Illustrations by Nilaksiya Thiruchelvam
As with any investment, your capital is at risk.
Talk about ‘investing with purpose’ and your average British investment manager will shift uncomfortably in their seat, says Iain McCombie.
“We tend to be a bit cynical about such terminology,” he jokes. “We’d rather muddle along in our Dad’s Army way, leaving such values-laden talk to our US counterparts.”
And yet… when McCombie looks at the attributes of many of the companies that have proved long-term winners, “it’s clear they are trying to solve a real problem”, he says. “That’s why we spend a lot of time getting to know how much management cares about doing the right thing.”
For him, companies with an agreed, well-understood mission generate “an incredible level of motivation” from employees at all levels. That translates into performance. “People want to work for companies like these. As an investor, it’s exciting to see signs that a company has a calling beyond just ‘doing its job’.”
“We’re looking for long-term businesses that can generate above-average growth for a long time,” adds McCombie. “Knowing you’re on the right side of history in terms of addressing real problems doesn’t guarantee success, but it does inspire confidence.”
He cites two holdings as paragons of purpose.
Volution Group
Iain McCombie admits to an unusual habit. Whenever visiting someone’s home he discreetly checks whether the toilet extractor fan is a Vent-Axia, the UK’s number one bathroom fan, or possibly another of Volution Group’s brands.
Washroom ventilation solutions are the opposite of glamorous but profit margins approaching 20 per cent provide the missing excitement to investors.
Volution’s purpose is simple: to improve the quality of indoor air sustainably. It sells ventilation systems, from fans to complicated heat exchangers, to electrical installers and wholesalers in the UK, Europe and Australia.
McCombie points out that good ventilation is more than a nice-to-have. It profoundly affects the quality of the nation’s housing stock, especially in vulnerable communities. He cites the tragic death in 2020 of Awaab Ishak.
The two-year-old’s one-bedroom flat in Rochdale was mould-ridden because of damp. After months of breathing in spores, Awaab developed a chronic inflammation. The coroner blamed his death on inadequate ventilation.
When ‘Awaab’s law’ comes into effect in October, social landlords will have a limited period in which to fix dangerous damp and mould. The legislation has spurred the retrofitting of ventilation in old housing stock.
Companies that can help ameliorate that problem at an affordable price can potentially improve the health and comfort of many thousands of households.
Benefitting from new rules
Crawley-based Volution is also at the heart of radical efforts to improve energy efficiency in new buildings. Over 35 per cent of total carbon emissions in Europe come from buildings but by 2030 almost all will have to be net zero for energy emissions to comply with tighter regulations.
“Buildings have had to become better insulated. While it’s good to have less heat and environmental pollution, without proper ventilation you’re more likely to get poorer air quality and condensation in an airtight box like a modern home,” observes McCombie.
“In fixing one problem, we’ve created another. This is where Volution comes in.”
Its solution may be as simple as fans dealing with condensation, or more sophisticated heat exchangers that will take out the heat during the day and store it until later when it’s cooler.
The firm has a manufacturing plant in Reading, which has protected UK operations from supply chain issues, and it ‘reshored’ Vent-Axia manufacturing from China 12 years ago.
The UK remains the company’s largest market, although acquisitions have boosted sales in Europe (35 per cent of the firm’s total) and Australia (25 per cent).
Visiting Reading, McCombie was struck by how senior management knew the staff on the shop floor and by the level of care these employees took in their work. “The company could have kept manufacturing in China but preferred to be closer to customers. It’s thriving. There’s a real pride in everything Volution does. On top of that, it turns earnings into cash and uses it for acquisitions. It just feels like a better kind of business.”
Just Group
Worries about money are among the most debilitating problems of later life. Just Group’s products and advice are designed to meet the needs of people approaching or in retirement. “What’s not to like about that?” as McCombie says.
The Reigate-based firm initially disrupted the market by providing ‘impaired’ and ‘enhanced’ annuities that provided higher payouts for people suffering from conditions such as obesity, heart disease or smoking-related illnesses.
“The reality is that people with poor health and shorter life expectancies were effectively subsidising healthy people who were likely to live for many more years because they were paying the same rates,” explains McCombie.
“Just Group came in and said: “You know what? Joe over there is a smoker with a bad heart. We can offer him a better deal because we understand his medical situation.”
Unlike a traditional pension fund, Just Group doesn’t carry the weight of a pre-existing book of assets and liabilities. It innovated by encouraging customers to shop around for an annuity, the financial safety net that provides a steady stream of retirement income.
“Sadly, many pensioners hadn’t considered other pension providers when the time came for them to roll their pension into an annuity,” notes McCombie. “And once an annuity is agreed, that’s it. Neither party can get out of the arrangement.”
In 2012, the company moved into the defined benefit pension schemes buyout market. It has since completed over 500 transactions and has attracted more than £17bn in premiums. In November 2024, the company completed its largest buyout to date with the £1.8bn takeover of the defined benefits of the pension scheme of multinational security firm G4S.
The rewards of a cautious approach
Although last year saw a surge in buyouts – £50bn worth of transactions in that one year alone – McCombie estimates that there is still more than a decade of growth in this market, the total value of which could be as much as £1tn.
As he explains, “Company finance directors increasingly want to get rid of these schemes because of the hassle. The regulatory and financial risks are a potential financial black hole.”
Tight rules govern pension investment. Just Group avoids high-risk instruments, going instead for government and corporate bonds. However, it can also invest in social housing or renewable energy and, since 2021, lifetime mortgages for the over-55s.
McCombie’s belief that it pays to invest in purposeful businesses is clearly shared. Just Group recently accepted a £2.4bn acquisition bid by Canadian investment group Brookfield. The deal, set to complete next year, will retain the brand and UK management team.
He sees the takeover as recognition of how well the business generates cash as well as of it being a company people want to work for. That in turn reflects the pride that purpose can inspire.
“Just Group doesn’t make money by giving a worse deal to a customer and taking a profit. Its purpose is to win business by helping customers live longer and better lives while making a good return. That’s a classic win-win.”
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