I enjoy the complex challenge of a hard-nosed business

The Fund Manager

There is a vogue for "themed" investment funds, portfolios which latch onto a particular trend driving markets. One of the dominant themes of investing in the UK stock market over the past 15 years has been the successive privatisation of former state-owned companies, a phenomenon taken up by governments all over the world.

One fund in this theme is the Investec Guinness Flight Global Privatisation trust, managed by Jeremy Podger, a Cambridge philosophy graduate, who thought very carefully about what sort of career he wanted in the City.

"I felt I didn't want to do anything very practical," he says. "I liked the intellectual challenge of the City but spent a long time working out exactly what I wanted to do. I decided I wanted to be in equity fund management, because there is nothing richer, more complex or more intellectually challenging. Every day is different and although it is a more hard-nosed business than when I came into it 13 years ago, it is very enjoyable."

His fund started in 1994 as the UK privatisation programme was closing. Private investors had done well out of privatisations and the trend was moving internationally. "We set up this fund as a vehicle for investors to participate in foreign privatisations," says Mr Podger. "The fund will also invest in companies benefiting from the same factors as privatised companies. Actual pure 'privatisations' make up about 75 per cent of the fund.

"It is basically a value-type fund looking for companies sold on the cheap by governments. The successful ones have managements suitably incentivised through equity stakes or share options to make these companies work in the marketplace.

"Over the past three years, we have seen explosive growth in this market, especially in continental Europe. Privatisations accounted for half of the new equity issues on the continent in that time and the global market is expanding. In 1993, the amount raised worldwide from privatisation issues was $54bn. Last year it was $145bn.

"The ethos of the fund is to pick the best of the new issues and, where we are investing in the secondary market, to pick those companies which have the best prospects for increasing profitability. Privatisation is about an awful lot more than flogging companies off on the cheap and hoping they will realise their true potential.

"Among the main drivers are IPOs (Initial Public Offerings) and new issues. We were in 15 last year, 10 in 1998 and 18 in 1997. About 20 per cent of the fund is in new issues and we reckon we can add 2 to 4 per cent to annual growth by judicious use of IPOs and flotations."

Not surprisingly, the fund's major sector exposure at present is to telecoms (just under 40 per cent). Mr Podger says: "Developments in telecoms are the most dynamic single theme in the privatisation sector. Technological developments opened the way for new entrants to take on the former state monopolies and this has changed the character of the trust from being more of a bargain-hunting fund to one looking more for serious future growth opportunities. You only have to look back to 1996 when you were valuing companies such as BT largely on the basis of their dividend yield.

"Then you moved from dividend yield to looking at the p/e ratio to looking at their price in relation to cash flow. Now you are valuing these businesses as the sum of their parts, looking at their old telecoms operations and their mobile telecoms and their internet businesses as separate entities.

"Telecoms and electricity companies (the next largest sector at 10 per cent) have historically made up 50 per cent of the fund and unless you count banking as a consumer sector, we have virtually nothing in consumer stocks.

"In the electricity sector, one of the most impressive new entrants is Enron in the US. Power generation is another potential major theme. It is estimated that $1.4trillion needs to be spent on this industry worldwide."

The geographical spread of the portfolio is predominantly in the UK (12 per cent) and Europe (53 per cent).The emerging markets element is 10 per cent, although it has been as high as 20 per cent. Mr Podger says: "We are emphasising Eastern Europe. We think valuations there are extremely cheap, compared to western Europe."