Hedge Magazine, April 2014. Original article, p30-34.
Rory Powe, founder and portfolio manager at Powe Capital Management
“I’m a bruised and battered investor. But life’s all about learning lessons, so I think it’s made me a better investor.” By the time Rory Powe says this I’m halfway out the door, meaning we are off the record. Nice guy that he is, Powe allows the quote anyway, even though he knows it could be taken the wrong way. Because Powe doesn’t want to dwell on the past, is the thing, but to look forward. But even so, Powe is the first to admit that the lessons of the past have played a significant part in shaping the investor he is today.
Nowadays, what Rory Powe is doing is minding his own business. There isn’t much trumpeting from Powe Capital Management (PCM), the company Powe founded after leaving Invesco in 2001. That was the scene of Powe’s first bruising, when his lauded Invesco Perpetual European Growth fund suffered badly in the dot-com bubble. The second battering came in 2008, when the liquidity squeeze forced a roll-up of PCM’s Modulus fund. Since then, Powe has been running the PCM Europe, which is up 80% since inception four years ago. This is ahead of the market, but Powe is clear: “We have no claim to say we are successful. We can only say that in 20 years.”
Because what Powe wants most of all these days is to “observe the beauty of compounding”. We’re in PCM’s office on the second floor of a Kensington townhouse, where freshly painted walls are decorated with art Powe has brought in from home. It’s just an eclectic mix of things he happens to like, Powe is quick to point out, nothing fancy. Dressed in a checked shirt with formal cufflinks but two buttons undone, there is a friendly sincerity about Powe. He is thoughtful as he describes his fund, its strategy, and its holdings, clearly passionate about the work. There’s a weight to the things he says, hinting at the kind of confidence that comes only from hard-learned experience.
“We are very proud of what we have built here. PCM is now in its fifth year and we are focused on building on the track record. … I look for businesses that are scaleable and ambitious in what can be achieved, who do it in a repeatable and steady way, year in and year out. Inevitably we are going to have bad months, and when that happens we take it on the chin, learn from it and move forward,” says Powe, who is personally invested in the €20 million fund. “We are focused on absolute return, meaning we are not trying to beat an index. If you don’t try and beat the index the irony is you probably will. If you try too hard to avoid volatility, the irony is you will probably create volatility.”
This attitude stems in part from Powe having just 19 positions, which he thinks is about right, even as the portfolio is kept fresh by introducing new ideas each year. As one holding, Ryanair, has been a source of recent volatility, Powe explains how he has stayed the course because he has done the research and believes in the plan. This is the case for all of Powe’s holdings: he does the work himself and knows how the news of the day will affect each company. “My typical day involves researching companies. If i spend a whole day just looking at one company, that’s a great use of my time.”
Half the fund is invested in companies which Powe considers to have “formidable” market positions, pricing power, and competitive powers which will be sustainable for years to come. 30% of the fund is invested in companies in pole position to take advantage of a key trend. “These are growing quicker so they are riskier. One of them is Asos: they are in the vanguard of the shift to online from bricks and mortar, but have done it for long enough and well enough to be in a very strong position vis a vis their competitors.” Powe, never one to leave a claim unbacked, proceeds to list why this is, from the margin projections and all the way down to the free returns policy.
Has he always approached fund management in this careful, meticulous way, I ask, or does this stem from experience? Powe thinks for a moment. “I’ve always been analytical and detailed in my approach, but lessons have been learned. One is to have fewer positions in order to keep on top of them. I don’t want to run a big fund again.” Another lesson is to do the work yourself. “However good the analysts you work with may be, you are still a bottleneck. Here, I am the analyst,” says Powe, whose company now has only three people. “Some portfolio managers are very good at running teams of analysts, but I don’t think I am. I’m much better doing my own work.”
Is that realisation part of the reason he left Invesco, I ask; Powe departed shortly after his charge, the £1.8 billion European Growth flagship fund, lost half its value in the dot-com crash. In fairness, Powe can look back at a 379% return over the decade he ran the fund, even including the crash. “Yes, I left because I wanted to have my own business, and be completely focused on fund management and run a smaller fund,” he says. But Powe resents any implication he abandoned Invesco Europe at a weak point: “It was not done in a hurry. I restructured the fund after the sell-off and left it in very good shape. It was very blue chip oriented, it was away from tech, it had a good cash position. What they did with it thereon was up to them, but I had taken action to deal with poor performance.”
Now, Powe has a rule of avoiding leverage when investing in smaller companies. PCM Europe keeps 20% in cash, and “is liquid enough to be converted to cash within ten days”. This lesson presumably stems from the Modulus Europe fund, which Powe had to liquidate just as the recession started. “The problem I had in 2008 was that the majority of my investors wanted their money back around the same time. That was quite a shock, but it was a reflection of what was going on, which was a flight to cash,” says Powe. “It was very clear to investors we were taking a liquidity risk, as we had a disclosed stake in a number of companies.” The decision was made to liquidate the fund: “Albeit stressful for our investors and for us at the time, it was the right decision.” But, adds Powe, let the record show: the Modulus fund provided a 57% return to over its lifetime.
All these lessons are now being funnelled into PMC Europe, which is trotting along quietly but solidly. It seems Powe prefers it this way. Would he rather they’d never called him a star manager, I ask. “Did they actually call me a star? Such language usually ends in tears!” Powe laughs. Then: “Well, Invesco Europe was consistently among the leaders of its peer group.” But, I press, was that a good or a bad thing? “A bad thing probably. It ended up with that fund being very big. People either overestimate you or they underestimate you. It’s better to be underestimated.” So is that what’s happening now then? Powe answers carefully: “Yes because we have kept a very low profile. We are just doing what we do in a steady way. I think we have managed expectations well with our investors, and we just want to be boringly steady.”
Powe, now 50, comes across as someone who genuinely enjoys what he does, to the point he’d certainly recommend fund management as a career for his children: “Absolutely! I think it’s a brilliant industry. It’s a very privileged occupation, because you have a front-row seat on what is going on. You are always learning about new things: yesterday it was low-cost carriers, tomorrow it may be research antibodies, then it may be online luxury. It’s fascinating and carries significant responsibility.”
Living with his wife and their two teenagers in Cambridge, each workday is sandwiched by a train ride: “I’m one of these people who enjoys commuting as it’s a great opportunity to read and think. It’s a very valuable time for me.” Powe sits on the boards of a few charities, but generally, most of his free time goes to his family. “I want to make the most of the time with the children before they fly the nest. We travel a lot as a family, we recently went to San Francisco and down the coast. It’s good to open our eyes to the world.”
Powe enjoys following sport: “My son’s very much into his rugby. I’m fascinated by what makes teams win and the ingredients to success, and sports is a very good example of being competitive and looking to win, but also how to come back when you lose.” Powe pauses for a moment. “Invesco Europe and Modulus had very strong track records, but reputationally it was damaging. I’m determined to learn from that experience and apply the lessons learned to run PCM Europe a lot longer.” Having run Invesco Europe for 10 years and Modulus for six; Powe would like to run PMC Europe for at least another 20, health permitting. “I’m fascinated by how sports people, and business people, deal with setbacks. If you see a team that’s successful, can they sustain it? Can they repeat it? A steadfastness of purpose. Just ploughing on.”