The MT Interview: Crispin Odey of Odey Asset Management
By Chris Blackhurst Friday, 01 April 2011
The hedge-fund boss's country gent appearance belies one of the sharpest and most contrarian brains in the business. He paid himself over £30m last year and made a fortune from the collapse of British banking.
When I arrive for lunch with Crispin Odey at Corrigans - the super-smart Mayfair restaurant of star chef Richard Corrigan - I'm treated like royalty. Odey is running slightly late and I'm shown to a prime table. The staff bustle around, checking I'm okay - nothing is too much for them. Finally, he arrives, and they go into overdrive.
A bottle of normally exquisite - and expensive - white Burgundy is produced, which he decides is not quite right. The sommelier scurries away to fetch another one. He glances at the menu and knows what he wants: a duck egg to start, followed by, if I agree, a shared steak and kidney pie. 'And what about some beef on the side, let's have the loin of beef on the side. Lovely. Oh, and we'd better have some mash and some kale - we ought to have something green.'
He calls over the wine waiter again: 'And we'd like a bottle of the Leoville.'
The claret is superb, as is the food. But this is mid-week. A bottle of white and a bottle of red. Beef on the side. Nobody has lunch like this in London, not any more, not in oh-so politically correct, watching-the-calories 2011. Not on this scale and even more rarely at this cost. What's more, with hedge fund magnate Odey, there is the feeling this is nothing special. The office of his firm, Odey Asset Management, is across the road and Corrigans might as well be his canteen.
Recession or no, he lives like this all the time. Full on, doing exactly what he wants to and perish the petty-minded dullards who get in his way.
The phrase larger-than-life could have been invented for Odey. He's well over six foot, broad and has the charm, flamboyance and confidence of someone who is extremely comfortable in his own skin, and is also blessed with a fearsome intellect. His speech is rapid, and ideas, thoughts, opinions pour out of him.
He may look like a jolly country gent down in town for a few days (his passions include fishing and shooting), but he is a financial operator of great aplomb, a man who has the markets constantly in his thrall and is famous for taking daring, often counter-intuitive positions. And he has paid himself at least £85m in the past five years, including over £30m last year.
There again, he is also a hedge fund boss who has had a sausage named after him - the 'Odey sausage'. Made with pork from a neighbour in Ross-on-Wye (where he has a country home), the sausages are sold at the Union Market, the new organic grocer in London. He's in on the deal at both ends, of course - he's an investor in Union Market, and the firm is run by his old friend former corporate financier Tony Bromovsky.
Together with his wife, Nichola Pease, a member of one of the Barclays founding families and deputy chairman of private wealth group JO Hambro (her sister's husband is ex-Barclays chief executive John Varley and her brother Richard Pease is a star fund manager), Odey is part of a formidable and impeccably well-connected unit.
They've been described as the 'Posh and Becks' of the City but in truth they could not be more unlike the celebrity duo. They're part of the old money City establishment, highly educated, conservative in taste, quiet, serious and never courting publicity. They're extremely wealthy - the Sunday Times Rich List estimates their worth at £300m.
But in that, too, Odey, 52, is quite different from his hedge fund rivals. He's absolutely not brash - the Odeys and their three children live in London, in a gorgeous but understated, art and book-filled house in the oldest part of Chelsea, near the river.
He eschews flash parties and the glitzy hedge fund charity dinners - he would not dream of showing off his chequebook in public. He may like the good life, but he does not believe in crass displays of spending power.
Later, in the offices of Odey Asset Management, he is in typically expansive, good-humoured mood. The place feels more like a wood-panelled private house or a discreet family lawyer's practice, rather than the nerve centre of an international hedge fund manager. Paintings adorn every available wall - English scenes are favourites - and the furniture is antique. Odey appears totally at home in these surroundings, a world in which traditional values sit side-by-side with some of the sharpest financial brains in the business. Only a departing group of Japanese visitors, clutching their briefcases, gives any clue as to what goes on here.
'We have $6.5bn to $7bn under management,' says Odey, running his hands through his hair. 'Of that, $4bn is run directly by me. We employ 70 people in two offices, here and round the corner.'
He laughs. 'They're both Georgian townhouses. I know, I know, I could move to a smart office building and put us all under one roof, but I've a loathing about moving anywhere. I love the history in the walls of a place like this.'
He's now got, he says, 'about 2,000' investors in his various funds. 'They divide equally three ways - there are the pension funds and institutions, high-net-worth individuals and retail banks and fund managers.'
They come to Odey, he says, 'because we're pretty good at making money and we don't take too much out, either.' He's had good and bad years but overall his record over the past 10 years or so is a 1,000% return.
They also flock to Odey because he does not conform. He refuses to tie his funds to any one description, so while his competitors pride themselves on offering 'growth', 'technical' or 'value', he doesn't. He and his team will do whatever their rigorous research dictates. Their approach is flexible and pragmatic. 'We are paid to change our minds - U-turns are allowed.'
They follow 4,500 stocks. They're constantly attempting to think ahead, to anticipate trends and industry and macro movements and apply them to a particular share.
Famously and controversially, Odey went short on British banks, predicting that they would fail in 2008 (Bradford & Bingley was one of the stocks he correctly expected to tank). He pocketed millions for himself and his clients when they duly went down. His return that year was 54.8%.
Then, he switched to going long in Barclays, when others thought the bank might have to be rescued by the taxpayer. As a result, when Barclays managed to stay out of the state's clutches, he was up 33.7%.
Likewise, after 9/11, he foresaw that insurers would rise - and profited handsomely.
Currently, he is also sitting on 3% of Rupert Murdoch's BSkyB, an investment that has added spice because he used to be married to Murdoch's eldest daughter, Prudence. Odey may well prove to be a thorn in the side of the proposed takeover of BSkyB by Murdoch's other company, News Corporation. The hedge fund manager and ex-son-in-law is bound to seek a higher price.
Odey insists it is not personal. 'Even at 800p (the price BSkyB has been demanding), this company is undervalued. We should hold out against this bid. This is a company I want to own. I loved the Sky story five years ago and now, just as the cashflow and growth is coming through, we shouldn't sell it. If shareholders sell at this level, in two years' time we are going to look back and say: "Rupert got this for a steal."'
Like Rupert Murdoch, he was born into a prosperous family - but in east Yorkshire rather than Australia. He went to Harrow School ('my father was Harrow head boy. I was a bad boy, not head boy, but I did get into Oxford').
He learned a lot in his family, he says, by observing a row about a discretionary trust and watching the different generations involved. And from seeing his father earn a lot of money as an entrepreneur, then lose it. 'I watched him break the rules, which are: give yourself time, think like a rich man and want to hang on to it, never attempt to make too much too early.'
At university he studied history and economics. He was going to become a barrister and qualified, but then went off a legal career. After a summer job in the City, Odey joined Framlington, the fund manager. He found it frustrating. 'In the US, being a fund manager was seen as a real profession. That's not how it was here. I found the ambition too low. It made me realise that you have to be the owner of capital, you have to ensure the money works for you and nobody else.'
He left and went to work for Barings International. 'It was full of entrepreneurialism. It had come out of Hong Kong in the 1970s, not dull old England. I really enjoyed life.'
It was, though, not without its flaws. Individual performances weren't assessed. 'Nobody knew if you were doing a bad or a good job. It meant you could be sacked even if you were doing well.'
He enjoyed himself, though. 'The lifestyle was terrific. I met some great clients - people I could have fun with.' He and his colleagues, he says, were left pretty much alone. 'We chose stocks in Europe, then spent time going round Europe - it was great. We also made some amazing returns.'
Then Barings International merged into Baring Brothers, the merchant bank, and the freedom ended. 'We became a balanced, dull UK portfolio manager. Nobody had any flair.'
Odey decided to set up on his own. 'It was like a prison door opening. I'd emerged from this dull old place - it was like a prisoner-of-war camp, full of people in grey uniforms and grey men. I think they hated me - certainly I hated their envy. They were looking for me to make mistakes.'
In 1991, he started his own fund, seeded with $150m from George Soros, fund of funds firm GAM and pension fund RCB. 'I'd always imagined you sacrificed income in order to be free, but within six months I was earning £1.5m.'
He's been raking it in ever since. Clearly, he likes the money, but the impression he gives is of doing it for the intellectual challenge, as well as the satisfaction of beating the market. 'I never know what to do with it,' he says of his wealth. But he must do something with it? 'I hide it in very big holes,' he chortles. He does make charitable donations but discreetly, 'to school, university, churches'.
From the outset, he never wanted the business to get too large. 'If I'd believed in having scale I could have grown a lot bigger. But it stops you having fun.'
It was too easy at first - 'we had a false start'. Odey quickly made his name with the success of his European equity long/short fund. He soon gained a reputation for taking a view that was different from the herd and for basing his investment decisions on his own strongly held views of the economies and markets.
But it didn't last. In 1994, he came a cropper spectacularly when one of his funds lost 44% of its value. 'You lose the respect of the market at that point,' he says, the memory clearly hurting him still. He thought rates would fall because of deflation. But 'Alan Greenspan (the then US Federal Reserve chairman) raised interest rates and I found out what it was like to be on the wrong side.'
Odey had taken a massive long position on bonds. 'When I bought them we weren't afraid of interest rate movements, up or down, it wasn't what we were expecting. We'd had a fantastic run but that hadn't taught me much in the way of risk controls.'
Suddenly, he was left holding bonds as they fell. 'It was a horrible moment.'
His reputation was blown - 95% of his clients pulled their money out. For five years, from 1994 to 1999, 'only one new client came in. It was a solitary life.'
He cheers up. 'But I did make 400% in those years - I went from $50m - belonging to family, friends, anybody who was too embarrassed to pull out - to $250m.'
It was a salutary episode. 'That period taught me great things. One, liquidity is very important. Two, who your clients are on the funding side is crucial - you're only as good as the stability of that funding. Three, money you don't have you don't miss.' He breaks into a wry smile. 'But if it comes and goes, you miss it.'
And he resolved to take three months' holiday a year, so he could remain fresh and enthusiastic at work.
Looking back, he says he was complacent. 'Most of my early career at Odey Asset Management I was an emigre. All the things I did I learned from Barings. It made me realise I couldn't just be good on my own, I had to broaden the business into a partnership.'
He recruited Hugh Hendry and they became a double-act: the quintessentially urbane Englishman and the live-wire son of a Glaswegian lorry driver. The latter had been working at Credit Suisse and, despite being only 29, had developed an understanding of the markets and a way with words (something that has stood Hendry in good stead on TV as a financial pundit, known for his one-liners).
Early on, says Odey: 'I remember Hugh saying to me: "If the market is running towards you then you make money; if you're running after the market, you lose money. You've got to get ahead of the market."'
Hendry oversaw Odey Continental Europe Fund, which became a top performer. The respect between the two was, and is, mutual. '(Odey) taught me how to manage money,' said Hendry. 'More than that, he taught me how to misbehave. Misbehaviour is all about curiosity, how you invoke and think about change, which is very necessary in the management of money.'
They experienced a bear market together, after the dotcom crash. For Odey it was his second - the first was in 1994 - and, he argues, as an investment manager, 'you need three bear markets to know what to do. The first nearly wipes you out, the second you learn how to survive and the third you take by the scruff of the neck and enjoy it.'
By the time his third bear arrived, in 2008, Hendry had gone. Hendry says that when he joined Odey he was in awe of him. Then their relationship moved into a 'second phase', characterised by the realisation that Odey wasn't infallible and by the notion: 'That is an interesting view you're giving me, here's what I think.'
'Odey in the 1990s was a one-man band,' says Crispin. 'Odey in the 2000s was a two-man band.' He shakes his head at the memory: Hugh has got Glasgow running through him - he always wants to have a fight about anything.' But they still see each other - they share a common client.
When the banks collapsed, Odey was ideally placed, short in their shares - having predicted they would fall. The one bank he did not touch was Northern Rock - his wife, Nichola, was a non-executive director. Nevertheless, some sections of the media and politicians highlighted the connection and accused him of profiteering from the misfortune of others.
Odey shrugs when this is put to him. 'We're jobbers,' he says. For every short trade he does, there is someone else taking the opposite view. It's also, he says, what hedging is, covering yourself if shares should drop.
Where the misinterpretation arises is when it's assumed the hedge fund is somehow responsible for driving down the shares. That does not occur, he insists - he does not peddle negative information or, worse, fiction, designed to harm a company. 'There is a great difference between taking a bet, which is what we do, and wishing that something will fail or, even worse, making sure it fails.'
The family connection arose again when Odey did go long, in Barclays. He bought when the bank's shares had slumped to 50p. Soon afterwards, they began climbing, reaching 380p. That was thanks to Varley, his brother-in-law, pulling off an audacious rescue - finding Middle Eastern backing rather than turning to the Government for help. Inevitably, some said that Odey must have known what was unfolding.
Absolutely not, he says. 'Most people were precluded from going long because the market was so volatile - they simply could not take the risk.' Odey could, and he was convinced that the shares at 50p were a steal, that Barclays had a strong, solid business.
'The truth is that Varles (as he calls Varley) is the most regular guy in the world, he would never say or hint at anything. Likewise, if those who say this knew me or Nichola they would know we're never tiring of conversation and we don't talk about things like that.'
He confesses to being 'saddened' by how his industry is viewed. There is nothing sinister about hedge funds, he says. Yes, they can make lots of money but they can also lose it. Unfortunately, they cloak themselves in secrecy, which gives the impression of having something to hide. He concedes the industry could do a great deal better when it comes to explaining itself to the business community and the public.
He's shown signs of dabbling in politics - he's backed anti-EU campaigners in Ireland and is closely involved with the Conservative Party. Like many other hedgies, he's also threatened to leave this country, relocate to a tax haven and avoid the 50% higher-rate tax. Odey looks suddenly sheepish. He does believe the tax system is incredibly inefficient, he says.
But in truth, I suspect, he knows the notion of Crispin Odey living anywhere other than dear old England is difficult to countenance, whatever the tax rate and however poor the public image of his industry may be. Hence the sheepishness. How would he live for a start? The restaurants of Geneva and Monaco are not known for supplying steak and kidney pie with loin of beef on the side.
FOUR CHALLENGES FACING ODEY
To present a more human face for the hedge fund industry and encourage others to do the same
To ensure he extracts as high a price as possible from his ex-father-in-law, Rupert Murdoch, on BSkyB
To take long positions in stocks and actively encourage and help build the companies in which the shares are held
To make even more money for himself and his clients
ODEY IN A MINUTE
1959: born in Yorkshire, went to Harrow School and Oxford University, studied history and economics
1983: joined Framlington fund managers, having qualified as a barrister and never practised
1985: left for Barings International
1991: started Odey Asset Management, after leaving Barings
1994: lost heavily after taking a wrong bet on interest rates, saw many clients leave, spent the next five years restoring his reputation
2008: sitting on short position in shares of British banks, although not Northern Rock, where his wife, Nichola, was a director
2009: raked in huge profits from having gone long on Barclays stock
2010: threatened to leave the UK over 50% higher-rate tax.