Family offices need professionals, says PHF Capital's Fletcher

Investment veteran decries managers who aren't ‘real investment professionals'

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Every family office is different, but Peter Fletcher's investment philosophy has been driven by one principle over the years: don't lose money.

In May, Fletcher, who runs his firm PHF Capital from Toronto, Canada won Hedge Funds Review's award for outstanding contribution to the hedge fund industry by an institutional investor in its European Single Manager Awards.

The award recognised his ability to "always push managers to do a better job", along with his early advocacy of better governance and independent boards at hedge funds.

One judge commented on Fletcher: "The straight-talking Canadian and managing director of a prominent family office has always kept hedge fund managers on their toes."

In his position as managing director, Fletcher advises family offices on investments in public and private equity and alternative investment strategies, drawing on more than 40 years of experience.

Fletcher, who is a chartered financial analyst, travelled around the world and later started work in a trust company in Montreal early in his career. He then moved to Bermuda and Hong Kong, where he held investment management roles for private and institutional clients.

In the mid-1990s, Fletcher set up Parly Company, a family office based in Geneva.

He explains that when families sell a significant business and set up a family office, the first problem that arises is that they do not necessarily realise they are operating in a place with a new set of rules - the financial world. Fletcher says that happens because "emotion gets into the equation".

"Secondly, everybody thinks they are an investment expert. Thirdly, they never hire enough staff to handle the money in the family office," he says.

In Geneva, Fletcher also established Le Club B, an informal global group of 400-500 family offices around the world that organises conferences and educational events, allowing investors to exchange information and ideas about fund managers.

"A lot of people were in the same boat – they wanted to understand what was going on," he says, explaining that family offices are interested, not only in new managers and new strategies, but more importantly in whether fund managers are in trouble.

Hungry new talent

Fletcher, who meets fund managers all over the world, started to invest in hedge funds in the early 1990s, and over the years has set up many funds.

He likes smaller and new managers because "they are hungry", while over time – as they get more money – they become less eager to serve investors' needs.

He says talent changes over time too, and "ego sets in".

When investing in hedge funds, Fletcher says the most important thing is properly scrutinising the fund documents as, when the rules of the game are offshore, "you don't have any right of recourse".

A manager may look great, but "if you don't get past the documents, then the rest is irrelevant".

He says what drives fund managers is also important – establishing what they are trying to achieve, understanding their vision as well as how they define and handle risk.

Fletcher says: "Talented managers can do things that you can't do."

Although he acknowledges that "there are many talented managers out there", he warns that too many try to get into the hedge fund industry "just to create wealth rather than being real investment professionals".

For Fletcher, the best thing about his job is meeting people. "It's a really fascinating group of people," he says, although he notes that "the game has changed quite a lot recently". This is because of money coming from institutions that require institutional-quality infrastructure on day one.

About two-and-a-half years ago, Fletcher left Geneva for Toronto to be closer to his family, although he still travels to Switzerland quite frequently.

"My family office group is quite substantial globally," he says, explaining that in addition to advising family offices on asset allocation, he also organises one-day events and roundtables.

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