Conservative investments are starting to pay off for Appian

Sunday Business Post by Samantha McCaughren- January 24th 2010

To date, Appian Asset Management has kept a low profile, but Managing Director Patrick Lawless believes it needed a track record before shouting too loudly.

Appian is not quite shouting from the rooftops just yet, but a number of high profile appointments to the company and board speak for themselves.

Well-known analyst John Mattimoe has left Merrion Capital to join as head of investment, while John Conway, formerly of Bank of Ireland Asset Management, is a new business development consultant.

Lawless believes that with seven years of experience and a conservative approach which has stood Appian clients well in an extremely difficult environment, now is a good time for growth.  "Until you have a track record in this business of at least five years you're not treated with any credibility.  And now we've proved, given our performance, that we haven't played a fatal game for our clients," he said.

While some Dublin investment houses have seen their clients severely burnt by the merciless recession, Lawless said that Appian had delivered on its promises.

"Essentially we're looking to give our customers a return that is 3 per cent over inflation over time.  Why we're different is that we're able to explain the risk they're actually taking in straight forward terms."

The client base comprises of charities, credit unions, private clients, family groups and pensions.  A minimum investment of €100,000 is required to invest in a fund and around €500,000 is usually needed for a segregated account. 

The asset manager stood by its conservative approach even when rivals were offering much steeper returns.  "Over seven years if you put €1 million in with Appian it owuld be worth almost €1.6million today.  We've done exactly what we said - 3 per cent over inflation, over time and you won't have any shocks.  You will not wake up and find that your nest egg or pension fund has suddenly disappeared," said Lawless.

In 2008, the main fund, the Appian Value Fund, was down 15 per cent compared with a 67 per cent plummet in the Irish Stock Exchange and a 40 to 50 per cent slide in other bourses.  It was up 12 per cent in 2009.

Appian has 14 staff and only plans to grow this number on a selective basis.  It plans to grow its funds under management from €300 million to €500 million within five years. 

"We're also differentiated in that we don't sell other people's products.  So we're not in the sell and forget mentality of charging a commission.  In a sense we are a boutique asset manager because of the level of service we can give people," said Lawless.  "The people here have a lot of experience.  There are no 22 year olds looking after money."

The company did not invest in property over the past number of years and sold out of  its bank stocks in August 2007, which wasn't welcomed by all clients. 

However, Lawless was uncomfortable with the level of risk in the banking system.  "We were acutely aware of the amount of money that banks were lending and we just felt the risk assessment by banks was lacking," he said. 

Lawless said that investors expecting growth of 20 to 30 per cent a year is unrealistic.

"There is no magic wand out there, there is no holy grail, there are no quick fix solutions.

Money is hard to make, saving has to continue but we also have to promote an economy that will continue to grow and we need to up consumer demand a bit too," he said. 

Equities will be the asset class of choice for Appian over the next few years.

"A lot of companies are going to grow earnings between 20 and 25 per cent on a consensus basis next year, their balance sheets are quite lowly geared and with interest rates low we could probably see mergers and acquisitions," Lawless said.

"Property, we think, will remain difficult for the foreseeable future not just in Ireland, but worldwide as banks repair their balance sheets.  We're not going to have credit growth and there is so much oversupply, I think it will underperform equities for this coming decade," he added. 

Appian has very little in Irish equities and most of its investments are in North America, Europe and Switzerland. 

Appian has invested in good Irish companies with an international outlook such as CRH.

"In the main I think the Irish market will struggle from the Irish 'syndrome' or perception, even though there are very good companies with most of their business outside of Ireland," Lawless said.

Appian has backed a lot of US companies such as Pfizer, Exxon and Microsoft which Lawless describes as "excellent companies that have sustainable businesses, very good dividend yields, low P/Es (price/earnings ratios) and are going to continue to grow".

"Where we see value is in some of the healthcare and pharma areas, we also like some of the selective industrials.   We would also like some of the consumer staples, some of the food stocks," he said.