By Robert Stock Threadneedle's development into the fourth largest UK asset manager with the fourth...
By Robert Stock
Threadneedle's development into the fourth largest UK asset manager with the fourth strongest brand in the IFA marketplace has followed an almost military-style campaign.
The Threadneedle brand did not exist until 1994 and now it is one of the more visible names among the IFA community.
According to the Gavin Anderson Consumer Survey, by the close of 1999 its name awareness had grown to 34% of IFAs questioned. Only Fidelity, Gartmore and Invesco scored higher.
In August 1997, Autif reported, when Threadneedle's fund range was converted into an Oeic, the sub-funds contained a total of £3.01bn in assets. By the end of August 2000 this had grown to £11.8bn.
That jump, which places it behind Fidelity with £17.1bn, the newly-merged Invesco and Perpetual with around £16.5bn and Schroders with £14.6bn, represents growth of assets under management of around 380% in two years.
Richard Eats, head of communications at Threadneedle said: "Mike Lipper, the great American commentator, always says the asset management business got big by being lucky, not by being smart. Threadneedle's was a much more deliberate attempt to build an asset management company."
The company was created by British American Tobacco as an attempt to diversify away from tobacco into the burgeoning asset management marketplace. It was formed in May 1994 by the merger of Allied Dunbar and Eagle Star resulting in the instant creation of one of the UK's largest asset management houses with a total of £31bn in assets under management.
Establishing the combined company and the two inherited cultures, personnel, and investment procedure into a single entity was undertaken by chief executive officer Paul Manducca, recruited from his role as group deputy managing director from Hendersons.
It was a plan involving creation of a more risk-controlled investment process, the creation of a new brand, and the development from scratch of an IFA channel.
Key names were soon drafted in including Simon Davis, who joined Threadneedle as chief investment officer in 1995 from Gartmore, to shape an investment process, Malcolm Kemp from Bacon & Woodrow to head quantitative research, and Alan Ainsworth from Fidelity as retail director.
In 1998, Manducca said: "No other insurance group has previously set itself the task of creating a new investment brand in so short a timeframe."
Manducca's success with Threadneedle was the prime motivation behind his appointment last year to transform the fortunes of Rothschild Asset Management.
As with Threadneedle, his appointment at Rothschilds has seen a flurry of appointments to the company, both of high profile investment personnel to reshape the investment process and boost performance of individual funds, as well as sales personnel with a strong industry reputation.
It was the aggressive investment style of Allied Dunbar that became the foundation for Threadneedle's current investment process.
Davis said: "The style of Allied Dunbar was a quite aggressive growth approach. It was something we could build on but it wasn't perfect. One of its problems was the lack of a notion of risk control.
"We cite risk control, teamwork and research as our three strengths in investment. The research element was there at Allied Dunbar and just needed re-enforcing. The teamwork was good but could be taken to another level but the risk control was missing.
"If you look at the performance of Allied Dunbar it was either at the top of the pile, such as in 1990 and 1991 or at the bottom, such as in 1994. I don't think our customers want that so when we merged we wanted to de-leverage that aggressive stance." Kemp was appointed to set up a risk monitoring team, which Davis insists is seen as supportive by fund managers, and staff were added to the investment teams rather than shed.
It has also led to the introduction of core stock lists for regional funds that fund managers must use in their portfolios. In the UK, US, and European funds, fund managers must hold 40% or 60% of their portfolios in the core stock list, depending on whether the fund is designated growth or select growth. Davis, who put into place a graduate recruitment programme which has been a source of analysts for Threadneedle, said: "We started on day one with two of everything in the investment process and we wanted to get three. The money we saved in the back office operations was always going to be reinvested in the front office."
That was important, Davis said, because although the combined group was strong on UK equities, it was too thin to effectively cover large overseas markets like the US.
Davis said that was important because of the global theme approach that is central to the Threadneedle style. He said: "For reporting purposes we are still organised along geographic lines, responsibilities and a large amount of discussions and meetings are on industry lines."
Threadneedle believes a large proportion of stock movements are related not to the movements of their domestic markets, but to their global peers.
Fund managers therefore have a matrix of responsibilities and are remunerated both for the performance of the funds they work directly on, as well as for their input into other funds.
This embedded global sector expertise has led to serious discussions about whether Threadneedle will bring themed products, similar to those launched by asset managers such as Fidelity and Merrill Lynch Investment Managers, to the IFA market.
Davis said: "It is a live debate at the moment. The market is evolving in that direction and I think there will be increasing interest in sector funds."
However, he has reservations. H
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