The chief investment officer of the London-based $71bn Wellcome Trust, Nick Moakes, has a simple rule for the trust’s investment team: “Never invest with anyone who is or has been or should have been in prison.”
When it comes to looking at companies to invest in, says Moakes, who will deliver a keynote address to the Sohn Hearts & Minds conference in Adelaide on November 15, the culture of the business is key.
“We are obsessive about the culture of the organisations we invest in,” says Moakes, who has been CIO of the trust for seven years. “For us, culture trumps strategy every day of the week.”
Chaired by former prime minister Julia Gillard, the Wellcome Trust is one of the world’s largest philanthropic foundations, set up with funds from the estate of medical entrepreneur and philanthropist Sir Henry Wellcome in 1936.
The trust, which donates more than $2bn a year to support medical research, has delivered average annual returns of 12.3 per cent over the past decade.
More than 25 per cent of the trust is invested in global equities with holdings in blue chip companies including Alphabet, Amazon, Nestle, Microsoft and Visa.
It funds research into mental health, infectious diseases and climate, and the health impact of climate change.
It has similar goals to the Sohn Hearts & Minds conference which is now in its ninth year in Australia, having raised $70m for medical research since its launch in 2016, founded by former UBS bankers Matthew Grounds and Guy Fowler, and businessman Gary Weiss.
Attendees at the Sohn conference pay to hear stock tips and the investment strategies from some of the world’s top fund managers, with the funds raised going to medical research organisations such as the Victor Chang Cardiac Research Institute, The Brain and Mind Centre at Sydney University, and the Walter and Eliza Hall Institute of Medical Research in Melbourne.
This year’s speakers will include the co-chair and co-founder of Oaktree Capital, Howard Marks, the managing partner of the US-based Scalar Gauge Fund, Sumit Gautam, Sydney fund manager Alex Pollak, the founder of Loftus Peak, IFM Investors portfolio manager Rikki Bannan, and Terra Capital Founder and chief investment officer Jeremy Bond.
More than 600 people have already signed up to attend conference, with half of the funds raised going to the South Australian Health and Medical Research Institute
Moakes, who will retire from his role in March 2025 after 17 years with the trust, says he was attracted to the Sohn conference because of its similarity to the work of the trust.
He carefully avoids giving any specific examples of how he has applied his don’t-invest-in-criminals strategy, but his message is clear: investing in companies with dubious reputations is too risky.
Investing only in reputable companies or ventures is important for the Wellcome Trust’s reputation as well as its investment performance.
Unlike other funds, such as the Bill and Melinda Gates Foundation, the trust has no time limit.
“We invest with an infinite time horizon,” says Moakes. “We get no grants from government. We don’t accept donations from individuals.
“Our liquidity is entirely generated from this portfolio.”
The trust has given a commitment that it will spend more than $30bn on medical research over the 10 years from 2032. It has spent $5.3bn in the first two years, but it plans to pick up the pace.
That pledge means that while it can invest for the long term, it has to do so with an eye on cash flow. “One of our criteria in assessing investments is how likely are we to lose our capital – permanent loss of capital after inflation?” Moakes says.
Under Moakes, the trust has sought to capitalise on its longevity and its AAA credit rating, taking the pioneering approach of issuing long-dated bonds starting with 100-year bonds in 2018 and 50-year bonds in 2021.
Moakes says the fund’s aim is to “maximise our take from global GDP”, an approach which he acknowledges “gives you a very large blank piece of paper”.
The trust has no specific asset allocation approach looking at listed and unlisted investments around the world on their merits.
All of its property is in the UK, but half of its share investment is in the US.
The fund has 38 per cent in listed shares, 35 per cent in private equity, 11 per cent with hedge funds, 9 per cent in cash and bonds, and 8 per cent in property.
Information technology is the biggest single sector, making up 27 per cent, followed by consumer discretionary and health care at 15 per cent each, with 14 per cent in financials.
Moakes says managers at the Wellcome Trust spend most of their time focusing on the investments it already owns and only a small proportion looking at potential new investments.
“A lot of the investment world is about FOMO – fear of missing out – about managers looking at the things they don’t own and saying they should have got into it earlier,” he says. “What we are focused on is delivering absolute returns over the long term. We own assets that we are confident will deliver that and they will do it in a way that we understand them, and they meet our criteria about responsible investment.”
Moakes says all the trust’s property is based in the UK as it is the region its managers know best. But when it comes to other investments, both private and public, he has a strong bias to the US because of its deep capital markets and the strength of its innovation culture which has seen the emergence of companies such as the Magnificent Seven.
“The reason the US has been able to maintain superior economic growth is partly because it has attracted labour to come in through immigration, but largely it has been through productivity growth which is all about innovation,” he says.
Over the long term, he argues that investors can get a good return by investing in shares provided they keep their head in times of volatility and don’t indulge in panic selling at the bottom of the market.
“Over the long term, if you have invested in shares and reinvested the dividends you have got 5 per cent a year real return from equities,” he says.
Noakes began his career as a diplomat with the UK government working in the UN and then Hong Kong in the years leading up to the handover to China in 1997. An interest in studying the economic impact of the opening up of China had him join Blackrock as an investment analyst.
He rose to the position of head of BlackRock’s Asia Pacific investment team and co-head of emerging markets before joining Wellcome in 2007.
This week he announced plans to retire from his role in March, stepping back to a role of emeritus partner and adviser.
Moakes says he has had “the best investment job in the world”.
“There are very few places where investments can be made on a multi-decade view, where there is freedom to invest across asset classes, where proper account is taken of environmental and social perspectives, and where you can do it all for a vital mission like Wellcome’s,” he says.
Moakes says his invitation to speak at Sohn in Adelaide came from a former Hong Kong friend who now lives in Sydney, and not Julia Gillard whose hometown was Adelaide, but he says Gillard has given him some handy tips on what to see and do in the city.
The Sohn Hearts & Minds conference will be held in Adelaide on November 15.
This article was originally posted by The Australian here.
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