We need human money managers not just machines!

Earning your first million is a memorable moment for everyone. For fund manager Euan Munro, it was also a historic event for the country: Black Wednesday in 1992, when Britain left the European Exchange Rate Mechanism.

That episode, which nearly destroyed the Bank of England, catapulted him from his upbringing in a mining village to a career path that took him to the top of the town.

As CEO of Newton Investment Management, he is now one of the most powerful men in the Square Mile. He oversees an empire with offices in London, New York, Boston, San Francisco and Tokyo, and manages around £87 billion in assets.

The company is part of BNY Mellon Investment Management, one of the largest in the world, with £1.4 trillion of investor money under its care.

Thirty years ago, Munro was a novice financier when the Bank desperately raised interest rates in a doomed attempt to prop up sterling on Black Wednesday. Legendary tycoon George Soros made billions of pounds betting that the Old Lady would fail. On a slightly smaller scale, Munro, then still in his early twenties, also made a fortune.

“When Soros made his billions, I made a million for the company I worked for, Scottish Provident,” says Munro. ‘It was the first million I earned professionally. It was so exciting.

‘I managed money during the rise and fall of the dotcom and the global financial crisis. I have always felt that I was most relevant to clients in times of turmoil.’

That could be reassuring for investors who have put their money with Newton, given the state of the world, the stock markets and the UK economy. “This is the kind of environment in which I thrive,” he says with pleasure.

Munro is not only an adherent of the doctrine that you should never let a good crisis go to waste, but is also an advocate of what he calls thoughtful capitalism. It is, he says, about making informed choices about where to invest, including in the new, innovative and fast-growing businesses that Britain needs to thrive.

He contrasts this with so-called passive investments, where fund managers do not try to select the best performing assets, but simply track an index such as the FTSE 100.

Passive investing has become very popular, partly because the costs are lower. But Munro claims this also means not as much focus is being placed on investment, less money is being put into exciting new projects and investors are missing out on potentially high returns.

He argues that thoughtful capitalism is one way to tackle the challenge of providing decent pensions to an aging population. It could help the government achieve its goal: British pension funds should invest more in British companies, not just put savers’ money into government bonds and foreign shares.

“Britain has the opportunity to be a leader in thoughtful capitalism and active management,” he says. ‘A lot of money – a lot of people’s pensions – has flowed into passive funds. The result is that no one thinks about whether the level of risk is right, or whether it will deliver the right level of income and growth.

‘If you want money to go to exciting new projects, you need active management. The government has little to lose by taking a position on thoughtful capital allocation.”

There has been a lot of talk about the supposed demise of London as a financial center and of the British stock market, but Munro is an optimist. He says: ‘London has major advantages as a financial centre, including its time zone and an internationalist mentality.’

Turning to the UK stock market, he says companies whose shares are undervalued and have decent dividend yields look attractive in an environment where, in his view, inflation and interest rates are likely to remain higher for longer.

“Globally, growth is quite difficult to achieve,” he says. ‘There are a number of obvious reasons, including the fact that governments will spend much more on servicing their debts. In 2021, the US government spent 6 percent of tax revenue on servicing debt. In 2025 this will be 16 to 18 percent.

‘We will be similar in Britain. When governments spend money on debt servicing, it is less productive expenditure than anything else.”

In this scenario, he argues, solid British brand companies should come into their own, adding: ‘The UK is a great dividend market. It may lack the explosive growth companies of some other markets, but it has the right qualities for the future.’

Munro became head of Newton in 2021 after a stint at insurer Aviva. But he is probably best known for his time at Standard Life, where he was one of the architects of GARS – the Global Absolute Return Strategy fund, which was launched for retail investors during the 2008 financial crisis. A blockbuster in its heyday, which fell to earth with a thud.

The fund – aimed at achieving returns despite market conditions – was recently described as ‘Holy Grail to Holy Fail’. After Munro left Standard Life in 2013, its investors dwindled and it no longer exists as an independent entity. Investors are still looking for returns that are less tied to the vagaries of the stock markets. Newton keeps an eye on the multi-manager hedge fund industry.

What is unusual in the high-society world of fund management is that Munro grew up in a modest family in Scotland. His father was a teacher.

‘I received a state education, he says. ‘No one I knew talked about stock markets. It was a different world.’

His escape route was a degree in physics at Edinburgh. He turned to the financial sector after realizing that scientists and engineers – no matter how talented – couldn’t become CEOs. He qualified as an actuary while working at Scottish Provident. ‘I fell in love with the markets when I realized the difference between saving and investing: using your capital productively and achieving meaningful returns.’

According to him, investing should apply to everyone – important because people have to take more responsibility for financing their own pension.

‘Unfortunately, this is the domain of the rich. If you don’t need immediate access to savings, you should look at equities,” he says.

“You can get 5 percent interest on cash now, but inflation is 6.7 percent, so you’re still going backwards. You can buy into an income fund that has the prospect of keeping pace with inflation.’

Munro and his colleagues are trying to identify fertile ground for investment: diabetes, obesity and an aging population in the prosperous West. He has a team of corporate sleuths who conduct in-depth investigations into potential problems at companies in which Newton is considering an investment.

He is, he says, wary of PR spin and doesn’t allow corporate executives to go through their slide deck when pitching to him.

But he says the most dangerous investments are those linked to family and friends. “I’ve supported family members in business ventures that didn’t work out so well,” he says. “I would advise people not to do it.”