It’s hard to believe three or four years ago that the talk was of the collapse of Scottish fund management.
Today, the news couldn’t be more different – Scottish tails are up. A string of hearty performance years and a number of significant relocations to Edinburgh – including the Scottish Widows/Hill Samuel merger – which surprised many by going north, and Dutch group Aegon’s bricks and mortar backing of Scottish Equitable, have laid an infrastructure many believe is here to stay.
Malcolm Jones, director, fixed interest at Scottish Equitable Asset Management (SEAM), notes: “The research perspective is excellent here in Edinburgh, because typically you have us, Standard Life and Scottish Widows, who will attract companies with which we can do one-on-one interviews. All the value lies here. In London, you just don’t get that exposure.”
Colin Mclatchie, chief operating officer at SEAM, adds: “There is a cluster of serious players here in Edinburgh. I think there are lower levels of people turnover and higher levels of average experience in Edinburgh – certainly that is the case here. There is also a good pool of available labour at all levels.”
Chris Walker, head of global business development at the newly monikered Scottish Widows Investment Partnership (SWIP), the Lloyds/TSB-owned almagamation of Widows and Hill Samuel, with assets of e150bn under management, explains the Edinburgh implantation: “Our investment approach is to have one manufacturing centre. There were discussions about whether to have two locations, but how can you justify having two European desks or splitting them, for example?”
Walker feels Edinburgh has come of age: “The city has gone hugely up the league table and is mentioned alongside Zurich, New York and London as a financial centre.”
He adds that Edinburgh’s success can be seen in the wider context of an industry that no longer needs product centres in any particular location. “Marketing costs, technology, the number of fund managers, researchers etc are huge now. Through SWIP we can achieve the economies of scale to enable spending, expansion and improved client servicing.”
Walker points out that marketing is less centralised, though, with offices in the US, Japan and partnerships in Spain and Italy. He sees future potential for SWIP in Switzerland through Lloyds and says the group is looking closely at the Scandinavian market. “Going forward what we would like to do is establish joint ventures and we are set to announce two new operations shortly.”
One Scottish fund management success story is the rise of Edinburgh- based partnership Baillie Gifford, managing £22bn in assets, of which £8.5bn is UK pension fund money. Colin Nielson, director institutional clients, believes the group’s structure has advantages: “One thing it does mean is that we will remain as an independent company and, furthermore, the focus here is solely on fund management.”
Nielson notes the widening vision of the group: “We see asset bases globally representing a rich seams for us and the approach is to look at managing third party assets.”
The firm already has a £600m (E955m) link with Guardian Life in the US and a £2bn venture with Toyo Trust in Japan. The company’s most recent venture with Mannheimer in Germany has also pulled in £100m in pooled retail money. Partnership possibilities in Holland, France, Italy and Scandinavia are also being considered.
Today’s talk is tough in Scotland, as Mclatchie at Scottish Equitable demonstrates: “If you are considering the threat of large international players in the UK market – then we are part of that – and of the global threat. We are certainly looking to extend our overseas plays.” European ambitions include exploiting Aegon’s relationships in Italy, Luxembourg and Spain.
Stephen Acheson, investment director and head of corporate pensions at Standard Life – managing £1.8bn of pure segregated money and £2.4bn in institutional pooled cash – says the group is also sharpening its institutional focus. “We are now actively looking to increase third-party assets. We should get bigger because of good performance pitched against trustee disappointment with other managers in the UK. Over the last 18 months we’ve had more opportunities to pitch for new UK institutional business than in the previous 10 years combined.”
Acheson believes the growing institutional DC trend could be a boon. “It may be that integrated houses like ourselves provide both administration and the investment, although charge for them in an unbundled fashion.” And he takes umbrage with the focus on Scotland as any different from other investment regions: “About two or three years ago there was a feeling that institutional fund management in Scotland was dying. We were annoyed by that, because there is nothing peculiarly Scottish or English about the ability to manage money. Conversely, now that four of the big five houses in London are going through a bad time there is no talk of the death of merchant banking asset management – performance goes through cycles.”
The country’s mid-size managers are also making hay while the sun shines.
Ian Rattray, divisional director at Edinburgh Fund Managers, managing £8.5bn in institutional money, says the firm has recently appointed an institutional marketing person in London to exploit opportunity. “We manage £2bn in UK institutional cash and following on from the merger with Dunedin four years ago we now have a solid track record in balanced and specialist briefs – particularly in UK small caps. We feel this is the time to make a push and needed someone in London to create good relationships with the local authorities, which are looking to carve out their mandates a bit more.”
Edinburgh-based equity house Martin Currie is also picking up business on the back of global and specialist trends. Donny Hay, director of institutional business development, notes: “We are recognised in the US as a very good specialist active equity manager and the fact the UK is moving towards the US model is playing to our strengths.”
Hay also believes the fund of funds shift could play nicely for Martin Currie: “Amongst the smaller UK pension funds there is a market of about £50bn waiting to be captured, maybe by a different approach than the one or two balanced manager structure. I’d expect a lot of UK pension funds to find the whole fund of funds offering attractive as a one-stop-shop specialised advisory service at an institutional fee rate. We want to be a provider of product to those structures and there is a lot of interest at the moment.”
It’s not only the Scots that sense an opportunity to bring something new into the UK market, however.
Edinburgh-based US investment manager Blackrock – formerly CastleRock – is vigorously pushing its risk analysis capacity.
According to Steven Luttrel, vice president and founder of the firm, risk capabilities and the group’s reputation for client servicing have been the bedrock of success in the US. Since inception in 1988, Blackrock has garnered $180bn (E191bn) in assets.
“We have 156 professionals working on the risk management system, which was developed by us. It’s really one of the most important components at Blackrock. We calculate all the risk measurement aspects of every security aggregate them and then assemble all the different risk information of the client’s portfolio.”
Blackrock has also been developing its equity business, pulling in $5bn in new business this year for US and international clients. Last year’s poaching of the former Scottish Widows European equity team, headed up by Albert Morillo, was seen as a major coup for the group.
And while Glasgow may not have the gloss of Edinburgh, its fund managers are certainly matching the success of their east-coast brethren.
Rod Davidson, investment director at Glasgow-based Murray Johnstone (MJ), explains the groups changing fortunes. “At the end of the 1980s we were one of largest pension managers in the UK, then bad equity performance meant we lost a lot of money. In the last two years though the figures have been much better and we are back on track with some of the consultants.”
The company is pushing its SRI track record – MJ currently manages £400m in SRI international equities, both US and UK sourced – particularly in the light of UK SIP legislation introduced this month. “We are contemplating the launch of an international fixed-income SRI product and seeing demand from small religious groups in Europe. We want everything in place, performance in Q1 has been good, and significantly, we have our own SRI database and we are offering this on a global basis.”
Clare Williams, head of investment development at Abbey National Asset Managers (ANAM) in Glasgow, with £1bn in institutional assets – £300m of which is segregated – believes differentiation has to come through investment performance.

In 1997 ANAM revisited its active investment process and began approaching consultants. “We have now been long-listed by Mercer after only 18 months. What we are offering is a stable and talented team and I feel there is a real opportunity for us at the moment. There is a certain amount of uncertainty in the industry.
Williams explains that ANAM’s approach is to run tight portfolios on a plus/minus 2% of index holdings and to look for lots of individually good investment decisions rather than hang on one style. “We have a growth bias with a rotational style but we have proved we can manage money through different times.”
Francis Ghiloni, managing director, retail division, at Britannic Asset Management says he also sees new business being channelled through wider consultant activity. “Most business still comes through the major firms, but we are seeing a lot of activity from the likes of PricewaterhouseCoopers, KPMG and Lane Clark & Peacock – positioning themselves in parts of the market where they can add value and there is less competition.”
Britannic manages close to £6bn in institutional cash and Gilhoni flags up opportunities as pension funds start to carve bonds out as individual sub asset classes. “We’ve not seen a mandate for an out-and-out high-yield mandate yet. Funds are putting their toes in the water with hedge funds and SRI mandates, though, and I can see the same thing happening with high-yield bond funds.”
And he sums up what he sees as the real focus for any investment manager. “Glasgow is neither an advantage nor a disadvantage for our business – if anything the advantage is the actual cost of being here. The important thing is to be able to manage the growth in your business.”
The message is clear – investment managers in Scotland are feeling bullish with a new-found sense of place and direction. As the country comes to grips with more of its own destiny so its fund management industry is beating its own way forward – within the UK structure, of course! IPE