Fearless contrarian who was London’s Dr Doom

Tony Dye, who has died at the age of 59, was one of the UK’s top managers of pension fund portfolios. At Phillips & Drew Fund Management in the 1990s he became an arch exponent of the value style of investing, becoming dubbed London’s “Dr Doom” for his controversial views on the overvaluation of equities as the late 1990s technology bubble progressed towards its inevitable bust.

From 2001 onwards he ran his own independent hedge fund, the Contra Fund at Dye Asset Management, but ill-health caused him to close this in January 2007. Despite suffering from cancer he continued to express robust views about international financial policies in letters to the Financial Times, the most recent of which appeared last month.

Tony Dye graduated from the London School of Economics and developed a career in asset management in the 1970s at London Life and Colonial Mutual Life. In the early 1980s he moved to Phillips & Drew, a major specialist manager of pension funds, becoming investment director there in 1985.

There followed years of great success as under Dye’s forceful leadership PDFM became a top player in value investment, a style in which the focus is on fundamentals, such as dividend yield and asset value, rather than on projected growth. Tony Dye was unusual in his willingness to take aggressive views, in contrast to the typical asset manager’s obsession with the control of risks against the peer group.

He was a natural contrarian, relishing the opportunities thrown up by bear markets but hating the fashions and bubbles generated by bull markets. He believed in the lessons of history: pension fund clients would be given charts of long-term market ratios going back to the 1920s and lectured about the inevitability of reversion to the historical mean. He refused to take PDFM into the retail unit trust sector, arguing that mutual funds were poor bargains for investors because only fashionable funds would sell, not the unfashionable ones which offered true value. In the late 1990s he refused to hold any US equities in his global portfolios because they were so overpriced.

Near the peak in 1998 PDFM was running UK pension fund portfolios worth £46bn ($93bn). But the technology bubble hit the firm very hard. Tony Dye failed to control his risks satisfactorily, accumulating large stakes – sometimes of over 20 per cent – in troubled companies. As tech stocks, soared PDFM underperformed its peer group by 10 percentage points in 1999. Pension fund clients began to defect on an increasing scale, withdrawing £8bn in 1999 alone.

The increasingly agitated Swiss bosses of UBS, PDFM’s parent company, in Zurich, eventually ejected Tony Dye at the beginning of March 2000, merging the London operations of PDFM into a global structure. Just two weeks later the global equity market finally peaked, then plunged. PDFM’s value style began to outperform again quite strongly as technology stocks crashed.

Ever since, this disaster of timing has been regarded as a classic instance of the relevance of John Maynard Keynes’s warning in the 1930s: “An investor who proposes to ignore near-term market fluctuations needs greater resources for safety”.

The next year UBS Asset Management launched retail UK mutual funds. Tony Dye’s own hedge fund thrived for a while but by 2006 it was suffering in bull market conditions. The great bear did not find it so easy to short stocks. The initial $400m raised had dwindled, because of withdrawals, to about $70m by the time the fund was wound up.

In an investment world of risk controls, consensus tracking and trend chasing, Tony Dye stood out as an outspoken man of principle. Most asset managers tell the public that the stock market will always go higher but he was not afraid to take on the role of Dr Doom.

In the past few years he had also issued alarming warnings about the UK house market.

Bears are often frustrated, however, by the actions of governments to rescue markets, and his public complaints about conspiracies by “Western financial authorities”, though arguably valid, were not always well-judged.

In a letter to the FT last November he complained of fundamental flaws in the financial system. It was wrong for central banks to cut interest rates each time there was a pause or retracement of the housing or stock markets. “In the meantime those responsible for this state of affairs are being grotesquely rewarded and are pleading for more of the same policies that created these problems in the first place.”