One of the most outspoken figures in the UK investment and banking world, Terry Smith, has set up a new asset management business - Fundsmith - into which he will put his own money, adopting a highly-concentrated portfolio strategy.

Smith, chief executive of Tullett Prebon, will initially put £25 million (around $40.1 million) into Fundsmith, which was described in a statement today as “his main investment vehicle”. The portfolio will hold 20 to 30 “resilient global growth companies which are held for the long term,” the statement said, adding that the portfolio has no benchmark or sector constraints.

The launch of the new business is further evidence – as described by WealthBriefing recently – that there remains considerable entrepreneurial vigour in the UK financial services sector, as new players attempt to exploit client disillusion with established firms, fee structures and ways of operating.  

“The fund management industry is broken.  The vast majority of fund investors suffer from punitive fee structures, overtrading, fund proliferation, closet indexing, and over-diversification. The net result is poor performance.  The average IMA Global Growth Fund delivered a total return of just 0.7 per cent in the ten years to July 2010, underperforming the index by 5.3 percentage points,” Smith said.

“By contrast, the Tullett Liberty Pension Fund, which was significantly underfunded in 2003 when I took over as investment advisor, was returned to surplus by 2010, despite the market turmoil that took place in 2008, having employed a discretionary manager whose strategy is very similar to the one Fundsmith employs,” he said.

Smith’s bold statements will come as no surprise to those who have tracked his 36-year career.  He was dismissed as head of research at UBS after he published what his statement described as a “bestselling exposé of companies’ accounting tricks”, called Accounting for Growth. Shortly afterwards, he joined Collins Stewart, the stockbrokerage and wealth manager.

In 2000, Smith bought control of Collins Stewart and subsequently floated it. By acquiring Tullett Liberty in 2003 and the Prebon Group in 2004, he created the world’s second largest IDB (inter-dealer broker).  The two groups were demerged in 2006.

Describing his investment philosophy, Smith said: “We are conviction investors. It requires real emotional discipline not to chase after the latest fad. I will manage the fund, and have worked with Julian Robins, our head of research, for the best part of twenty five years. Where investments are concerned we see eye to eye.”

 “We will not market time, hedge, trade, short, invest in sectors we don’t understand or panic when markets fall. We will only invest in companies that have attractive valuations, high barriers to entry and are extremely resilient. We like companies with a business advantage that is hard to replicate and which are resilient to change, particularly to technological change. The kind of intangible assets we seek are brand names, high market shares, patents, licences, distribution networks, installed bases and client relationships,” Smith continued.

The business is headquartered in London with an office in Connecticut, US, and comprises a team who have worked closely together for many years.