Tall, imposing and frank, Mr. Nauphal says he is “amazed” that asset managers keep building out their investment offices. “For me, the concept is basic: we know what we want to do, and we want to do only what we are good at, and that limits, at the end of the day, what we do.”
Although Insight oversees more than half a trillion pounds, it works in just three areas: fixed income, multi-asset and liability-driven investment (LDI), a strategy used by pension funds that focuses on investing based on the cash flow needed to fund future liabilities.
As one of the UK’s largest bond managers, overseeing $143bn in fixed-income assets, Insight will have to navigate the retreat by central banks from monetary easing over the next few years. Rival bond managers, such as Bob Michele at JPMorgan Asset Management, have argued that there is a bubble in the bond market that could lead to big problems as central banks unwind quantitative easing programmes.
Mr. Nauphal plays down the concerns. “I don’t think we are about to see a massive reversal in the bond market for a long period of time, but I don’t think we are going to new lows in yield either.”
The father of two has been at Insight since 2003, when Rothchild Asset Management, where he was chief investment officer, merged with the UK fund arm of HBOS, the British bank.
After HBOS collapsed during the financial crisis and was bought by Lloyds, the British bank, Insight was sold to Bank of New York Mellon in 2009.
By that stage Insight had axed various divisions, including equities and property, to focus on fixed income and LDI, believing that pension funds needed to invest based on how much they were likely to owe retirees rather than just target returns.
According to a UK-based senior investment professional who knows Mr. Nauphal and describes him as “one of the smartest men in asset management”, the Insight chief spent several years trying to convince investors of the merits of LDI, hosting roundtables that few attended. It is a mark of his character, the senior figure says, that Mr. Nauphal persisted, even when LDI struggled to gain traction with investors and fellow fund houses.
Fifteen years after it was set up, Insight’s assets under management have jumped from £26bn to £552bn, helped significantly by growing demand for LDI in the UK as pension funds close final-salary pension schemes to new investors.
Insight is now trying to crack the US market, with plans to increase hiring.
Its rapid growth has, in part, been driven by investment consultants, advisers that help pension funds select managers and make decisions about which assets to invest in. Insight said it was ranked as the number-one LDI manager by investment consultants for six years in a row, according to a 2016 survey by Greenwich Associates, the research company.
But the investment consultancy industry has been mired in controversy in recent months, after the UK financial watchdog warned of opaque fees and a lack of transparency in the sector. The Financial Conduct Authority has called for more regulatory power over consultants and warned it is considering sending the industry for a full-blown competition review.
Although Mr. Nauphal’s business relies heavily on consultants, he does not shy away from criticizing them. He is troubled that consultants have started offering asset management services in recent years, under a model known as fiduciary management. His concern is that this creates conflicts of interest.
“Investment consultants doing both the advising and the [management] requires some oversight,” he says. “I don’t like when there is a conflict, even if you manage the conflict quite well.”
But he is quick to dismiss some of the FCA’s criticisms of the asset management industry, including accusations that fees and profits are too high.
“The costs are rising very substantially across the board [for asset managers], and there is a lot of fee pressure,” he says. “Insight’s fees have been under pressure for a number of years and have been coming down for a number of years.”
The pressure on costs and fees has been driven by the rapid rise of passive funds, cheaper investments that track an index. Passive funds have been growing at 4.5 times the rate of active management, according to Morningstar, the data provider.
Mr. Nauphal argues that these pressures are changing the face of the industry. Although he has brushed off the idea that asset managers need to be big with a large product offering to survive in the current investment climate, he admits he believes the industry is ripe for more mergers.
“The increasing cost of operation is going to lead to a greater amount of consolidation in the industry. I don’t really think small players can survive in the world that we are entering.”
As the meeting draws to a close, the conversation turns to his personal life. Mr. Nauphal’s wife is also Lebanese and he goes back to the country he was born in every now and then to see family and friends, but not for long periods of time.
“I left and never went back [to live there]. There was no going back, in a way,” he says.”I’ve learnt a lot from that experience. It wasn’t easy, it wasn’t fun and I wouldn’t repeat it, but it was really part of what I became eventually.”
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