It is seven months since the demerger of F&C Investments from Friends Provident was completed. For Alain Grisay, F&C Investments’ suave chief executive officer (CEO), the decoupling from a life insurer that in 2005 acquired a 52 per cent stake in the asset management firm brought a welcome “unshackling” of a number of constraints to growth.
Corporate uncertainty had undermined staff morale and “virtually” shut F&C out of the institutional market in the UK because investment consultants had put the firm on a watch-list.
But Mr Grisay reports that the demerger has been “transformational”. The firm, which manages €108.5bn of assets, is back on the consultants’ list and has received, he claims, around 15 positive ratings from consultants since July for its liability-driven investment (LDI) business alone.
Staff morale is “flying through the roof”, a turnaround deemed to be critical to the perception of the firm in the financial world.
He says: “Having your people happy is hugely important. Because it is a people business and one where external observers, especially the consultants, want to see that your people are happy as a precondition for doing business with you.”
He adds that investors are knocking on the door in increasing numbers, with the level of requests for proposals (RFPs) “surging to an all-time high” for a number of products including LDI, socially responsible investment (SRI) strategies, emerging market debt and convertible bonds.
This growing interest, says Mr Grisay, has been fuelled not only by the lifting of corporate uncertainty, but by strong performance generated in 2009, particularly in fixed income, LDI and SRI.
Last year, at least 75 per cent of F&C’s portfolios achieved returns above their benchmarks, he claims.
The “first and over-riding priority” in 2010 is to maintain that strong investment performance. Second, he wants to add new sources of revenue by diversifying F&C’s investment capabilities, in particular into ‘high alpha’ actively-managed products with strong performance potential, which can command higher fees.
This focus on high alpha products will lead to the launch this year of an emerging market equity SRI fund, a sharia SRI fund, and absolute return products. Also, F&C is currently raising commitments for a UK opportunities commercial property fund and recently has launched a secondaries private equity fund-of-funds.
The firm wants to diversify its client base away from core insurance relationships by increasing its share of the third-party institutional market and forging distribution deals for the sale of mutual funds to private banks, wealth managers and fund platforms, including registering funds in new territories such as Austria, Spain, Hong Kong and Chile.
In the fixed income space, emerging market debt and high yield bonds remain a priority. Mr Grisay maintains that although credit spreads have narrowed and that a lot of refinancing will be conducted by corporates over the next two years, there is still more value to be derived from doing thorough research to understand the underlying credit risks of corporate bonds.
“A lot of companies have implemented cost-cutting and restructuring measures and are probably in a better shape than is perceived,” he says. “So despite the rallies we have seen, I remain positive about the spreads over sovereign bonds.”
He contends that the shift from corporate bonds and equities into sovereign debt is not the right move in the long term, observing that pension funds and insurance companies have the unfortunate tendency to derisk their portfolios, often under pressure from regulators, after a market crash.
Mr Grisay adds: “A lot of investors have missed the equities rally because they were in government bonds, and if you take a 10 to 15-year view there is no doubt they will have to go back to higher risk/return profiles.”
That said, the need to derisk and to take action to address wide pension fund deficits is driving LDI business.
Pointing to increasing interest in LDI in the UK and in Germany, Mr Grisay claims that F&C has devised “innovative solutions” – Ucits III pooled funds that combine the relative safety of an allocation to long-dated government bonds or index-linked gilts with full exposure to equity markets though the use of synthetic products such as futures.
“We have provided a floor with the hedges and at the same time leave investors with upside potential,” he says.
F&C is starting to promote its fiduciary management service in the UK. The firm has been an active player for a number of years in the mature fiduciary management market of The Netherlands, where 77 per cent of the €580bn of assets in Dutch pension funds has been outsourced to 18 fiduciary managers, according to consultants Bureau Bosch.
Fiduciary management – also known as implemented consulting – is where an external manager looks after the design, implementation and monitoring of a pension scheme’s investments. The service has attracted a growing band of providers including asset managers, investment consultants and large Dutch pension schemes that have morphed into entities offering both consulting and asset management services.
In an increasingly crowded and bewildering marketplace, how does F&C seek to differentiate itself from its competitors? The difference, says Mr Grisay, lies in the breadth of fiduciary management services offered. While the asset manager selection service is common to all providers, he claims that other services such as risk analysis, asset allocation and reporting are not automatically provided by all of F&C’s competitors.
He observes that in the wake of the market crash, Dutch pension funds have been forced to review the operation of their fiduciary management relationships.
“A couple of years ago, many schemes thought that once they had selected a fiduciary manager, they could wash their hands of any responsibility. The fact that the Dutch Central Bank has demanded from the investment boards of a large number of Dutch pension funds
