Against The Tide

by David Jordan

Rudy North

Money-management guru Rudy North founded an investment company to help train young fund managers in his own unique style

If Rudy North had followed his childhood dream, today he would likely be plying the Strait of Georgia in a trawler.

“As a kid I was most happy when I was fishing,” said the 64-year-old president and founder of North Growth Management Ltd. “It’s all documented in photo albums – the only way you could get a picture of me was to give me a fish.”

However, after taking two years of marine biology at UBC, North took a sober look at his salary potential and opted instead for a career in finance. He can now look back at 35 years in fund management that has earned him legendary status, and his latest venture is aimed at passing his vast experience on to the next generation.

Since founding Phillips Hager & North with partners Art Phillips and Bob Hager in 1964, North has swum against the tide in Canada’s close-knit financial community. He and his partners refused to join the media-driven cult of celebrity fund managers, shunned the exorbitant fees that have become the industry standard, and quietly went about amassing returns that consistently placed them among the industry’s top performers.

“They just wanted to manage money in the best possible way, and they always had the idea that if they did a good job the money would come,” explained industry observer Paul Brewster, editor of the Toronto based newsletter The Canadian Mutual Fund Adviser.

“I don’t know how PH&N brought in so much money without a lot of marketing hustle, but they did, and they certainly have done very well,” added Brewster.

North retired from PH&N four years ago to found North Growth Management, where he has continued to rack up impressive results. Today, the company has a little more than $135 million under management, and its primary investment vehicle, North Growth US Equity fund, has a five-year compound return of 19 per cent.

Mission Pass legendary investment acumen on to a new generation of fund managers

Assets Successful 35-year track record as a founding partner with Phillips Hager & North

Yield A boutique fund management firm with $135 million under management, with compound annual returns averaging nearly 20 per cent

North remains a contrarian in an industry that he believes is increasingly driven by slick marketing tactics. “Our team doesn’t have to kowtow to industry practices just because it’s not nice to rock the boat,” he said recently. “If you want to vent your frustration and say this is a great industry but this is a lousy practice, we can do it and it just makes us feel good.”

Chief among his gripes are exorbitant management fees, most of which he says are funneled to brokers to act as fund marketing agents. He’s equally disgruntled about the much touted “diversification” strategy, which North believes is just another way to sell more funds.

“By the time a person has 10 mutual funds, they can’t even remember why they were told this was a good fund to invest in,” North commented. “Diversification is an overused crutch – one that doesn’t work too well, especially when you start switching [the funds] around.”

North Growth US Equity fund has a management expense ratio of 1.19 per cent – about half the industry standard. And the firm has no marketing budget.

The company’s primary fund, North Growth US Equity, made headlines in early 2001, when MacLean’s magazine placed it at the top among 305 Canadian US equity funds. It had recorded a 43.4-per-cent gain in 2000, due largely to North’s call to bail out of tech stocks late in the year. After cashing in at the peak of the tech bubble, by December 31, 2000, less than 10 per cent of North’s fund was in tech stocks.

While 2000 was a banner year for North Growth Management, making headlines is not something North aspires to. “If you want to be the top fund every year, you’re going to have to abandon your principles from time to time,” said North. “We’re willing to step back when things get into some sort of a speculative boom and let other people beat us.”

When North turned 60 four years ago, he wasn’t ready for retirement but didn’t want to stick around Phillips Hager & North to watch one colleague after another leave the business for a life of leisure.

“Most of my colleagues have retired,” North explained. “I just like the business too much, and rather than hold on until everybody was gone, and then go too, I thought I’ll retire while there’s still time to get a little organization together to do what I really like to do, which is manage U.S. equities.”

More than just a love of the business motivated North to found his own investment firm. For one thing, there was a strictly practical incentive: he wanted to personally train a team of investment managers to oversee his personal investments when he finally decides to retire from the investment business.

On a more philosophical note, he also wanted to ensure that the investment strategy he honed over his 35- year career would not be lost when he leaves the industry.

North has assembled a team of three thirty-something commerce graduates – including his 32-year-old son Rory – to manage the fund’s investments. His 34-year-old daughter Caroline, a lawyer, also works for North Growth Management, looking after compliance and client services.

“I’m trying to pour as much of my experience into them as possible and they’re trying to drag as much out of me as possible,” said North. “Obviously I want them to grow as fast as possible, and I know I’m not going to be here forever.”

His investment philosophy is deceptively simple: all his decisions are driven by the motto “growth at reasonable cost.” Reasonable cost means equities whose value hasn’t been inflated by over-excited investors, North explained. Growth means that the reasonable cost doesn’t come at the expense of forfeiting a sound management team capable of pulling the company through any temporary setbacks.

North hasn’t placed a date on his retirement from North Growth Management, but when that day comes, he has a second career lined up and waiting. He has kept an active hand in marine biology as a significant contributor to the Vancouver Public Aquarium and to nonprofit organizations dedicated to studying and preserving the marine environment. He will likely spend a good part of his time on nearby Popham Island, where his vacation property doubles as an aquarium research centre.