Christopher Salih meets Skandia Investment Management Limited's chief executive, Jamie MacLeod, who explains how this relatively new fund management group has made such an impression in so short a space of time
Skandia has never been a life company to follow the herd. It was 15 years ahead of the game in the fund links market. In April 2003, just as most life offices were trying to distance themselves from fund management, Skandia Investment Management Ltd (SIML) was born. Since then, SIML has developed a full outsourcing proposition, built £3bn of assets under management and developed distribution agreements with a number of intermediary groups. What's next for the industry's most precocious new group?
Chief executive, Jamie MacLeod, joined Skandia in 2002, fresh from building two investment businesses at SWIP and Investec. MacLeod wanted to start an asset management business from scratch and approached the chairman of Skandia UK, Alan Wilson, and Jim Roberts, group investment director at Skandia UK Group.
SIML was seeded with £700m from Skandia Life, but launched as a separate business. That said, Macleod was keen to retain the association with the Skandia brand. He says: "This was always going to be the case, Skandia is well regarded by the adviser market - the two go together. It was never going to be anything but Skandia Fund Managers, Skandia Asset Managers or Skandia Investment Managers."
The multi-manager industry had yet to see any great innovation and was still debating the relative merits of fund of funds versus manager of manager. SIML decided the debate was spurious and launched a hybrid model. MacLeod says this approach was down to the backing and freedom he was given. He says: "The attraction of this business model meant that I had the flexibility to try something new and innovative within the UK funds industry and be the first asset management company to market with a hybrid fund of funds/manager of managers proposition."
SIML has three main fund ranges. The most recent is the Skandia Asset Allocator Funds, which were launched in April 2005. The seven funds range from a UK equity blend to a global fixed interest blend and the funds allow advisers to make asset allocation decisions and design portfolios to clients' needs.
MacLeod believes this range has accessed a wide opportunity in the market. He says: "Not all intermediaries want to outsource the asset allocation process. From research we have carried out, a very large part of the intermediary market wish to control the asset allocation of each clients' portfolio, but are happy to delegate the manager selection to us. This innovative product structure has been extremely successful, and there is now over £280m in these funds since launch."
Standard & Poor's recent performance figures suggest early success for the funds, with six out of seven outperforming its market average, with only the US Equity Blend falling short.
SIML also has an Actively Managed range of five funds (Cautious, Balanced, Aggressive, Equity Income and Bond Income) all of which are for advisers looking to outsource their investment business to an investment manager. The group also has four single strategy funds, Skandia American, European, Global Property Securities (managed by LaSalle) and the new Ethical fund.
MacLeod is keen to point out that no fund or range takes precedence over another. He says: "I consider our principal offerings to be our entire fund range. SIML's success relies on all its funds, not just one or two of them. From our fully blended funds to our asset allocator fund range, all are just as important and create the overall SIML proposition. I would never risk the business on trying to have just one or two great funds. I believe in building good durable high quality businesses which are managed by top professionals. If I can get that right almost everything else will fall into place."
Whether in single strategy or multi-manager funds, SIML outsources management to a range of external fund houses because it believes that no single portfolio management style can outperform in all markets, all of the time. The group also believes that style and luck can affect a single manager's performance over a period of time.
MacLeod says: "We do have an in-house fund management function, but this is used to blend, monitor and select our managers. We also have one of the largest investment manager of manager research teams in the UK fund management industry. We outsource at the manager level, I employ a CIO to make decisions on each manager." Alan Durrant is chief investment officer and joined in March 2004.
SIML also has access to Skandia Life's 18-strong research and monitoring team. They spend over 5,500 hours on manager visits each year and select the funds that go on the Skandia platform.
Much of the group's success in building assets under management has come from the distribution agreements established with various adviser organisations. SIML has built relationships with groups like Bradford and Bingley, Sesame, Fidelity FundsNetwork and Transact. MacLeod believes these deals provide the group with momentum. He says: "These groups choose us after we have approached them with our proposition. However, it is a sign of our successful business model that so many strategic partners are interested in working with us."
SIML has a number of strategic partnerships in place already; however MacLeod is still keen to form more. "We plan to announce shortly another business relationship with a group we consider to be a good strategic partner for the business. We also have other opportunities in the pipeline. However, it's important to recognise that the bulk of our business comes from the wide range of financial advisers within the UK."
MacLeod says SIML tries to work with the adviser community to tackle the big issues facing the industry at the moment. He adds: "I think the key challenge to financial advisers is to ensure that they can control the spiralling costs of regulation, product and fund research. These increases in costs and time demands are some of the reasons we build our funds in the way that we do." SIML is committed to keeping the TERs on its multi-manager funds to below 2%.
MacLeod believes the people at SIML are what really differentiates it from some of its staunchest competitors. He says: "SIML was founded in 2003 and has attracted high quality people, as a way of example, the marketing team consists of three highly-experienced individuals, David Orr, former head of marketing at Rothschild, Frank Blighe, former head of marketing at Threadneedle and Rob Swann, former head of marketing at Henderson Global Investors. Our administration team is unquestionably first class and our financial advisers really value market-leading administration which we deliver day-in-day-out. We take administration very seriously."
SIML's fund performance is based on a three to five-year rolling time frame and with the group's third birthday in April 2006, MacLeod is currently very happy with the figures. He says: "Our original actively managed funds, launched in February 2003 have provided strong positive performance since launch with our Aggressive Fund returning +58.8%, Balanced fund +50.9% and Cautious fund +35.1%, all since launch to the 30 September 2005. In addition, our income funds, launched in August 2003 have also delivered on their income expectations and had positive performances with our Equity Income fund retuning +34.1%, and our Bond Income fund returning +12.8% again since launch to the 30 September 2005."
The growth in the multi-manager market shows no signs of abating. Multi-manager still only makes up around 10% of retail assets in the UK, so there is plenty of business to be won. Skandia has scale, flexibility, cost control and a strong service proposition. These are likely to be the key drivers for an adviser selecting an outsourcing partner.
Probably the two issues that most advisers discuss most in relation to multi- manager funds are MOM v FOF and charges/TERs. Skandia aims to meet both head on within its offering in the multi-manager market.
First of all, its funds combine both MOMs with leading management groups running segregated mandates and FOFs where there is a strong argument to gain access to a specific fund or management style. It therefore argues that this 'best of both worlds' approach ensures that investors receive all the advantages of both versions of multi- manager portfolios.
As a consequence of this blended approach, management charges are competitive as the lower costs associated with MOM are maximized, together with the slightly higher fees but more 'nimble' strategy of FOF - a win/win for investors.
In addition, SIML offer sector portfolios such as UK Equity, North American Equity, UK Bonds etc. This allows the adviser to work together with his client to create the strategic asset allocation (the most important determinant of portfolio returns) and then outsource specific fund picking, monitoring and management to the well resourced team at SIML. This would appear to be the most appropriate strategy for all but the very largest advisers with fully staffed research and portfolio administration teams in house.
Hopefully it won't be too long before SIML (and others) introduce MM funds across other important specialist sectors in the market.
Alan Smith, managing director, Capital Asset Management
Being supporters of Skandia in the first place, the investment management arm offers good opportunities particularly where managed funds are more appropriate than selecting individual funds. The group's Asset Allocator range of seven funds is especially useful and matches up very well with our business range.
We are also keen on their Ethical fund, which has launched recently as one of Skandia's single strategy funds. We believe that will appeal to lots of our clients.
We may also use them for investments below a certain amount where we are working on a commission rather than fee basis. For example if we have a £100,000 investment and our renewal commission is 0.5%, that means for the time taken in reviewing asset allocation, re-balancing the portfolio and revising fund selection we receive only £500. That's not a very efficient use of our time and we feel it is better to outsource the responsibility to a group like Skandia Investment Management.
Nigel Lister, Director, Webb Holton and Associates Limited
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