Scotland is on a roll and Scottish investment managers are resurgent. Edinburgh now ranks sixth as a world financial centre, just ahead of Geneva, according to a recent survey.
Colin McLatchie is in a good position to judge, having just returned to Scotland from London, to join Aegon subsidiary Scottish Equitable’s ex-panding asset management arm. “Self confidence is high and there is no problem in attracting some of the finest talent into the financial industry in Scotland. All the pieces are there to help fuel this industry’s growth.”
Exactly what those pieces are, however, is not that easy to identify, not least because of a touch of schizophrenia affecting Scottish managers.
The Scottish industry is highly conscious of being part of the UK investment market. As Colin Neilson of major Edinburgh independent Baillie Gifford, with £17bn under management, puts it: “We are a very successful UK fund manager who is based in Scotland, rather than we are a Scottish fund manager.” Over 80% of the firm’s business comes from south of the border or elsewhere. “However, we do find that so long as you meet the quality threshold being Scottish has helped us in a number of situations. We have just won the mandate for the new Scottish Parliament pension fund. We are delighted about that, but you wonder how it would have been if they had appointed a London-based firm,” he says.
Edinburgh Fund Managers (EFM), the £7bn asset manager coming back on the pension buy list after its merger with Dunedin three years ago on the strength of good performance figures, downplays the Scottish card. “We have never been in the damp flag camp,” says Ian Rattray. “We would focus on our investment process and style, rather than saying that there are any particular advantages in being located where we are.” But he adds: “Edinburgh is a base where people like to work and you probably do not get the turnover of staff that you get in London.”
One highly specialist manager with a fast-growing reputation, Scottish Value Management, also downplays its location, despite its name. Sam Batcharj says: “From an investment management perspective it does not matter where the location is.” But he does concede that, “while there is nothing negative in coming from a Scottish base and there may be something positive, it would not be the deciding factor between getting the business and not getting it. If we were doing it in London, the only difference would be in people’s salaries.”
McLatchie says: “Being some distance from London we can focus on investment practices and client needs with less of the self-fulfilling introversion of the great beast. There is a little more impression of space and an intellectual approach that is less cornered than London.”
He adds: “If you go to a Scottish manager, I do not think you will ob-tain something that is unique. What we offer is available elsewhere. But what we have may be a more uniformly high quality service than is obtainable perhaps from a more widely sampled group.” It is what he calls a “a more harmonious approach” that comes from a style that “is effective and flexible”.
The great enemy has been and still is London and there is a sense that at last Scotland is pulling back some of the ground it lost to the rise of the powerful City investment houses during the early 1990s. Allan MacKenzie of the well-established Scottish Widows Investment Management, with $53bn under management - enough of a lure for London resident, Lloyds TSB to make a bid - says a “lack of flexibility”, perhaps stemming from the strong actuarial background of many Scottish investment managers allowed the London business to gain such pre-eminence.
“The Scottish offices had been tre-mendously successful prior to that, but got left behind, but we are now pulling our way back and being successful. We have shown you can do very specialist products here and be successful.”
EFM’s Rattray thinks much of the impetus for the resurgence has come from the insurance companies, developing their independent asset management arms. He notes this allows them to pay managers according to investment industry rather than insurance levels. “Certainly as far as the active market is concerned, there is a new vitality in Scottish managers.”
But it is the ability of many Scottish managers to point now to good, consistent performance that is giving them that extra lift in their step. CAPS figures show that in the universe of UK managers they are as a group convincingly outperforming the median in the key balanced account segment of the UK pensions market for both pooled funds and for segregated portfolios. A word of caution about placing too much reliance on these as proof definitive of a ‘ Scottish thing’, comes from McLatchie, who notes that if the figures were adjusted for size, then they might not favour the Scottish managers. “The performance difficulties have been focused on the largest managers and Scottish managers are not among the largest. But let us enjoy these figures!”
The industry is keeping a wary eye on what genies the new parliament in Edinburgh is going to unleash. At Baillie Gifford, Nielson says: “We do not want to see any extra regulatory burden put on business.” Nor does the firm want to see any playing of the national card. “We seek a level playing field. We don’t want the Scottish parliament moving in and applying either higher or even lower taxes. This would distort things, which we do not want.” Rattray shrugs off the impact devolution may have on taxes locally. “We just don’t see this as a major issue given the limited powers on the tax side.” Scottish Widows’ MacKenzie is philisophical: “Hopefully the current political developments will not affect us at all.”
And McLatchie reckons it remains to be seen whether the political dimension has any impact on the rest of the UK market. “My own belief is that the effect will be net neutral.” But it could be very helpful for international business, he thinks. “There is discussion about the notion of Scotland as a brand that represents a product set with distinct characteristics. This is a product set that appears to be well received internationally.” Neilson agrees that being Scottish is beneficial to an extent in gaining US business. “The label helps there.”
Scottish distinctiveness may then be more in the eye of the external beholder than anywhere else.