Since its launch in 1998, SGAM - the UK asset management arm of French giant Société Générale - has endured a torrid time, says Cherry Reynard. But after scaling the peaks of the tech boom and then plumbing the depths of the subsequent bear market it appears to be in better shape than it has for some time
The Behemoth of French financial services Société Générale launched its asset management arm in the UK in 1998. With markets riding high, flashing branding and the charismatic Nicola Horlick at the helm, the future seemed bright. But the bear market, early optimism on recovery and the departure of key members of staff, including - eventually - Horlick herself, have meant that the times have not all been rosy for SGAM.
At its outset SGAM was 70% owned by Société Générale and chaired by Philippe Collas, head of Société Générale's worldwide asset management operation. Horlick was joint-managing director with John Richards. The pair attracted some major talent to the group - the well-known Jon Ions became head of the retail sales function and Peter Seabrook, Dino Fuschillo, Alan Torry, Stephen Peirce and Paul Rayner joined on the fund management side.
The early years were successful. Torry was a skilled technology manager in a time when technology was in vogue. The group had assets from its parent group and the bull market favoured many of the managers' investment style. The group acquired US fund manager TCW in 2001, bringing assets to £10bn from £8.2bn. But after this SGAM started to encounter problems. Overall performance waned as managers were too quick to call the end of the bear market.
Three of its founder managers left - Dino Fuschillo, Peter Seabrook and Jane Simmons. The departure of Seabrook and Simmons in particular left a big dent on the UK equity side, particularly as Horlick took on the mantle of chief executive and reduced her fund management responsibilities.
More damaging still was Horlick's high-profile spat with Sir Mark Weinberg, chairman of insurance group St James's Place Capital. Weinberg was disgruntled at underperformance on a £500m portfolio and removed SGAM from the running of the fund. Advisers became twitchy about the apparent state of flux at the group and struggled to find a reason to recommend the funds in a highly competitive marketplace.
But perversely this gave the group an opportunity to rebuild. In October 2002, the group hired Hugh Sergeant and Harinder Sandhu from UBS. The pair were relatively unknown in the retail market, but had a healthy institutional track record. These two brought the concept of QVT - quality, value and timing.
Mik Bates, head of marketing at SGAM, explains the UK equity philosophy: "We rate stocks on quality of management and particularly on free cash flow (which shows whether they are generating business). On the value side, we have to be convinced that the market is undervaluing companies. For that, the market has to be looking at different metrics and therefore the stock is anomalously cheap. The timing aspect is that these companies need a catalyst to bring out the hidden value."
This has helped boosted the performance of the £108m UK Growth fund, which now resides comfortably in the top quartile over three years. It is ranked 29th out of 258 funds in the UK All Companies sector in the three years to 16 May 2005.
The UK Income fund - previously managed by Horlick and Adrian Gosden (now at Artemis) - has been more difficult to turn around. Malcolm Murray has been running the fund since July 2003. Performance over one year is better - the fund is ranked 33rd out of 80 funds in the UK Income sector - but performance over the shorter and longer term looks weaker. Murray was previously at UBS and has a strong value bias.
The fund apparently attracting most interest among advisers and fund of funds managers at the moment is the American Growth fund. US-based TCW took over the running of the fund at the beginning of this year from Alan Torry, who remains at the helm of the SG US and Technology funds. The lead manager on the fund is Komal Sri-Kumar.
TCW manages this fund according to a "multi-strategies" style. There are four underlying strategies with separate managers picking the stocks. These are large cap relative value, concentrated core, value ops and growth equities. Sri-Kumar takes a macroeconomic view and allocates money to each of the four strategies according to that view. This has produced some excellent short-term performance. It is 15th out of 83 funds in the IMA North America sector. Three-month performance is even better with the fund second in its sector.
Last year the group moved to take advantage of the new rules on distributor status and began marketing 12 funds from its parent company's Sogelux Luxembourg Sicav range. This brought eight US funds managed by TCW to the UK market, plus European High Yield, China, Gold Mines and Eastern European funds.
So SGAM is looking better than it has done for some time. But unfortunately this hasn't quite stopped the defections. Head of UK bonds Paul Rayner and fixed interest manager Stephen Peirce left earlier this year to join Royal London Asset Management. Fixed interest has been a strength for the group and their departures were a blow. They have been replaced by Jean-Michel Vallas on the Sterling Bond fund and Marie-Anne Allier on the Sterling Corporate Bond fund. The Sterling Corporate Bond fund remains tiny at just £7m and has clearly not been on the radar for most advisers during a time in which corporate bonds have been very popular.
Bates describes the group's overall strategy as a "boutique approach". He adds: "We are a relatively small operation in the UK with our own style. We don't pretend that we can manage all asset classes, but we have access to those who do."
On the group's future distribution strategy, Bates is realistic about its retail presence. He says: "We simply don't have the resources, head count or marketing budget to have a constant presence in the UK retail marketplace. We rely on fund supermarkets and life and pensions links to get out there. We have a sales person who is in charge of all our strategic alliances."
SGAM is a very different business to seven years ago. Lower profile, but more robust, it has weathered some difficult times. It now has strength in UK and US equities. Time will tell on the rest of the range, particularly on the corporate bond side. Its future depends on the continued backing of its wealthy parent, but it is in better shape than for some time.
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