Most hedge fund managers brag about their wins and shy away from their losses – Martin Hughes is not most hedge fund managers.
“You never boast the best. I remember the worst: Washington Mutual,” he tells The Australian Financial Review as he prepares to reveal his latest stock pick at the Sohn Hearts and Minds conference on Friday.
Hughes is remembering the 2008 global financial crisis, when his hedge fund Toscafund took out a major stake in the struggling bank.
A few months later the Washington Mutual fell into receivership. Tosca’s flagship fund was down a massive 67.5 per cent for the year to November 30, 2008.
“I’d managed the fund quite well up until 2008, then I wrote a large check,” Hughes says.
It marked a low-point in the fund’s then eight-year history, but despite the stumble Tosca has gone on become one of London’s most renowned and notorious hedge funds.
Hughes started the fund in 2000 after hedge fund pioneer Julian Robertson closed Tiger Management, which Hughes had chaired in Europe.
Hughes subsequent success thrust him into the ranks of the so-called “Tiger Cubs”, a collection of highly regarded fund managers who set up their own outfits following Tiger’s closure.
He says he never intended to break away and start a fund, which he set up with long-time friend and fellow former Tiger staffer Johnny de La Hey.
“The reason for starting Tosca was Tiger was closing – I’d be still working for Julian if we didn’t have to go,” Hughes says.
Following the collapse of Washington Mutual, Hughes hunkered down with La Hey to figure out their plan for Toscafund’s survival.
“When all the money was lost in 2008, we had a pint of beer and chatted about it,” he said.
“We said let’s just get through and come out the other side.” It’s a two-decade partnership Hughes speaks of fondly.
‘Sit tight and write letters’
“When Johnny turned 50, I said to his wife, I’ve been working with him since I was 26 years old – I think that makes me his wife.
“But we never row. I can’t think of one we’ve had in all this time.”
The partnership has held the firm in good stead in the decade-and-a-half journey since 2008. The funds house, which boasts outgoing Westpac chairman John McFarlane among its board members, has since earned back its returns and reputation.
Hughes has also developed a reputation as an activist investor in his own right, a role that earned him the nickname ‘rottweiler’ in the 2010s.
However, Hughes appears to consider his form of activism as more understated than his nickname might suggest.
“I sit tight and write letters. That’s it.” he says,
“I write suggestions to boards and wait patiently to meet and agree, and then at some stage, there’s an agreement reached, which is generally in the best interest of all stakeholders.
“If there’s a big disagreement, we are not one that tries to force it through or force ourselves on the board, we would sell the position and move on.”
Though understated, Hughes’ approach has had its fair share of successes and surprises. In 2019, Tosca took a major stake in clothing brand Ted Baker as well as telecommunications company TalkTalk, the latter of which it ultimately took private in a £1.1 billion ($1.68 billion) takeover in December 2020.
‘I should have gone to Sweden’
It’s Hughes’ ability to read people that he prides as is his strength, rather than his financial prowess – “I don’t number crunch or use artificial intelligence – it’s people,” he adds.
“The most important thing in an investment is to look someone in the eye that you’re considering investing in and think they’re telling the truth.”
It’s an internal compass Hughes says has steered him in the right direction – most of the time. Ever to dwell on his misses, rather than his hits, Hughes admits he got it wrong when he made a play for an unnamed music streaming services several years ago.
“It was just a bit of bad luck. I believed in a concept called music streaming, So I went to Singapore to meet with a company. I should have gone to Sweden,” he says.
“If I had gone to Sweden I would have invested in Spotify. I went another way – but I got the concept right.”
When pushed to name his fondest moments, Hughes recalls a phone call from Scottish financier and client Sir Angus Grossart, founder of merchant bank Noble Grossart, who passed away last year, aged 85.
Grossart’s call came after Toscafund had sold UK insurance outfit Esure for over £1 billion, more than five times what the firm had originally spent in a bid to take it private.
“We did have mobiles, but he rang up on the old landline, and he told me ‘thank you’.”
“I don’t remember the success of the investment. I remember Angus Grossart saying thank you – in 23 years, that’s the only ‘thank you’ we’ve ever had.”
Martin Hughes will speak at Sohn Hearts & Minds at the Sydney Opera House on November 17. All profits will support Australian medical research organisations. The Australian Financial Review is a media partner for sohnheartsandminds.com.au
This article was originally posted by The Australian Financial Review here.
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