B.P Marsh and Partners

15% per year is a good rate of return. Actually 10% per year is a good rate of return. But 15.2%, to be exact, is the annual increase in net asset value achieved by B.P. Marsh & Partners since 1990.

To find out how this had been achieved I met Brian Marsh in his office in Sloane Street – an office he is about to vacate owing to rising rents. Brian is sixty-seven years old and ready, you might think, to retire. But he tried that once, about twenty years ago – and it lasted for just a week.

Back then he had just sold his insurance business, Nelson Hurst and Marsh to Citicorp, for some £30m but soon discovered that a life spent shuffling around London’s galleries and museums was not going to be enough. So he set up a new business in a flat above his home – and began to invest in financial companies, as well as running the Marsh Christian Trust which supports a number of charities and amongst other things funds the Marsh Award for Conservation Biology and the Marsh Award for Marine and Freshwater Conservation. Marsh was awarded an OBE in 2005, but it was his performance as an investor that interested me.

B.P Marsh and Partners is now a public company. The shares are traded on AIM, where at 112p they trade at an unusually attractive discount of 26% to the 156p per share net asset value recorded on January 31st.

At present Marsh has stakes in twelve separate financial services businesses. Brian Marsh holds 58.5% of the shares and since he refuses to borrow money, the balance sheet is ungeared and in fact has net cash of £7m, equivalent to some 20% of Marsh’s market capitalization.

Marsh has a second rule – that the costs of running the company, which employs seventeen people, must be covered by income received from dividends and fees. So investors into B.P. Marsh need not fear balance sheet risk, and need only ask themselves whether the 15% historic growth rate can be maintained.

One way of course might be to look at the list of investments. Unusual shareholdings

Much the largest is Hyperion Insurance Group, where Marsh has a 20% shareholding valued at £20.4m. Hyperion is an insurance group that specializes in the growing categories of ‘D&O’ (Directors’ & Officers’) and ‘PI’ (Professional Indemnity) insurance.

In March 3i made a £50m investment into Hyperion, in a deal that valued Hyperion at £120m and has caused speculation that it might prepare Hyperion for flotation on the stock market.

After Hyperion the next largest investments are into Portfolio Design Group, a Chester-based operation that buys second-hand endowment policies, and the insurance broker Besso Holdings. These were valued at about £8m each at the end of January, while a holding in private client fund manager Principal Investment Holdings was sold to South Africa’s Sanlam Group for £7.25m in February.

But rather than dwelling upon the exact nature of each of the companies in the portfolio, I was more interested to learn how Marsh has achieved this impressive record, especially since its strategy involves something that is generally frowned upon in the investment world.

This is the practice of taking minority stakes in people businesses. Typically it invests amounts of up to £2.5m for 15%-45% of its investee companies, putting it in the position of having a substantial interest but no control.

Brian Marsh admitted that this could sometimes be an uncomfortable position but, he said, ‘we are farmers and not hunters’ and although not every investment has worked out there have been more than enough winners and, as any investor would know, one or two big successes held over a number of years can more than compensate for those that turn sour.

Marsh has the advantage of operating in a field avoided by other private equity firms, who find financial services companies hard to comprehend. So with few alternative means of finance about one hundred and seventy five aspiring businesses knock on Marsh’s door each year, of which it elects to invest in only one or two.

The applications are initially assessed by development director Francis de Zulueta, before the board decides whether to make an offer. I asked Brian Marsh what they look for. For managing director Natasha Dunbar it is ‘the people’; for finance director Jonathan Newman it is ‘the numbers’; for director Robert King it is ‘good housekeeping’; and for Brian Marsh himself it is a sense of whether the individuals in the business are the type to ’make it.’

This combined assessment seems to work, although the rate of net asset value appreciation has slowed a little in recent years with Marsh recording growth of 12.3% in its latest year to January. Brian Marsh admits that a continuation of the long-term growth record of 15% will be hard to achieve. But still this is a company in very experienced hands and with a proven track record. Once stock market sentiment picks up, that near 30% discount to Net Asset Value is unlikely to last for long. This is definitely one to watch.

Tom Bulford
for The Penny Sleuth
P.S. If you want to follow the tales of a small company investor, and uncover the hidden gems of the stock market, then sign up for the Penny Sleuth e-letter. It won’t cost you a penny…

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B.P Marsh and Partners

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