The risk/reward pendulum has swung too far towards avoiding mistakes, says SIR BRIAN SOUTER
My preface to the previous edition of our Investment Review in 2022 reflected on the almost constant volatility and uncertainty we had experienced since I founded Souter Investments with Andy Macfie in 2006. I won’t repeat that line of thought again here (the 2022 review is still available in all good bookshops, after all) but providing a brief reminder of the main themes is perhaps useful.
In summary, I concluded that the most productive and profitable strategy to deal with change and turbulence is to acknowledge the difficulties each event brings but, ultimately, to stay invested and keep moving forwards.
In hindsight, that maxim has served us well over the last three years. If you were so minded, this period has thrown up ever more reasons to sit on your hands. Had we decided that the environment was too risky and we wanted to pause on our investment activities, we would have missed out on numerous exciting opportunities.
As I reflect on the above, there are two themes I’d like to expand upon.
First, is my personal appetite for risk. This is the starting point from which we have shaped our approach and arrived at the “through-the-cycle” investment thesis we adopt at Souter Investments.
It seems self-evident to me that it is impossible to achieve anything – in investing or in life – without taking some risk. My kids would probably tell you I have an all too healthy appetite for risk, as I regularly throw myself off bridges with bits of elastic tied round my ankles. It is certainly true that the team at Souter Investments’ more measured and structured way of thinking has sometimes saved me from myself.
I believe we find a happy medium at Souter Investments. We see the potential upsides as well as the possible pitfalls in a range of opportunities and, most importantly, proactively make decisions to invest if appropriate.
However, I can’t help thinking that in wider society the risk/reward pendulum has swung too far towards avoiding mistakes, rather than seeking opportunities to back your convictions and take calculated risks in the pursuit of progress and wealth generation.
This is not a rant about the nanny state or health and safety gone mad – albeit I have been known to give that speech – but a conclusion I have formed based on the evidence I see of a risk-averse attitude all around us.
There are many examples I could give, ranging from bloated overheads in most large organisations where first instincts often prevent business rather than enable it, through to a distinct lack of support for new business creation from all levels of government, particularly in the taxation system.
One of the most egregious examples is the lack of investment by UK pension funds into so called “risk assets”, which essentially means anything outside UK government bonds. Whilst this strategy is badged as being safer for pensioners, in my view it is bad for everyone concerned.
It penalises pensioners and the companies that fund those pensions, as they all miss out on higher returns and therefore have to contribute more to pension pots to achieve the same income. It punishes the UK more widely by hampering the development of a healthy stock market that can support our companies, enabling them to flourish.
Moreover, this triple whammy doesn’t necessarily make those pensions any safer, Exhibit A being the pensions bailout the Bank of England was forced into after the Truss/Kwarteng mini-budget of September 2022.
My frustration with the current policy goes back much further and I have been making this point ever since I was president of the Institute of Chartered Accountants in Scotland in 2017. I am heartened that the UK government is currently consulting on whether to change the rules for pension funds to encourage a healthier risk appetite.
My second theme is partnerships. As I look back on my life and career, it is apparent how three key partnerships have been central to all that I have achieved. Moreover, it occurs to me that each of them has allowed me to remain “risk-on”, knowing that the stability of these partnerships underpins everything I do. They provide me with the confidence and additional skillsets to deliver on opportunities and to help pick up the pieces if things go wrong.
The first was my partnership with my sister, Ann, in setting up Stagecoach back in 1980. This was undoubtedly the most significant business decision of my life, as without it none of my future partnerships would have been possible.
Ann and I sold all our shares in Stagecoach in 2022 when it was taken private by an infrastructure fund owned by the German asset manager DWS.
I have many fond memories from my 41-year Stagecoach project, particularly the incredible people that helped build the company from a single bus to a multinational transport business. But none of it would have been possible without the risk Ann and I took by investing our lifesavings to make things happen.
My second-best business decision – founded upon another enduring partnership – was forming Souter Investments with Andy Macfie in 2006. Prior to this, I felt real guilt about my ability to steward the capital I was accumulating from Stagecoach.
I worried that I was squandering the hard-earned money that our passengers paid us in fares on poor investments in funds that returned eye-watering fees to slick London advisors, but too often left investors feeling underwhelmed, to say the least.
Under the leadership of co-managing directors John Berthinussen and Calum Cusiter we remain true to my initial desire to invest directly in exciting companies, partner with entrepreneurial management teams and founders, and build a resilient, diversified portfolio capable of funding the final partnership I’d like to note.
Founded with my wife, Betty, and motivated by our Christian faith, we established the Souter Charitable Trust in 1992 to support projects seeking to relieve human suffering in the UK and overseas.
Over the years, the trust has supported tens of thousands of projects across the globe, ranging from combating the world’s biggest killer, malaria, to supplying daily meals to school children in Africa, and from combatting modern slavery and human trafficking, to tackling addiction, homelessness and poverty here on our doorstep in Scotland.
Betty and the team of trustees, including some of my children who have recently joined the Board, have overseen the donation of more than £150m to some 22,000 charities that share our passion for people – working together to uplift communities, to provide essential support, and to create positive change for those in need.
Whilst these partnerships are all unique in what they aimed to achieve – and indeed how they went about it – what is common to all three is the level of trust and integrity that is shared between people striving to do the best for a common cause.
The team here at Souter Investments aims to apply those same principles to building successful partnerships with our network of management teams, independent sponsors and portfolio companies. They, after all, are really the people who generate our returns.
- The value of the Souter Investments’ portfolio increased in value by 8% per annum over the 18 years to 31 March 2025. The family office has invested in more than 100 unquoted companies, spread across a range of sectors, since 2006, with combined receipts and current fair value in excess of £1 billion. It has more than £450m invested in its current portfolio.
Sir Brian Souter co-founded Stagecoach with his sister Ann and his Souter Investments backs growth businesses
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