Class of 2017 Forty Under Forty

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Richard Savage Investment Director, Global Equities, Local Pensions Partnership
(London, UK) 35
Richard Savage
(Art by Marcellus Hall)

His returns place him in the top 10% of Global Equity managers within the eVestment database— 54.86% total (portfolio) return since inception (Aug 14), versus 40.5% for the MSCI World.

How have you been a change agent at your organization? What have you done that you’re particularly proud of?

In 2014, I established a concentrated, global active equity portfolio which represented the first internally managed equity portfolio for the organization. Through bringing the management of the portfolio in-house, we have significantly reduced the fee drag to pensioners whilst delivering superior risk adjusted returns.

What is the asset class or investment that keeps you up at night, and why?

I think investors should accept that the macro environment is always uncertain, and instead focus on building knowledge on things that they can control—getting to know your companies and industries.

My mental model is that if a company or an external investment manager makes me lose sleep at night, then it isn’t of sufficiently high enough quality to be in the portfolio.

What methodologies have you adopted within your institution?

From the perspective of the internally managed portfolio, our philosophy is what is perhaps usually described as Quality Compounders: We buy companies with sustainable competitive advantages (those that generate a high spread of return on invested capital above their cost of capital), who can grow by reinvesting cash flow at similarly high incremental rates of return, and who have high levels of corporate governance. We then aim to hold these companies forever or until our thesis is invalidated.

In a world where investment manager’s time horizons have shrunk to months rather than years, we believe our core edge is our long-term perspective.

Where do you fall in the passive vs. active debate?

As an active equity manager as well as an allocator to external active managers, I am biased, but we fully believe that an active approach can add materially superior risk adjusted returns (net of fees) versus a market cap index.

Finding a truly exceptional investment manager is not easy, but that doesn’t mean you shouldn’t try to do it well. In any case, it’s always easier to win in a game when more and more people give up even trying.

What are the changes you’d like to see the institutional investing community make in 10 years?

I think institutional investors need to collaborate to a greater degree. At LPP, we have seen significant benefits from the pooling of assets, in terms of cost reductions, etc.

Who is a manager you don’t currently work with whose brain you’d like to pick?

I don’t think I could call myself a true equity investor if I didn’t say Warren Buffet was top of my list.

Ideally, where would that meeting take place?

It would probably have to be somewhere suitably modest as to not upset his sensibilities, but also quiet enough to have a conversation. Does Dairy Queen have private dining rooms?

What is the software investment tool that helps you most?

I would like to say my Deputy Portfolio Manager, Alejandro, but I don’t think he would like to be referred to as software.

What would improve the relationship between you and managers?

Lower fees!

Why did you choose your current path?

Being an equity portfolio manager was always my professional goal. It mixes intellectual challenge, teamwork, and the ability to meet some very clever people. I couldn’t think of anything else that I would rather do.