There was a time when the City was a tight-knit market serviced by a number of
middling-sized broking partnerships, often dominated by key individuals.
Then came the Big Bang and a Square Mile full of huge investment banks,
often American, where traditional broking was only one strand of business.
Now there are signs that parts of the market, at least, are reverting to
this earlier model.
The mid-cap area, of corporates too small to make the FTSE 100 but of a
sufficient size and vibrancy to need access to capital, is increasingly the
hunting ground of a new breed of middle-ranking brokers. Firms such as
Collins Stewart, built up by Terry Smith, Evolution, Andy Stewart’s Cenkos
and Oliver Hemsley’s Numis Corporation have done well even in the market
turmoil by concentrating on an old-fashioned approach to clients.
This relies on the close relationships for which the City was once renowned
and avoids conflicts of interest that may occur at larger investment banks,
where the proprietary trading side, for example, may be busy dumping shares
of valued clients in the market while the investment bankers are urging on
them dangerous but— for the bankers — lucrative deals and takeovers.
Some of the new breed of brokers have also been picking up clients and key
members of staff from failed or departed businesses, such as Dresdner
Kleinwort, whose German masters decreed a departure from European equities.
Numis alone has gained 37 new corporate clients over the past nine months,
according to Oliver Hemsley — its chief executive and the man who set up the
broking firm nearly 20 years ago — and a fair chunk, therefore, of a client
list that now stands at more than 120.
But there are differences this time around. The old City practices of relaxed
hours and Friday afternoons on the golf course have been replaced by a work
ethic borrowed from those American “bulge bracket” banks.
A lot of the newly resurgent middle rank are staffed by people whose pay and
incentive structures are as generous as those at the average big investment
bank — and they are required to perform. “It’s unbelievably competitive,” Mr
Hemsley said. “As the large firms lose interest in the mid-cap area, new
ones either start up or they are reincarnated.” In an incredibly competitive
new world, there are, Mr Hemsley said, “few barriers to entry. Anybody can
set up a broking firm.”
Mr Hemsley did just that after ten years in the insurance business. He set up
Hemsley & Co Securities in 1990 to provide the Lloyd’s insurance market
with much-needed fresh capital. Shortly afterwards, he bought Raphael Zorn,
an old City broker with a mixed reputation. This brought with it a private
client side, which provided a useful separate income stream.
This business was sold in March 2000 and Mr Hemsley set out to expand Numis —
the Latin word for coin — into other areas. The sale had reduced the
workforce from 70 to only 12, but the events of September 11, 2001, meant
that the insurance sector was again in need of recapitalisation. Now Numis
employs about 160 people.
Among these is Lorna Tilbian, the media guru and its highest-profile analyst.
Hired in September 2001, she regularly tops the league tables in her sector.
The broker also moved into other sectors — such as aerospace, engineering
and property — when Mr Hemsley made the appropriate appointments. His
approach is pragmatic: taking a high-flyer in a given area when he or she
becomes available — “it’s no good having lacklustre people” — rather than
targeting a particular sector as one where he would wish to be and then
seeking candidates.
In this way, Numis has spread into financials, retail and support services but
not banking, although it does have a specialist in financial stocks.
New people not only bring experience but also the possibility of new business.
A year ago Mr Hemsley secured the services of Marcus Chorley and his highly
rated mid-cap sales team, who defected from UBS. Such recruits bring
expertise, but they also bring existing relationships with institutions and
corporates, which can be parlayed into additions to the clients list.
Numis has also had the benefit of support from some good non-executives.
Michael Spencer, founder of Icap and one of the City’s richest and
best-connected men, was a big shareholder — and chairman until May, when he
was replaced by Sir David Arculus, who helped to build up Emap, the
publisher. Gerald Corbett, another well-travelled director, became a
non-executive at the same time.
“The thing about Numis is this is all we do. There’s no part of the bank
that’s losing money, to the detriment of the people in the equities
business,” he said. “It should give institutions and corporates a feeling of
well-being working within an organisation which is unconflicted,
well-capitalised” — Numis has £70 million in the bank — “and is never trying
to sell them products that they don’t want. I think that makes quite a
difference.”
This focus is a subject he will return to, time and again. Even rivals such as
Collins Stewart and Evolution have fund management sides, which could throw
up conflicts, he claims. As to his larger competitors, “that sort of
impersonal approach by large organisations is always going to suffer in this
environment, or at least it’s going to be acutely exposed. That’s where
independent corporate broking businesses do well, by getting close to
corporate clients and doing what they want.”
But such businesses, even more so than the big investment banks which can
afford to carry a few passengers, are notoriously hard-nosed. Involuntary
departures are common. “If you are trying to put the company in the position
of being able to compete against larger organisations, you’ve got to upgrade
the people.
You don’t necessarily complete the journey with the same people in the company
you started with. Some people have left. Some people have been encouraged to
leave.” His reputation for taking such action might be taken for
ruthlessness, I suggest, though he is not the only one with such a
reputation.
“I don’t think I’m ruthless at all. I’m very, very ambitious for the company.
The reality is that we won’t get there unless we have top-quality people,”
he says. “It’s so competitive. I think if you get it right, the rewards are
substantial. There’s always competition for that.”
For the right staff, the rewards are certainly there. Numis, typical of its
breed, pays market salaries and offers substantial equity stakes. These are
generally the subject of lock-ins to encourage staff to stay.
“I like people to be long-term about it. We took real risks with this business
at the beginning. I sold my home — I wasn’t married, which makes it easier.
I risked everything.”
The company’s 160 staff are based in New York and at its head office in
London, in the same building occupied by the London Stock Exchange in
Paternoster Square. About 60 per cent of Numis is owned by employees, and of
those 160, at least 20 are worth more than a million on paper.
Mr Hemsley himself owns 13 per cent of the company, worth about £20 million.
The shares have suffered like other financial stocks, and at one stage,
before he took some money out by selling down his holding, it was worth £70
million. “Irrelevant,” he says dismissively.
The broker has about ten clients in the FTSE 250, including Domino’s Pizza, a
couple of insurers, Brit and Beasley, reflecting its roots, St Modwen, the
property company, and Marshalls, the building products maker. But none of
these is in the FTSE 100. Within five years, he hopes, this will change. It
will require the addition of yet more key, well-motivated staff. “I find it
astonishing how few really good-quality corporate brokers there are.” In
part, this is because there are a limited number of big corporates that they
can learn their trade advising.
But Mr Hemsley hopes that the chaos in the banking sector, and the fact that
some banks with broking businesses have been taken under public control,
will free up the market and encourage more enterprising individuals to
strike out elsewhere. He mentions one such business leaking good staff.
“Working within such a large organisation can’t be good for a broker. A broker
is meant to be an entrepreneurial service provider,” he said. It is
certainly true that the sort of money paid out within such broking
businesses before their owners were under state control will henceforth be
more freely available to firms such as Numis.
Mr Hemsley’s journey to the apex of a stockbroker was an unconventional one.
Born in 1962, he is the son of a Rutland pig farmer and left school after A
levels for an infill job as an office junior at a Lloyd’s marine broker,
which became the Brockbank Group, and stayed. “Lloyd’s is a really
gregarious market. Even if you are sitting there photocopying underwriting
slips, you meet plenty of people. They are seductive, markets.”
He joined at a turbulent time — the people running his initial employer
departed during one of the many scandals then. By 1993 the rules were
changed to allow Lloyd’s firms to raise corporate capital for the first
time, and Mr Hemsley and his firm were well placed to act as a bridge
between people they knew in the insurance market and the investing
institutions outside. “I think it’s too much to say we saw it coming. But
that really got the business going. It was a lucky break, certainly.”
His decision to diversify, almost a decade later, was in part because such
cash-raising rounds in insurance tend to be extremely cyclical, coming every
seven to ten years or so. “It’s no good having a feast for a couple of years
and famine thereafter.”
In 1998 Mr Hemsley reverted to his farming roots and bought a place in Devon —
dairy and beef, no pigs. Which is the most risky, farming or broking? “I
haven’t geared up either. I haven’t got any debt in this business and I
haven’t got any debt attached to the farm. With equity, there’s no repayment
date, and with debt involved there is, and you can’t forecast what shape
your business will be in as you approach that repayment date.”
Spoken like a true equities broker.
