Stories
Rory Gillen is telling me about what it is like to go and see investment guru Warren Buffett in the flesh at his famed shareholder meetings in Omaha, Nebraska. Like many investors, Gillen finds Buffett fascinating – both for his consistently good returns and also his character.
“You are never going to worry about what Buffett tells you because his morals and integrity are beyond anyone else,” Gillen explains.
Gillen, the founder of GillenMarkets, manages about €260 million of investments for hundreds of clients, and the biggest single holding of his €50 million-plus GM Fund, a mixed-asset fund he manages, is in Berkshire Hathaway.
“The Berkshire meetings are great crack,” he laughs. “I’ve gone four or five times and I always pick up stuff and information from it.”
On one of his trips stateside, Gillen went to see a presentation made by Markel, a New York Stock Exchange listed holding company for insurance, reinsurance and investment operations.
“They’re following the same strategy as Berkshire. We’ve put 5 per cent of our fund into them as we have a deep understanding of their business.”
After plunging in March like many other stocks on Covid-19 fears, Gillen explains that Markel has been marching upwards ever since.
Rory Gillen is sitting in my back garden telling me his story. I’ve read his articles many times over the years as a guest-writer in The Sunday Times as well as some of his research reports.
He has written books about investing, but until recently, I had not read them. He writes concisely and is not afraid to hold opinions. I also know he co-founded Merrion Stockbrokers. But beyond that I don’t, know much about him. So I was keen to hear his story.
Gillen is an engaging speaker moving easily between topics on all kinds of investing from cryptocurrencies (‘a bit of a fraud’); to his love of gold (he started buying in a few years ago); AIB (value, but he is still wary); to the Irish stockbroking scene to founding his own business.
Gillen is not a braggart either. He downplays his achievements and is open to admitting his mistakes. He also criticises his own industry.
Gillen knows a lot about Irish equities and trading and has been at ringside for decades. So, we start with how he developed an interest in shares growing up in Clontarf in north Dublin.
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Rory Gillen’s father was a management consultant which meant being uprooted frequently when he was young. “I was in five houses before the age of 12,” Gillen recalls.
He became interested in the stock market when his father gave him the autobiography of Jim Slater, a swashbuckling accountant who popularised the idea of the corporate raid. It was 1978 and Gillen was just 18 as he read Slater’s recently published biography called ‘Return to Go.’
Slater was the preeminent asset stripper of the late 1960s and early 1970s, building a £200 million fortune before almost going bust after his investment bank Slater Walker collapsed in the mid-70s. A fascinating character, Slater’s other claim to fame was that he sponsored a world championship chess match in Iceland in 1972 where American Bobby Fischer defeated Russian Boris Spasskey in an epic battle that became symbolic of the Cold War.
“Slater’s story caught my imagination,” Gillen recalled. “I couldn’t understand half the things that were in it, but it was a gripping story.”
Gillen did not immediately realise his calling. He went to Trinity College Dublin to study Economics and Social Studies. “I was utterly bored, so I left after third year.”
After dropping out, Gillen joined KPMG where he stayed for three-and-a-half years and trained to be an accountant. Gillen tried to get into the then tiny Dublin stockbroking scene but couldn’t get a break, so he went to London.
It was the 1980s and he joined a mid-market private equity investor. The business he joined traced its roots back to 1945 but it had recently rebranded to Investors in Industry or 3i. Gillen started in London before moving to Glasgow. “I was very junior, just learning the trade,” he recalled.
After about two-and-a-half years in Britain he married his wife Frances, and she convinced him to move home to Ireland. Gillen worked in pensions with merchant bank Guinness Mahon before getting a job with Allied Irish Securities, a small stock market offshoot of AIB.
Finally, he was getting near the trading floor, but after six months AIB decided to purchase Goodbody, Ireland’s oldest stockbroker. “I didn’t have the experience to compete with the guys in Goodbody,” Gillen said. “I thought I’d be on the back foot and find it hard to progress.”
He heard of an opening in Dermot Desmond’s NCB and got the job.
Desmond turned NCB (today Investec) into a serious force in Irish business. “Dermot had two great attributes. He measured people well, and like all great financiers he knew how to sell well, as well as buy well,” a former colleague recalled.
Eamonn Rothwell, today chief executive of ferry group ICG, was head of equities back then. Gillen, then 29, was reporting into Rothwell working on NCB’s institutional sales desk. “Eamonn is so intelligent, he stood out for his foresight, common sense and calm attitude,” said Gillen.
“I was grand (in NCB). I enjoyed meeting people, going to London, trying to get deals done.”
Gradually he found his niche in stock market analysis and research.
Back then people like Shane Nolan looked after the banks and insurance companies, while Terry Devitt looked after food. “I was picking up mid-cap companies like DCC and ICG,” Gillen recalled. Gillen was now enjoying himself; he had found his forte.
‘There is going to be an exodus’
In 1994 NCB’s founder Dermot Desmond sold the business to Ulster Bank. The balance of power shifted. The business was now owned by a subsidiary of National Westminster Bank in Britain instead of a driven and intelligent entrepreneur.
Not everyone was happy about it, and Roy Barrett left for Goodbody in January 1995 to manage its domestic and international equity operation.
Padraic O’Connor, a former Department of Finance civil servant, had been managing director under Desmond, and he stayed on post the sale. After a few years, the race became who would take over from O’Connor, and there was stiff competition.
“I am not a speculator,” Gillen explained. “I recovered very fast because it wasn’t permanent losses.”
John Conroy, head of equities, Hugh Cooney, head of corporate finance, and John Keilthy, head of private clients, were all seen as in the running, as was Conor O’Kelly, head of NCB’s bond desk.
“There was a vacuum at the top,” Gillen recalled. “We had a view of who should get the CEO role. I remember sitting down with Paddy McMahon [Ulster Bank’s deputy group chief executive] and I said to him John Conroy should be the CEO.
“I said if that doesn’t happen there is going to be an exodus because we are business people. If you put a bond guy in a business environment, you are just not going to be able to keep people and wow was I right.”
In an interview with The Irish Times McMahon said at the time: “There are young men leading the business – Conor O’Kelly is 38 and John Conroy is 39 – and they now have the opportunity to show their paces.”
McMahon added he was not worried about staff departures, even though a four-year earn-out period was now over.
All four candidates for the top job were good, but Conroy and O’Kelly were outstanding. They had however very different skill sets, so who Ulster Bank chose was likely to signal how it saw the future direction of NCB.
‘You looked at the growth and you thought this must be a go-go bank’
In February 1999 Conor O’Kelly, today head of the NTMA, was named chief executive. NCB’s bond desk was both profitable, and strategic to Ulster Bank. Conroy, as a consolation prize, was made deputy managing director. It was a role he didn’t stay in long.
“John Conroy gave it about six months, and he lost enthusiasm. He lost motivation,” Gillen recalled. Gillen met Conroy for a pint in a pub in Blackrock along with Shane Nolan, NCB’s head of equity research.
Conroy said he was leaving to set up a new firm called Merrion Capital. “We said if you’re going ‘I’m going’,” Gillen recalled. “I had worked with these guys for ten years. I didn’t set out to leave but I certainly wasn’t going to stay if they were gone.”
On June 2, 1999, Brendan McGrath reported in The Irish Times that there had been “one of the biggest staff walk-outs in Irish stockbroking history,” after seven people left NCB led by Conroy.
The others leaving were Nolan; Barry Connell, NCB’s head of equity sales; Pat Landy, director of corporate finance; Martha Nolan, head of equity research production; Kevin Kilty, head of IT development, and Derek Crawley, head of telecommunications.
Within days Crawley returned to the NCB fold, and it emerged that Gillen was also leaving to become Merrion’s new head of equity research.
Gillen was 39, and joining a start-up. He didn’t intend to be an entrepreneur, but felt it was now or never. Conroy had contacts in New York with Allen & Co, a boutique New York investment bank.
“They were John’s contacts through Jefferson Smurfit. They liked the story. They were wealthy individuals, so they took a punt on us and put down the chunk of capital that was required to get us through the first year.”
Allan & Co put about €3 million into Merrion for a 30 per cent stake, and Walter O’Hara Jr joined its board. Gillen’s stake was about 8 per cent.
“Suddenly, we were six months down the line. You don’t really think about it, but one day we realised we had critical mass and a business. We had gone past that difficult phase of being a start-up.”
Six years on, Landsbanki, an Icelandic bank, was buying into Merrion at a value of €55.3 million. The Icelanders bought a 50 per cent stake initially, with the plan being to buy the rest over time.
Landsbanki was snapping up stockbrokers and investment banks in the UK and competing hard for deposits with an internet only offering called Icesave. In 2007 it made a €1 billion bid for Irish Nationwide, which was rejected by Michael Fingleton as too low-ball.
However, as 2008 began it became clear that Landsbanki, far from being a Viking pillager, was, in fact, a crumbling house of cards. The bank went bust, and never paid the final tranche of its takeover of Merrion. Cantor Fitzgerald, led by Ronan Reid, bought Merrion in 2018, but by then Gillen was long gone.
Did Gillen have his doubts at the time when Landsbanki first invested in 2005? “You looked at the growth and you thought this must be a go-go bank,” Gillen said.
“That was our lack of understanding of the risks of lending. As it happened with the benefit of hindsight it was a fortunate time to do a deal.”
Looking back, Gillen admits, Irish stock market analysts should have understood the Irish banking system better. “The risks were there to be analysed. It was as plain as the nose on your face at the time had you joined the dots but that wasn’t done.
“There is an understanding of credit, money, and central banking that I have now that I didn’t have then. Probably I should have had it then. Did we have all the tools in the box (to understand what was going on)? Probably not.
“If one was to criticise the Irish stockbroking community back then… we didn’t have the full toolset. We weren’t as experienced as professionals should have been in the area of understanding money and credit and the banking system.”
Why did no Irish stockbroker predict the banks would go bust? “I think it was just denial. We didn’t want to believe it.”
At the same time, the combination of subprime mortgages, a global property bubble, the fact that banks went wrong simultaneously in multiple jurisdictions and so on was not that easy to predict. Gillen said he had learned from the last financial crash, and these lessons included not always rushing to sell.
“The reality is if your portfolio of investments or pension goes down 50pc when you get hit by a black swan type event that does not mean you have any risk,” Gillen said.
“Berkshire Hathaway on three occasions has declined by 50 per cent from peak to trough when there was clearly no risk to the business.”
Founding GillenMarkets
In April 2009 Rory Gillen left Merrion, a business he had co-founded, to go out on his own. The markets were on the floor and a final payday from an Icelandic bank which was due to buy Merrion had failed to materialise.
Gillen had made some money from selling most of his stake in Merrion, but the financial crash had wiped out a good bit of it. “I did see the property thing coming a mile off, but I couldn’t believe the economy was gone.”
Gillen was “back on the pony” from April 2009, as he could see buy signals in the market. Some stock market prices fell further, but he hung on, and the market did eventually turn.
“I am not a speculator,” Gillen explained. “I recovered very fast because it wasn’t permanent losses.”
Gillen said the daily movement in share prices should be “utterly irrelevant” to investors. The thing to understand, he said, was the primary trend that was really driving markets upwards or downwards, and to anticipate turns in this trend.
No longer with Merrion, Gillen thought about what he wanted to do next.
Gillen had been dabbling in running educational courses while running his own fund with Merrion called the Select Growth and Value Fund. He decided to return to that business now he was out on his own. Gillen had learned from the financial crash and decided others would want to learn too.
“I decided to restart doing seminars about investment,” Gillen said. He called his new venture ‘Invest like the Best’ after a pioneering 1994 book by James O’Shaughnessy which sold millions of copies teaching people about investment strategies used on Wall Street.
“If you get the right company, why would you sell it? If you could have got Kingspan 20 years ago, or ICG, or CRH 30 years ago.”
Rory Gillen
Gillen held a one-day seminar every few weeks in hotels around the country teaching famous investment techniques and drawing on his own experience. Gradually, he added-in a paid-for newsletter that cost €299 a year. Overtime he built this up into having a subscriber base of 800 people.
He also started doing one-on-ones with people in his home in Greystones where he would discreetly look at people’s investments, savings and pensions and advise them how to manage them better. Gillen enjoyed interacting with people, but it was essentially a one-man band business.
Gradually, he started to think about helping people to manage money. He’d built a database of 8,000 people who were interested in his views, and Gillen felt sure some would be interested in becoming clients.
Between 2010 and 2013 Gillen did 300 investment reviews for people in his home. “I knew a fair number of my clients would want me to manage their money. I was fairly confident that in six months I would be at €40 million or €50 million. And we did get to that.”
GillenMarkets, as it is known today, was founded in 2013, and it is regulated by the Central Bank. Early on, Gillen decided it would offer impartial advice in return for an annual management fee. He has strong views on the subject of transparency around fees to clients.
“The regulator is guilty of continuing to encourage a system that sells products rather than supports proper professional advice,” he said.
Gillen said the practice of life companies giving insurance brokers up-front commissions when they sold investment products was not good in terms of ensuring customers got the best advice.
“We are one of three or four fully impartial firms. There are no upfront costs, no early redemption penalties, no trading fees on the Davy Select platform (which GillenMarket uses) no incentive to do anything. There is just an annual management fee.”
“It is all fully transparent, and our job is to get the returns on offer knowing the client’s risk tolerance. That is a professional way of doing things and I think it is the future.”
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Rory Gillen took the same approach to GillenMarkets as he did to investing. He took risks, but also diversified. “I wanted to spread the risk so the first shareholder I took in was Brian Delaney.”
Delaney was previously head of private clients with Goodbody and another NCB alumnus. In 2014 Delaney invested in the business and he became its executive chairman. “Brian would have introduced business,” Gillen said.
“I was the guy managing money, doing the newsletter and being Mr Asset Gatherer at that time.”
As the business grew, he hired Rory Mason, a former managing director of Key Capital Private, to come in and run the business as managing director.
“Rory was the perfect professional manager for a small growing company. We are now 12 people,” Gillen explained. GillenMarkets, he said, grew incrementally from cash flow. “We work off a very slim gross margin,” he said. “We had to get to €200 million in assets under management to break-even.”
In 2016, he hired Elaine Athanasopoulou as senior investment advisor from AIB Capital Markets. Rosemary Kelly came in as senior portfolio manager from KBC. Fergus Redahan is an advisor to the company having previously worked in capital markets with Davy and Goodbody.
GillenMarkets uses the Davy Select platform to trade. “This gives us the flexibility we need,” he said. “We are an intermediary. We don’t handle money. We are simply the guy in between the client and the platform with investment knowledge.”
GillenMarket clients, he said, usually had a minimum of assets of €500,000. “Obviously we are pragmatic from time to time if we can see people are growing their wealth quickly, or are younger so a starting sum can become bigger.”
Gillen estimates the business has about 360 clients today, from 14 originally.
Gillen set up the GM Fund as a mixed asset fund that is managed on the Davy fund platform, but advised on by his experts. Northern Trust are the funds administrators.
The fund has an exposure to travel stocks Ryanair and ICG which have been impacted by Covid-19. “Both of these stocks have big competitive advantages. We will try and buy more if they are weak enough.” Gillen said. The fund also has a holding in Associated British Foods, the owner of Primark.
Gillen again believes ABF has a good medium to long-term future ahead despite the pandemic. “It is a wonderful business,” Gillen said. “We do get nervous around Primark and the internet but not much. What the internet is doing is hollowing out the middle of retailing. The guys at either end like Primark will be the winners.”
Gillen said his fund bought into two gold mining financier companies a few years ago. “I would have been on top of that theme well ahead of time,” Gillen said. “We sold into the rally. It is hard to know, were we too early? But we bought it very cheap, so we’re happy.”
At the start of the year, the Gillen Fund was trading at above €140 a share before plunging in March to just above €100 and then rallying back to over €134 today. Gillen said he was not too concerned about short-term volatility, as the underlying companies invested in were good. He does not believe in investing in government bonds that yield zero.
“We think a portfolio that includes the likes of Johnson & Johnson, Diageo, Heineken, Reckitt Benckiser, Unilever is better,” Gillen said. “They are government bonds because they are as strong as governments and they have global distribution. There is a defensiveness too to their products as they are everyday items.”
GillenMarkets invests only in regulated liquid investments. And doesn’t invest directly in property or in private businesses. “It is not our game. If I wanted, say, private equity I’d buy it in the stock market. There are plenty of top class private equity funds listed on the London Stock Exchange.”
What does Gillen look for in a CEO of a listed company? “If you ask me, am I a good reader of management ahead of time? No. I don’t think I have that skill. What I look for is signs of a management team that can allocate capital well. Someone who is not afraid to do a share buyback at the appropriate price. Not lashing them out like say C&C did in 2007.
“Eamon Rothwell in ICG has done a great job. He has been very, very careful about how he spent money and when he spent it. He bought the big super ferry at the bottom of the steel cycle. That is how you do it!” Gillen said.
“I think CRH has probably lost its way a bit. I think in the early ‘00s the acquisition spree went too far.”
“In turns of capital allocation would you trust them? We don’t. When we saw its chief executive selling his shares a while back, we thought: red flag. Other people have other views of course. People say well the company is making good changes but for me the signal isn’t right. There is a big audience of stocks out there so you don’t need it.
“Kerry you have to take your hat off to them. Kerry’s transformation happened in 1988 when Denis Brosnan bought Beatrene. It was the key. He paid up for it and he was right. Beatrene had a partnership arrangement with all the multinationals that needed innovative ingredient solutions.”
“Kerry was able to follow these multinationals and they reinvested in that business both organically and through acquisitions. That was a stroke. That was the deal that made them.”
At the time of our interview, Rory Gillen is close to completing a report on AIB for his clients. I ask him does he think it makes sense for the bank to buy Goodbody?
“I think so. It has really come home to me doing this research how difficult it is for Irish banks to grow their loan books.
“If you don’t grow your loan portfolio you’re not growing. You’re static. In the old days before zero interest rates that wasn’t a problem. If you had too many deposits you’d just buy a government bond that would yield 8 per cent. In fact that was easier to do as there was less risk and more margin than lending the money out.”
With government bonds now with zero or even negative yields banks can’t do this anymore. “This makes non-interest income very valuable,” Gillen said. “Banks need more of that type of income (which Goodbody earns).”
And what about buying shares in AIB? “AIB is at a third of book value. Its return on equity is 8 per cent.” A utility type business, he said, yielding that type of return would be a buy. AIB, he said, when it was paying dividends again would be a buy.
“We can grow without capital. We have recurring income. It is a very transparent repeatable revenue stream.”
Rory Gillen
“You can get a stock that is not growing much but it is great value and it can give a good return. And that is where I think the banks are at the moment,” Gillen said. “We are covering the Irish banks because we want to understand Eurozone banks and why they are all so cheap. So you pick a bank you understand and you analyse that. After you’ve done that you might recommend to a client they buy a European bank ETF (Exchange Traded Fund).”
Gillen doesn’t quite recommend AIB, but he is leaning towards a diversified exposure to European banking like a good ETF would offer.
He is however a firm believer in holding onto good stocks for years. “The stock market is an excellent savings and investment platform if you use it correctly and it is a place where you can speculate. You can buy and sell all day if you want to but to what end? You are just going to lose your money eventually.”
“Investments should be boring. If you get the right company, why would you sell it? If you could have got Kingspan 20 years ago, or ICG, or CRH 30 years ago. Sure, CRH has been poor since 2007 but look at it over a longer period. Ryanair has had a tough four years, but it has a competitive advantage you cannot beat. I think Ryanair will come roaring out of this thing stronger. It is a company for the long-term.”
“You could be a car salesman and be selling pensions. It is not a professional industry and it is about time it was.”
GillenMarkets is tiny versus stockbrokers, private banks, insurance companies and many wealth managers. “We compete with them all,” Gillen said.
Would Gillen ever sell up? “No. Not yet. It was a debate whether to call the business GillenMarkets. It doesn’t bother me about the name. It is about the right service.”
“We don’t need capital. You can advertise all day long, but I don’t think it helps as people don’t understand the distinction between an impartial advisor and a seller of products until they meet you. Distribution is the hardest thing in this business.”
“What we have which is quite unique and has allowed us to scale is the database (of people interested in investing) we built up over years. Sixty to 70 per cent of our clients have come from the database.”
“We can grow without capital. We have recurring income. It is a very transparent repeatable revenue stream.”
“There is no reason why in 10 years we couldn’t have €1 billion. And you could advertise a lot then. You’d have the resources to show people what impartially is. I believe we are not in a professional industry. I believe it is a shabby, shabby industry in some ways and we could have better standards.”
“I studied accountancy…and it is the same with law, tax and medicine. These are all professional disciplines that force you through a rigorous process before you are let near anyone. Then you have to be mentored.”
“There is none of that in financial services, you could be a car salesman and be selling pensions. It is not a professional industry and it is about time it was.”
Gillen acknowledged there were fine firms and professionals in Ireland, but he said the Central Bank needed to do more to raise standards across the industry.
Had it not made some progress? “The only way you can start doing it is to take away the upfront commission because only then are you actually pushing guys to be advisors,” Gillen said.
“There is an exam brought in called Certified Financial Planning and that’s a big step forward but to me, it is not enough. That is the junior cert when you need the leaving cert. It is getting there but it is very slow. For me, it is not about money. It is about using my knowledge and our standards to help people.”
Further reading:
“Now is not the time to be getting into your bunker, it is the time to get out there”
