Wealth preservation in uncertain times is the driving force behind investor demands, helping to explain the plethora of products and services hitting the market, according to Chris Merry, chief executive of UK-based Matrix Group.

“Wealth managers are still reeling from the credit crisis and clients have not yet – until recently – been ready to commit money. Capital preservation is extremely important; liquidity is extremely important and the high return requirements we saw in the past have almost gone away although they have started to come back,” Merry told WealthBriefing in a recent interview.

But protecting wealth when yields on cash are wafer-thin and when inflation is rearing its head – UK annual consumer price inflation was 3.1 per cent in July – does not require a purely defensive mindset, Merry argues. In fact, to even stand still in such conditions means that investors have to hunt for yield, he said.

“People are starting to look more at how to bridge the gap between real capital preservation and the inflation threat,” said Merry.

He is, of course, far from alone in arguing that to protect wealth, investors need to seek solid, if not stellar, returns. For instance, Sarasin & Partners, among others, has argued that investors should hold dividend-generating equities since many of the firms paying a solid dividend were often a better, and even safer, bet than government debt.

Merry believes that the range of investments offered by Matrix makes it well-placed to meet varied demands in a time like this. And its gleaming, high-tech offices in the heart of London’s Piccadilly district signify that this is a firm determined to be at the cutting edge of investment thinking, albeit one determined to remind investors of important traditional verities as well, such as diversification of assets. The firm, set up in 1987, provides investment banking, asset management and property investment services, and oversees a total of around £3.5 billion of assets. It has raised around £12.5 billion since inception for various investments. It employs around 250 people, mostly based in the UK.

“Matrix’s history is very much that of a distribution company; this remains a unifying theme: we raise money for a range of different products and in investment banking for third parties. Almost all of our people are in the UK and we have never felt the need to put lots of dots on maps just for the sake of it,” said Merry.

“The unifying theme here is high quality. We have a very entrepreneurial culture around here,” said Merry.

Departure

It has not been always an easy time at Matrix, however. Merry's interview happened shortly before it was announced that Mike Hollings, chief investment officer at Matrix, was leaving after being in the post since spring of 2009 as the business unit - Matrix Investment Management - had been operating at below "critical mass" despite a strong investment performance record.

"Our clients’ interests are of paramount importance and everything is being done to ensure a smooth transition of portfolios," the firm said in a statement last week.

Three divisions

Matrix Group has three broad divisions: investment banking, property investments and asset management. The investment banking business started out from when Matrix provided the corporate finance input for tax-efficient investments such as business expansion schemes. It rapidly broadened out and now sits in that boutique, investment banking slot also held by brokerages such as Numis and Collins Stewart. About 90 people work in this side of the business.

At the property investment unit, which was set up about 15 years ago, Matrix focuses on deals in commercial real estate and more recently property debt; in the latter case, the work involves purchase of property-backed debt that is beginning to be sold off by banks at a discount. The firm recently got involved with a mixed residential deal – Mount Wise – in Plymouth, southwest England. Matrix has also set up a joint venture in Qatar, and is planning to launch a Middle East property fund, subject to passing regulatory hurdles.

On the asset management side, there are several components: private client investment management; alternative funds (funds of hedge funds and single strategy hedge funds); private equity (mainly via tax-advantaged UK Venture Capital Trusts), cash funds and specialised finance.

At inception in 2001, the FoHF business was unusual to the extent that investors could invest as little as £10,000. All types of qualified investors, ranging from single family offices through to retail investors, can buy into these funds.

Part of the FoHF business has been brought in-house: about a third of the money is now managed internally, under the leadership of Stuart Ratcliff, who was hired by Matrix in 2009. The funds are mostly registered in Ireland and the Cayman Islands. Matrix has also recently launched a UCITS-compliant version of its Asian hedge fund product. It has also established a joint venture with Lazard to roll out a UCITS Opportunities Fund.

The private equity side invests money raised by venture capital trusts, UK-based, tax-efficient vehicles designed to fund start-ups and small firms. Matrix manages funds from four VCTs with assets totalling around £120 million. There are still strong attractions for these funds, Merry says. (VCTs have seen some of their tax benefits trimmed by the UK government in recent years). The firm is also working on a new start-up fund called Vine Street Capital, overseen by Neil Murphy, who joined Matrix from Close Brothers in 2009. The liquidity funds are run by Prime Rate Capital Management, a JV with Matrix, which operates three funds, in sterling, euros and dollars.

According to the Oxford English Dictionary, one definition of matrix is “an environment or material in which something develops”. There seems little doubt that in its 23-year history, Matrix Group has been a congenial environment for investment ideas to develop. As clients put a premium on protecting their wealth in uncertain times, the qualities of these businesses will continue to be put to the test.