The below article was published in Citywire on 19 May 2016
by Ted Monrow
‘Prediction is very difficult, especially if it’s about the future,’ the Danish physicist Niels Bohr once said, writes Ted Monroe.
Seneca Investment Managers’ CIO Peter Elston had not expected to come to Liverpool. After over a decade in Asia, latterly as Aberdeen’s head of strategy and asset allocation for the continent, he wanted to move back to the UK, and had anticipated a move to London. But fortune had different ideas. ‘I was invited to a gathering of fund managers in Edinburgh,’ Elston tells me. ‘I sat opposite David Warnock, at the time the chairman of Seneca. We talked and he was looking to hire. After a few meetings, I took the job. He and I could have been sitting in different places and I might never have come to Liverpool.’
Elston, who I meet at Liverpool’s Philharmonic Dining Rooms, has been reading William Poundstone’s Fortune’s Formula, a book which traces the extraordinary betting successes of Claude Shannon and Edward Thorp as they applied scientific formulae to Las Vegas casinos and Wall Street itself, with astounding success.
Since his arrival at Seneca in the spring of 2014, Elston has been building the investment proposition. The firm runs four funds, which are split into four distinct segments: UK equities; overseas equities; fixed income; and specialist assets. Elston has introduced a value approach, making the firm multi-asset value investors: ‘Being distinctive is critical,’ he stresses.
We were certainly in a distinctive setting. The Philharmonic Dining Rooms, known by locals as The Phil, has served as a public house since Victorian days. The pub is notorious for its lavish marble urinals; a testament to the civilised sensibilities of nineteenth century Britain that even loos should be fashioned with material of the highest quality.
Back in the 21st century, I ask Elston about the benefits of employing a multi-asset strategy. ‘If you are a pure equity fund, there’s a fairly small number of different investment styles you can employ: value; growth; long-term; short-term. In multi-asset, there are a hundred different ways.’
As someone with a wealth of experience in Asia, Elston is sceptical of the region, and of EM more generally, from an investment perspective. ‘People tend to think about Asia and EM as fantastic places to invest,’ he begins. ‘Actually that’s not the case. They’re often pretty horrific places. Asia has a lot of emerging countries in it, many of which have corrupt governments.
‘Many Asian countries and companies are badly managed,’ he continues. ‘There’s a pattern of companies in a high growth region – there’s so much growth that they throw money at different projects. In new areas of business that investment very often doesn’t make a return and is lost down the loo.’ An apt phrase.
Elston prefers Europe, arguing that the substantial fall in high bond yields in the periphery over the last three years has helped things more broadly in Europe. ‘We are overweight equities generally, with a big overweight in Europe. Markets can continue to do okay this year, but if there’s a resumption of declines we have enough powder dry to take advantage of them.’
Although, like Mr Bohr, Elston accepts that predicting the future is a difficult game, he sees no clear warning signs that a recession is on the horizon. ‘The global output gap is still negative – the economy still has spare capacity,’ he says, adding: ‘The previous two recessions have come about when the gap was positive. When we look at equity valuations, yields are lower than 2009 but still well above historic averages. We think there’s still decent value in equity markets.’