Managing Partner @ Twenty20 Investments
“FinTech revolution is for real, and anyone just starting can ride that wave.”
Allan Lane on why you shouldn’t listen to anyone above the age of 25, how he got from working in the IT industry to setting up his own discretionary fund management firm, what kept him going and what’s his favourite business book.
JE: Please tell us about yourself and your experience. How did you become the Managing Partner at Twenty20 Investments?
Allan: It’s been quite some time since I turned up for my first job in the finance industry in the early 1990s working for Paribas, building out pricing model in the Fixed Income and Equity Derivatives space. Since then it feels like I have worked in more than my fair share of business lines both on the investment banking and fund management side, such as JP Morgan, RBS and BlackRock, just to name a few.
As I look back over those years there is one constant and that is the non-stop turmoil and year-on-year feeling of crisis that besets the industry. Most people will not be aware that before finance I spent 5 years in the IT industry, and if ever there is a disruptor then technology is the culprit. Let’s not forget that in many ways ETFs are the ultimate FinTech product.
All of this experience has provided a great backdrop to setting up one’s own investment firm. When I was running BlackRock’s Client Solutions group, along with Irene Bauer, who is the CIO at Twenty20, we both felt compelled to put our hat into the ring by setting up our own Discretionary Fund Management business.
JE: What was your first job in the ETF industry? How did you decide to pursue the career you have today and what was the pivotal moment?
Allan: My introduction to the ETF Eco system came when iShares decided to set up their first extensive Research & Development team in Europe and Axel Lomholt, who is now at Vanguard, asked me to run that team. Axel had always been a visionary and wanted someone to drive the ETF 2.0 agenda, which we now know morphed into what many commentators have dubbed the rise of the Smart Beta ETF. Having spent the previous three years working in the Active Fixed Income business at Barclays Global Investors I had been very much exposed to the benefits of a rules based quantitative approach to investing, so I jumped at the opportunity.
JE: Was there a time throughout your career where you were unsure about where you were going? How did you combat the uncertainties?
Allan: When I was working at JP Morgan in the mid-1990s, the number of firms that were having substantial losses due to the mis-pricing of complex structured products was on the increase, yet it would be the reckless behaviour of Nick Leeson trading on the futures markets that caused the most headlines. On the back of that I was headhunted out of JPM to set up a new independent valuations team at ING Barings and what a phase that was.
Within a matter of weeks, I had hired a coterie of the brightest young guns that the City could muster only to be told a few months later that the bank didn’t want to be in the derivatives business anymore and maybe we should disband the team. The on-again/off-again mindset of these behemoths takes some getting used to, but in the end we all had to learn how to re-invent ourselves.
JE: What would you say is Twenty20 Investments’ overall strategy in terms of ETFs?
Allan: First and foremost, our belief is that ETFs offer a superb set of competitive tools from which to tackle the challenge of asset allocation. However, the continued growth of the ETF industry raises its own challenges, how exactly is one to select from the list of 1,400 ETFs listed on the LSE? And to this add the not so trivial issue of deciding which smart beta factors to include in one’s portfolio and all of a sudden there is a real job to be done.
In my mind there is only one approach that is going to work here and that is to bring in the big guns and tackle the process of ETF selection as an exercise in evidence based investing. We capture a whole range of market and macro-economic data as the basis for our rules based approach to dynamic asset allocation. Every month we run our forecasting models to rank all of the ETFs under consideration on a relative basis, from that point on we know we have tried our best to capture any structural shocks that might result in a small or large adjustment to portfolios we offer our clients.
JE: How do you foster creative and innovative thinking within your organisation?
Allan: In a world where competition is fierce and fees are under pressure, intellectual property plays a bigger role than ever. We welcome vigorous debate and open discussion, invariable the best ideas will crystallize while discussing things with your colleagues.
JE: How are ideas shared and implemented within your organisation?
Allan: With so many excellent business books up for grabs, I’m a great believer in getting everyone across the company in front of this material. One of our personal favourites has been Shane Snow’s excellent book ‘Smartcuts’.
JE: What has been the highlight of your career to date?
Allan: Making the transition from the sell side to the buy side. I loved the challenge of figuring out how to develop pricing models for the many trading desks I have worked for but nothing beats having to come up with an investment idea to make real returns in an end investors portfolio.
JE: If you can give advice to those who are just starting in the industry, what will it be?
Allan: Don’t listen to anyone above the age of 25, whatever they are thinking will be out of date by the time they have left the room. Put another way, the FinTech revolution is for real, and anyone just starting can ride that wave but they do need to start this journey with a completely different mindset to that of the past. This time it will be different.
JE: What would you say are the most significant changes in the ETF space in the past few years?
Allan: The positioning of the whole ‘Factor’ investing thing. This is something the big investment management firms cannot ignore.
JE: Is there anything that you believe everyone in this industry should be working towards?
There are still pockets of the fund management ecosystem that need cleaning up. In particular I have in sight all of those firms offering to sell Twenty20 a best ‘Hedge Fund’ investment award for £4,000.
JE: What do you think is the “next big thing” – or what should we all keep an eye out for? Anything else you would like to add?
Allan: So much time is spent focusing on the investment proposition that it is so easy to overlook how the delivery channel can negate the benefits. My money is on the notion that it is the distribution channels that will see the biggest change and not the products themselves.