DEREK Stuart is one of the rising stars of the investment universe who typifies the industry's most sought-after breed:

the money manager who invests his own cash alongside yours.

Stuart, at 36 a father of three daughters and a keen skier, is the youngest of the four creators of the planet Artemis, which appeared in the fund management skies in 1997, well before the bull market vanished into a black hole, but which can nevertheless boast some stellar performance. From nothing, Artemis now manages [pounds]4.8bn.

One reason for that is that back in 2000, the growing but still small Edinburgh investment house's managers didn't fancy an endless bet on technology with their own futures. Stuart says: "The index was going up, these stocks were going up, and the reason we sold them is our own money was in the fund, my mother-in-law's money is in there, my kids' money is in there, my pension is in there."

Artemis cut tech holdings from 30per cent or 40per cent to 10per cent in good time, and its freewheeling style attracted several outstanding city fund managers to the team, laying the foundations for rapid growth during the gloom of the bear market.

Stuart, Edinburgh-bred and an economics graduate of Heriot-Watt, began his career at Ivory & Sime in 1990 during one of its periodic implosions. "I was interviewed by David Ross, I was offered the job and a week later they all (Ross and three colleagues) left to start up Aberforth." That meant quicker promotion, but under the heavy hand of then owner Caledonia Investments the departures were to continue. "I had a great time and worked with a lot of fantastic people, but what went wrong was the culture . . . if you do a good job you expect to be rewarded."

With backing and some funds to manage from venture capital group Apax, Artemis was formed by Stuart, his more senior small-cap colleague John Dodd, private equity specialist Lindsay Whitelaw and head of UK equities Mark Tyndall.

Ivory's newest defecting quartet took a 45per cent stake, since diluted to 35per cent when banking giant ABN Amro snapped up the majority interest two years ago. Did Stuart take a big risk?

"I was 28 and recently married but if it had all gone wrong I could have worked. Mark had been put onto share options, Lindsay and John had families. They were the guys who took the risk. We had contacts but we said we would not poach contacts."

The timing for a start-up did not at first look promising, with markets depressed by the Russian, Asian and hedge fund crises of 1998. "At the end of the first year we hadn't made much money and we felt quite grumpy about that. We came from a mentality of trying to make money for people, and the people who invested with us in 1998 didn't care about relative returns."

Then came the bubble. "It was a difficult time, you would sell 20per cent of a holding and the next day it would jump 10per cent, but you had to force yourself to sell, valuations were wrong, and the stupidest brokers in the world were telling you it was the right thing to keep on buying these things."

After making enough cashf low to launch smallcap, growth and European funds in its first two years, Artemis in 2000 launched funds for income, technology and special situations, boosted by the arrival of star managers Philip Wolstencroft from Merrill Lynch and Adrian Frost from DWS. "They could have joined any firm in the City, " Stuart says. "But with us they got to manage money the way they wanted and could get equity in the business. They weren't lumbered with this bureaucracy most big firms have. If you have got an idea and you feel strongly about it, you buy that stock, not because it is part of an index. You don't just buy a small position you buy a big one if you believe in it. You are putting your own money in it."

The smallcap fund run by Dodd & Stuart is in the top handful in its sector over three and five years - vying with David Ross's Aberforth - while Stuart's own Special Situations fund is near the top of the 238 UK equity funds over three years with a five-star S&P rating. In last December's Citywire rankings of unit trust fund managers, Stuart was one of four Artemis managers placed in the top 15 UK-wide.

The house's managers discuss and review their selections every month and consult informally dayto-day, but are not hidebound by a benchmark index for their funds.

Stuart says: "For most investors and fund managers, the risk is in being away from the benchmark. I remember discussing with a 'fund of funds' manager in 2000 why I had nil in Vodafone when it was 13per cent of the market. I said 'how can my position be risky when the stock is on 150 times earnings . . . if it was 1per cent of the market I would not buy it'. If you had invested in Vodafone between 2000 and 2003 you would have lost 75per cent of your money, and that could have been someone's pension fund - you could have done it with Marconi, Abbey National, Lloyds, BP, Shell, all these companies that have halved in value."

On how to make money, he says:

"Everybody can identify goodquality companies, the skill is in buying at the right price at the right time. People will tend to buy a stock when it is more expensive and higher-rated, therefore a good stock - the higher-rated the stock the more I worry about it . . . I find it more profitable to identify companies that have gone through a bad time." He adds: "At the moment I am looking at My Travel - it has been to hell and back but has still got a good franchise and a new management team."

Stuart relishes his role as one of the "dustmen" of stockpickers, citing investment guru Warren Buffett who "started off buying 'cigar-butt' stocks before he started buying brands". But he adds: "I find it very difficult to identify a company in the UK which I can hold for multiple years, because we are in a mature economy here . . . there is a business cycle and a right time and wrong time to own stocks. People like Ian Rushbrook and Warren Buffett can hold stocks for 10 years - I find that very difficult."

VIEWPOINT

Biggest break? Meeting John Dodd when I was still learning the ropes.

Worst moment? Not sure when it will come.

Childhood ambition? To be a downhill skier.

Current ambition? To build up a 15 or 20-year track record for my fund.

What drives you? Fear of underperformance.

What do you drive? Have just bought a new BMW - my first proper car.