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Against the TIDE
By David Jordan
Money-management guru Rudy North founded an investment company to help train
young fund managers in his own unique style
If Rudy North had followed his childhood
dream, today he would likely be plying the Strait of Georgia in a trawler.
“As a kid I was most happy when I was
fishing,” said the 64-year-old president and founder of North Growth Management
Ltd. “It’s all documented in photo albums – the only way you could get a
picture of me was to give me a fish.”
However, after taking two years of marine
biology at UBC, North took a sober look at his salary potential and opted
instead for a career in finance. He can now look back at 35 years in fund
management that has earned him legendary status, and his latest venture is
aimed at passing his vast experience on to the next generation.
Since founding Phillips Hager & North with
partners Art Phillips and Bob Hager in 1964, North has swum against the tide in
Canada’s close-knit financial community. He and his partners refused to join
the media-driven cult of celebrity fund managers, shunned the exorbitant fees
that have become the industry standard, and quietly went about amassing returns
that consistently placed them among the industry’s top performers.
“They just wanted to manage money in the
best possible way, and they always had the idea that if they did a good job the
money would come,” explained industry observer Paul Brewster, editor of the
Toronto based newsletter The Canadian Mutual Fund Adviser.
“I don’t know how PH&N brought in so much
money without a lot of marketing hustle, but they did, and they certainly have
done very well,” added Brewster.
North retired from PH&N four years ago to
found North Growth Management, where he has continued to rack up impressive
results. Today, the company has a little more than $135 million under
management, and its primary investment vehicle, North Growth US Equity fund,
has a five-year compound return of 19 per cent.
Mission Pass legendary investment acumen on to a new generation of fund
managers
Assets Successful 35-year track record as a
founding partner with Phillips Hager & North
Yield A boutique fund management firm with $135
million under management, with compound annual returns averaging nearly 20 per
cent
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North remains a contrarian in an industry that he believes is increasingly
driven by slick marketing tactics. “Our team doesn’t have to kowtow to industry
practices just because it’s not nice to rock the boat,” he said recently. “If
you want to vent your frustration and say this is a great industry but this is
a lousy practice, we can do it and it just makes us feel good.”
Chief among his gripes are exorbitant
management fees, most of which he says are funneled to brokers to act as fund
marketing agents. He’s equally disgruntled about the much touted
“diversification” strategy, which North believes is just another way to sell
more funds.
“By the time a person has 10 mutual funds,
they can’t even remember why they were told this was a good fund to invest in,”
North commented. “Diversification is an overused crutch – one that doesn’t work
too well, especially when you start switching [the funds] around.”
North Growth US Equity fund has a
management expense ratio of 1.19 per cent – about half the industry standard.
And the firm has no marketing budget.
The company’s primary fund, North Growth US
Equity, made headlines in early 2001, when MacLean’s magazine placed it at the
top among 305 Canadian US equity funds. It had recorded a 43.4-per-cent gain in
2000, due largely to North’s call to bail out of tech stocks late in the year.
After cashing in at the peak of the tech bubble, by December 31, 2000, less
than 10 per cent of North’s fund was in tech stocks.
While 2000 was a banner year for North
Growth Management, making headlines is not something North aspires to. “If you
want to be the top fund every year, you’re going to have to abandon your
principles from time to time,” said North. “We’re willing to step back when
things get into some sort of a speculative boom and let other people beat us.”
When North turned 60 four years ago, he
wasn’t ready for retirement but didn’t want to stick around Phillips Hager &
North to watch one colleague after another leave the business for a life of
leisure.
“Most of my colleagues have retired,” North
explained. “I just like the business too much, and rather than hold on until
everybody was gone, and then go too, I thought I’ll retire while there’s still
time to get a little organization together to do what I really like to do,
which is manage U.S. equities.”
More than just a love of the business
motivated North to found his own investment firm. For one thing, there was a
strictly practical incentive: he wanted to personally train a team of
investment managers to oversee his personal investments when he finally decides
to retire from the investment business.
On a more philosophical note, he also
wanted to ensure that the investment strategy he honed over his 35- year career
would not be lost when he leaves the industry.
North has assembled a team of three
thirty-something commerce graduates – including his 32-year-old son Rory – to
manage the fund’s investments. His 34-year-old daughter Caroline, a lawyer,
also works for North Growth Management, looking after compliance and client
services.
“I’m trying to pour as much of my
experience into them as possible and they’re trying to drag as much out of me
as possible,” said North. “Obviously I want them to grow as fast as possible,
and I know I’m not going to be here forever.”
His investment philosophy is deceptively
simple: all his decisions are driven by the motto “growth at reasonable cost.”
Reasonable cost means equities whose value hasn’t been inflated by over-excited
investors, North explained. Growth means that the reasonable cost doesn’t come
at the expense of forfeiting a sound management team capable of pulling the
company through any temporary setbacks.
North hasn’t placed a date on his
retirement from North Growth Management, but when that day comes, he has a
second career lined up and waiting. He has kept an active hand in marine
biology as a significant contributor to the Vancouver Public Aquarium and to
nonprofit organizations dedicated to studying and preserving the marine
environment. He will likely spend a good part of his time on nearby Popham
Island, where his vacation property doubles as an aquarium research centre.
Displayed with Permission of Business in Vancouver. Copyright Business in
Vancouver Media Group. 2002.
www.businessinvancouver.com
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