The Pragmatist: Simon Hazlitt's No-Tech Approach to Fund Management

Anthony Malakian recently caught up with Majedie Asset Management's Simon Hazlitt and discovers a buy-side firm that, to all intents and purposes, resides in the cloud.

simon-hazlitt
Simon Hazlitt, Majedie Asset Management

"It wasn’t Leonardo da Vinci’s paintbrush that made him special, was it?”

These are the words of Simon Hazlitt, co-founder of Majedie Asset Management. He delivered this gem while speaking to a room full of technologists at this year’s Buy-Side Technology Summit in London. The sermon he delivered was about why his firm didn’t employ a single IT specialist. Yes—that’s correct—Hazlitt was explaining why he doesn’t need to build solutions internally and he was talking to a room of technologists.

It’s not that Hazlitt dislikes technology. Rather, he’s a pragmatist who believes that it has dulled the ability of people to think for themselves. Firms have become too tethered to the machines, he believes.

An asset manager’s primary function is to generate profits. So in Hazlitt’s view, it doesn’t make sense to commit capital to an IT project that could easily turn into a quagmire.

Everything Majedie does is filtered through the internet and the cloud. At a time when hedge funds and asset managers are only recently coming around to the wonders of cloud computing, Majedie has been at the forefront of this paradigm shift for the best part of a decade.

Even though Hazlitt did not touch a computer until his mid-20s, he’s now being queried by fund managers at industry events about the cost savings that result from cloud solutions, the security around those solutions, and how to best manage multiple vendors.

And behind closed doors or in after-hours pub sessions following the conferences he attends—as either a delegate or a speaker—he is also scoffed at by the old guard who still view cloud as not appropriate for the buy side.

But those techies have a reason to be concerned about the cloud. Much like how many specialists and floor traders have been relocated or laid off with the advent of electronic trading, cloud makes the need for human support less necessary. Hazlitt contends that cloud allows managers and traders to take back control of information, which has, over the years, been ceded to IT specialists.

“Cloud ends the oldest outsourcing arrangement that you never realized you had—your information is managed by computer people,” Hazlitt told the audience at the BST conference in May. “If you deploy the cloud with IT people, you’re getting the worst of both worlds. It’s like sticking high-octane fuel into a lawnmower—it’s really expensive and it will blow your lawnmower. If you use cloud with IT people, you lose the point of it.”

The odd thing about this is that Hazlitt doesn’t view cloud as a technological revolution at all. “People are all talking about the cloud in technology terms and I think that’s nonsense,” he says. As an analogy, he talks about the rise of the suburbs. Historians make a big deal of the invention of the car, but at the time cars were expensive, relatively slow, no one knew how to maintain them, and there wasn’t a network in place on which the cars could efficiently travel. People didn’t understand why they should switch from a horse. But what cars did lead to was the rise of the suburbs in the US. The correlation is that the internet is to the cloud what the car is to the suburb—a catalyst for change.

Breaking Free
“We’re all so used to the limitations of machines and we’ve become used to thinking like them,” Hazlitt says. “My son, I hope, won’t think in terms of technology; he’ll think in terms of service. We’ll hopefully get back to much more of a human world where machines are at the edge and the humans are at the center. For 30 years we’ve tried to make machines human—all sorts of conditionality, business-process modeling and all that nonsense—and ironically you end up making humans into machines by making them do the same thing every day. Machines are hopeless with conditionality and humans are really bad at trying to be machines.”

Majedie employs what Hazlitt likes to call a “Honey Pot” development strategy, which entails finding solutions that are popular and developers will swarm—like bees—around the solution and find ways to arbitrage the developmental gaps.

The three honey pots that Majedie uses are Salesforce.com, SharePoint and Bloomberg. As an example of how this works, Hazlitt found that the wiki in Sharepoint didn’t allow users to tag. No problem: Hazlitt found a firm called KwizCom that provided Majedie with a couple lines of code for about £1,500 ($2,500). Now Majedie’s SharePoint wiki has tagging functionality—and on the cheap.

And while this may sound like a patchwork, bootleg way to run a business, Majedie hasn’t lost an ounce of service quality in the process. In fact, the firm has occupied the top of the list for the past two years in Greenwich Associates’ annual Greenwich Quality Index rankings among all funds in all asset classes in the UK.

No Panacea
Hazlitt concedes, however, that the cloud is not a panacea. He acknowledges that there are a lot of bad cloud vendors and there are security risks that one has to hedge against, such as having unique logins and encrypting everything. Hazlitt even admits to making “every mistake in the book—sometimes twice.”

Yet, even when mistakes are made, the costs tend not to be as severe, according to Hazlitt. He says Majedie employs “programs” and not “projects.” IT programs are constantly being updated. If something fails, it’s relatively OK, he says, because it’s possible to simply add or erase functionality. IT projects are expensive and if things go wrong, they often have to be scrapped all together at great cost.

Hazlitt points to a recent error he made as an example of this. Last month, he was adding a wiki and he decided to strip some functionality. He said it was one of the “dumbest” decisions he’s ever made. As a result he had to go back and re-add the functionality. While there was a cost-waste associated with the switchback, since the program cost one-fifth what a project would have cost, the burn was minor.

In eight years, the firm has the same three honey pots it has always had, and it hasn’t had to hire an IT staff, despite growing to more than £6 billion ($9.8 billion) under management. During that time, Majedie has experienced five cloud-related outages: With Salesforce, there were two outages around 2003–2004 of about 20 minutes each, it experienced two outages with its email, and there was one malfunction that lasted for about three hours with its Bloomberg Trade Order Management System (TOMS). As for security, Majedie has not experienced a single instance of lost information.

And while Majedie has numerous examples of areas where it was able to save on cost by simply adding code, Hazlitt provides one to illustrate this point: The firm was looking to add new functionality to its spreadsheet management system. It looked at a UK-based firm that wanted £14,000 ($23,000). Hazlitt logged on to GetACoder.com and found an Indonesian company that was able to do the same thing for £123 ($202).

People can scoff all they want; Hazlitt doesn’t care.

A Different Firm
Majedie has been a bit counter-culture since its inception. Hazlitt, along with four other transplants from Merrill Lynch Investment Managers—with Hazlitt being the only non-fund manager—opened Majedie, a long-only firm, in 2002 at a time when everyone else was setting up hedge funds.

The firm’s three main funds—UK Equity, UK Focus and UK Opportunities—have consistently outperformed the FTSE All-Share index, according to Majedie. “The cloud enabled us to get up and running quickly and it didn’t cost us a lot of money,” he says.

On Aug. 31, 2007, Majedie launched Tortoise, its hedge fund arm, at the exact time when the credit crunch was just starting to take hold and hedge funds were collapsing. In 2008 Tortoise, which currently has £150 million ($246 million) under management, made a return of 12.1 percent at a time when the industry was looking at average losses of 19 percent. According to Majedie, the fund returned 72.7 percent in its first three years, while the FTSE All-Share index returned -7.3 percent.

Having cutting-edge technology is great—and for some firms, necessary—but for Majedie the technology is ancillary to its core-competency. “The prime reason for a successful business is brilliant fund managers,” Hazlitt simply says.

While Hazlitt essentially “runs” technology at Majedie, his main role at the firm is as a relationship manager who helps support fellow co-founders and fund managers James de Uphaugh, Chris Field, Adam Parker and Rob Harris.

As a result of his day job, everyone at Majedie is part of the IT staff. They log complaints and suggestions for how various systems and programs can be improved, while Hazlitt tries to find the most appropriate solution.

In a firm of no technologists, Hazlitt is the aggregator who pulls all the various program threads together. He looks at the information map and keeps abreast of what the vendor community is producing. At any given time, he’s overseeing a half-dozen minor upgrades/tweaks and two or three more serious programs. While he has contracts with many different vendors, he occupies his time managing relationships with Majedie’s clients, rather than with technologists. “We don’t have any human relationships at all with a lot of the companies we work with,” he says.

A Different Battleground
Prior to going to work in the City of London, Hazlitt was in the British Army, where he was an officer in the Airmobile division. During his 10 years of service, he soaked up a good deal of knowledge on how communication and information are received and distributed. Hazlitt may not have known it at the time, but it was an effective learning period for what was to come in his post-military career.

As a signals officer stationed mainly in Northern Ireland, it was his job to figure out how the battalion communicated with the choppers overhead. Normally, that would be accomplished through radio—which provides its own challenges—but what about when radio silence was necessary? When answering any challenge, there is always going to be an easy and a hard way. In the military there is a saying that has been passed throughout the world: Keep it simple, stupid—or, KISS.

In order to solve for this dilemma, the British military used blackboards, where servicemen would write a number on the board and the helicopter would fly to a pre-designated location allocated to that number. “That comes from trying to solve the problem, rather than being fixated with a complicated solution,” he says.

In 1997, Hazlitt left the military, which coincided with Mercury Asset Management recruiting new relationship managers and Hazlitt decided to apply. At the University of Nottingham he studied history and Russian, and his military education was not exactly centered on kowtowing to high-net-worth individuals. He was a babe in the woods, and he was cheap.

But he did have his trepidations—what did he know about the asset management business?—but it was his dad, also a retired military man, who proved decisive.

“My father told me: ‘You turn up on time, clean your shoes, look someone in the eye, and do what you say you’re going to do,’” Hazlitt recalls. “I told him that it must be harder than that, and he said, ‘No, 80 percent of people fail that test.’”

We’re now 14 years on and Simon’s dad looks to have been right—Hazlitt is passing the test.

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