Glasgow boutique Castlebay was launched by former Barclays bankers David Ridland and David MacNeil

The restructure of Barclays’ wealth management division and new strategy for sub-£500,000 clients has recently dominated the trade media headlines.

A lesser-known but linked story has been the rise of Castlebay Investment Partners, a Glasgow-based boutique, founded by two former Barclays investment managers, David Ridland and David MacNeil.

The duo left before Peter Horrell took over as chief executive of Barclays’ wealth and investment division with a new business strategy, but it is clear their experience at Barclays shaped their approach to building the business.

An alignment of interest with clients, underpinned by consistency and a long-term investment mind-set, appears to lie at the heart of their vision for Castlebay. This has also meant being selective when it comes to the clients they work with.

Eleven months into their journey, the two Davids are positive about the path ahead for Castlebay. While they highlight ‘it is a marathon and not a sprint’, they say that reaching break-even and starting to generate cash takes pressure off and means they can let things develop organically.

Barclays’ decision to transfer its sub-£500,000 clients into a new ‘lighter touch’ private clients division also opens up opportunities for the business to attract clients.

‘Given the amount of clients that are going to have to look for alternatives we should be in a good position,’ MacNeil adds.

‘One of our central tenets is that our interests need to be aligned with those of our clients and that is reflected in our transparent fee structure,’ says Ridland.

‘You need everyone to see what we are trying to do and the way we are trying to do it. It could be that we are long-term investors and if our time horizon does not marry with clients with a shorter time horizon, we don’t feel we can service them as well as others might.’

MacNeil adds: ‘It is quite nice to be in a position where you don’t have to take every client on board. At Barclays, it was the opposite. You could do yourself damage career-wise if you didn’t take on every client.

‘That was why we created Castlebay. We wanted to take hold of aspects of our careers that we liked and leave off the bits we felt were fundamentally wrong.’

The duo have invested personally in Castlebay and received backing from two investors.

‘They let us run the business, but we have regular conversations with them. We are very open minded about taking advice,’ MacNeil says.

‘The two guys have been fantastic. We are excited about what they can bring later down the line when we have more of a track record in terms of new client introductions.’

On client referrals, the company seeks to take a different approach. In the spirit of all things peer reviewed and crowd approved these days, prospective clients are referred on to existing clients so they can hear whether the team is delivering on what they have promised.

The decision to take a selective approach when it comes to clients appears to be linked to another lesson they both picked up from their time in larger organisations.

‘The key thing about these building blocks is we don’t want to advise thousands of clients, as you can’t provide a good service and we want to provide the best possible service. We have a limited number of clients because we appreciate you can’t be reactive – and most importantly proactive – for our clients if there are too many of them to look after,’ Ridland says.

‘The other thing with our client numbers and assets under management is that we want to work with people we can add value to, we get on with and have a positive experience with.

‘We have turned away clients who we have felt we are not right for or they are not right for us,’ MacNeil adds.   

‘We have been quite strong on that and quite good at meeting other managers in the fund management space. One of the key things we learnt from one in particular was to be selective about the clients with whom you want to work. It is not a comfortable thing to do in the early days.’

Castlebay has no performance fees or dealing commission rates, which they feel can encourage bad behaviours and conflicts of interest. The boutique charges a 1.2% management fee, inclusive of custody, on the first £1 million invested, 0.78% on the next million and 0.58% on the balance over £2 million.

The company has no set investment minimums for clients because the investment managers are keen to not close their doors to clients that have growth potential over time.

‘Our charges were set with the future in mind. Other firms are repricing and the charges they are levying are higher than ours. We feel we have a keen eye on cost and our structure lends itself to that through our outsourced model to trusted partners,’ MacNeil explains.

‘We need to be able to support and to reinvest in the business, but we want to keep that cost to the client as low as possible because that impacts their returns,’ Ridland adds.

Castlebay is a trading name of London based SC Davies & Co, which provides regulatory and compliance support, with Multrees as its back office provider.

The alliance with SC Davies started after MacNeil read a Wealth Manager profile on the company with interest and chose to get in touch with founder Simon Davies to see if he could offer any advice or if there were ways in which they could work together.

Although the relationship is primarily operational, it appears to be one that has proved beneficial for Castlebay during its early stages of life.

‘They have been incredibly helpful in terms of meeting clients and prospects,’ MacNeil adds. The two teams meet regularly to discuss markets and investment ideas.

Castlebay offers direct UK equity and multi-asset mandates to private clients and charities. For internal stock selection, the firm uses a proprietary tool to screen UK markets on a valuation basis, seeking companies with sustainable cashflows in sectors with high barriers to entry.

However, buying in at the right price is crucial, and Ridland, who was formerly a fund manager at Ignis, says the problem right now is that a lot of stocks look expensive rather than cheap. As a result, the direct equity strategy has around 20-30% in cash.

Nonetheless, they have taken advantage of valuation opportunities in support services, alongside oil and gas services sectors. Ridland highlights Petrofac and Wood Group, two companies they have bought at prices they feel offer a margin of safety. As they expect inflation is likely to rise, they are also backing companies with pricing power.

Collectives are used to access overseas equities and other asset classes. The duo work from a centralised process, but have the potential to produce bespoke portfolios.

A medium to high risk multi-asset portfolio at Castlebay has around 56% in UK equities, 25% in fixed interest, 14% in global equities, 5% in alternatives and cash. The risk profile aims to achieve CPI plus 3%.

Although emerging markets have struggled in relation to their developed market peers in recent times, Ridland expects this will prove a short-term blip. As a result, he is positive on stocks that have overseas earnings and may have been penalised on account of this, but stresses once again that valuation is still key.