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'British Warren Buffett' pockets £16m in second best year ever

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Fundsmith founder Terry Smith. Photo: Fundsmith

A star money manager once dubbed the “British Warren Buffett” pocketed £16.1m ($21.16m) last year, as his flagship fund enjoyed its second best year ever.

Terry Smith, the founder and majority owner of Fundsmith, was handed £16.1m in the 12 months to 31 March 2019, according to accounts filed this week. The payout compared with £12m in the prior year.

Turnover at Fundsmith rose 35% to £165m in year to March 2019 and profit rose 25% to £26.3m. All the profit was handed to Fundsmith’s eight partners, with Smith taking the largest share.

The distributions came early on in what turned out to be a bumper year for Fundsmith’s flagship Equity Fund. The Fundsmith Equity Fund returned 25.6% to investors across 2019, the second best annual performance since the fund was set up in 2010.

The Fundsmith Equity Fund is the largest fund in the UK, with £18.8bn of investor money under management.

Fundsmith declined to comment.

Fundsmith was set up in 2010 by 66-year-old Smith to challenge what he called the “fat and complacent” fund management industry. Smith doesn’t charge performance fees and takes a ‘buy and hold’ approach to equity investment, eschewing short term trading strategies.

Smith invests in “high quality businesses that can sustain a high return on operating capital employed” and “are resilient to change, particularly technological innovation,” according to the company’s website. Current major holdings include Microsoft (MSFT), Facebook (FB), tobacco giant Philip Morris (PM), and Danish drugs company Novo Nordisk (NVO).

Smith’s slow-and-steady approach to investment has won him a legion of fans and led some to compare him to famed US investor Warren Buffett. Investors who backed his fund from day one would have seen their money balloon by over 360% to date.

Accounts for Fundsmith’s UK partnership, which paid Smith £16.1m, give only a partial picture of the overall investment business’s profitability. Fundsmith paid £115.8m to Fundsmith Investment Services Limited (FISL) during the accounting period. Mauritius-based FISL is a group company that provides services such as fund administration, stock selection, investment research, and trading for the Fundsmith Equity Fund. The FISL accounts are not available.

Fundsmith set up an office in Mauritius in 2014 and Smith, the son of an east London bus driver, officially changed his residency to the island in the Indian Ocean at the start of 2017.

Mauritius charges corporation tax of 15% but certain companies can qualify for exemptions to bring this rate down. The Island nation does not charge capital gains tax, estate tax, or inheritance tax.