideways to down”: “Many [founder] stories start because people have a vision, but my story is probably more in line with the sort of story that will come out of our current environment,” says Bowie as we meet in the company’s light and modern offices in the City of London. “You now see a lot of quite talented people being made redundant, and they will have to find new avenues to earn a living,” says Bowie, referring to the resurgence in hedge boutiques since the financial downturn. Having said that, not everyone is cut out to build a business: “Not many people really relish the challenge of having their back up against the wall. The standards of work ethic you need to make a success of these things, combined with a good dollop of luck, are very demanding.”
A boutique approach
Best known as the manager of four London-listed funds of hedge funds, Dexion Capital describes itself as a provider of research, structuring, distribution and marketing support for all types of funds, whether they be open- or closed-ended, listed or unlisted, regulated or unregulated. The group, which has operations in London and Guernsey, also offers additional services such as advice, fund administration and corporate broking.
“When I look at Dexion Capital today we are actually in a very strong position. Not only have we gone through the business-building stage, but we have a substantial balance sheet of retained earnings, and we have an infrastructure which allows us expand and take on teams of people who believe that businesses can be built out. I see quite a clear path forward,” says Bowie. On that note, Dexion launched DCG IRIS earlier this year, a London-listed, Guernsey-registered closed-end investment company focused on insurance-linked contracts and related assets. Dexion Absolute, which with net assets of £425 million as of September is the group’s largest fund, aims for low volatility long-term returns from an actively managed portfolio of hedge funds. Since its launch, the Dexion group has raised a total of $10.2 billion for investment in its own-branded funds and third-party mandates.
Bowie now considers Dexion to be primarily an investment banking boutique, with a primary focus on close-ended investment companies based around alternative assets. “I also see an opportunity to get involved in what I call seams of investment: areas investors are interested in but find difficult to access. That may be clean energy, environmental assets, agriculture, reinsurance risk, transportation assets, financing, and so on. What I want to do is hire teams of people who are able to make those investments and run them on behalf of investors. It can be a managed account, a public vehicle, whatever works,” says Bowie. For instance, as there is a lack of capital in insurance, and Dexion believes investors are looking for non-correlated returns and income: “The catastrophe reinsurance market is a really interesting place for them to be able to access that combination.”
While recognising investment themes remains a core practice, Bowie is quick to point out how the changing landscape for investments, in hedge funds and elsewhere, means investors are less keen to jump on so-called growth stories. “What they want now is security of income. They would rather have a mature asset with some stable income, some insurance proofing, some diversification benefit, rather than trying to guess who the next Google, Apple or Microsoft is going to be.”
The listed hedge fund sector took a beating during the financial downturn, both in terms of valuations and reputation, and Bowie is far from inclined to pretend this is no longer a factor. “Investors are slower and more thorough in making decisions. They do not feel any urgency because the market is running slower. When the velocity slows down, the thoroughness with which they make decisions increase, and the pressure on fees increases dramatically because they have the control.” If 2007 was the easiest in terms of the effort involved in selling products, and 2009 was the hardest, Bowie describes the current environment being halfway between the two, maybe a little worse. “The hedge funds businesses have generally been disappointing, because the returns have been …” Bowie pauses to choose his word: “… moderate.” A poor appetite for risk can be traced back to a number of things, he notes: quantitative easing, fiscal issues, global politics; at the same time, equities and bonds have performed well, meaning interest rates could start to rise: “Most investors say interest rates are going to remain low for the foreseeable future, and I would say that is probably a fair assessment from the short end of the curve. But for the long end of the curve there is a real risk that investors could go on some sort of buyers’ strike.”
Keeping high standards
This is where innovation comes in, and hard asset management is one area where Bowie sees opportunities. “I think over the next 15 years there will be opportunities to build up teams of hard asset management and capability in agriculture, renewable energies, aviation financing, transportation financing, et cetera. But the problem when you are setting the strategy is you do not know whether the right people are going to turn up for hire or joint venture. […] Having the vision and the strategy is fine, but executing the strategy is more ad hoc.”
Dexion Capital now employs 34 people, six of which are in Guernsey, not including joint ventures. “It is the people that make things fun and challenging […] We have what we call a ‘joint adventure’ with Nick Wood to build the renewable hard asset management business.” Now running Resonance Asset Management, Wood was formerly CEO of Man Environmental Capital Opportunities at Man Investments.
While Dexion Capital is no longer a start-up, the move towards broader financial services, coupled with ongoing product innovation, suggests a penchant for keeping things fresh. So does Bowie still enjoy having his back against the wall? “There no difference between you and me here: what is it that drives one on?” Bowie leans forward in his seat. “What is it inside oneself that enforces a standard of excellence, and a willingness to learn and evolve and just do the work? I know it is in the character, and you can see it in people. They strive to meet the high standards that they impose on themselves.”
In addition to keeping Dexion’s finger on the pulse, Bowie is conscious of the role played by his company, and the overall alternative investment sector, in ensuring financial diversification: “When I explain to young graduates what is the principal uses of the City to society, I say it falls into two categories. One is the banking facilities: recycling capital from people who wish to lend to people who wish to borrow. The other is insurance: taking people who want a return on capital and are prepared to take the risk on the premiums. The broader that disintermediation is, and the more people are involved in it, the better off we are, rather than having the very big financial concentrated leveraged institutions,” asserts Bowie. “We are working away at it, we keep cutting out the layers of disintermediation, to get the right long-term capital to the right assets.”