Aviva fledgling soars into the light

25 January 2010 | By Will Jackson

Aviva Investors is the global asset management business of Aviva. The firm had £222 billion in assets under management on June 30, 2009, and employed more than 1,300 people in 15 countries, across Europe, North America and Asia.


It is hard to beat the launch of Aviva Investors as an example of inauspicious timing. Following Aviva’s announcement in early 2008 that it would build a “globally integrated asset management business”, the group set about combining its operations in Australia, Europe and North America. The numbers were vast: 1,300 employees in 15 countries would run a company with £300 billion in assets under management.

But despite the scale of the “One Aviva” programme, news of its completion passed largely unnoticed. Just days before the Aviva Investors brand was formally unveiled, on September 29, 2008, Lehman Brothers collapsed, dominating headlines in the financial media and beyond. The fledgling business was also hit by the ensuing market sell-off, and posted a 22% fall in its full-year operating profits for 2008. However, John Clougherty, the chief executive of Aviva Investors UK Fund Services, says that, after its traumatic start, the firm has emerged from the crisis in good shape.

“We have made tremendous progress,” says Clougherty. “The business has been restructured top-to-bottom and it has gone incredibly smoothly. Coming off the back of 2008 we predicted a tough year, but we doubled our market share in 2009.”

Clougherty says the firm made particular progress in selling offshore funds to British investors last year. He highlights Global Convertibles—a fund managed by Tom Wills in London and David Clott and Shawn Mato in Boston—and the firm’s Absolute Tactical Asset Allocation (ATAA) range, which raised £100m. Clougherty expects the multi-asset ATAA funds to be among Aviva Investors’s top-sellers this year. (article continues below)

Rob Burdett, the co-head of multi-manager at Thames River Capital, says another Luxembourg-domiciled portfolio has attracted his attention. Global High Yield Bond, the first fund to be launched under the Aviva Investors brand, is run by a five-strong team of managers based in Britain and America, including Josh Rank. “The global high yield fund has done well [since launch]—it is on our radar,” adds Burdett.

In the onshore range, Clougherty says two other fixed income launches from September 2008 have received a positive response from investors. Strategic Bond and High Yield Bond are ranked second quartile in their sectors over the past 12 months, according to Morningstar. Clougherty notes that performance from the funds has been achieved despite a “rebuild” of the fixed income team in 2009, which included the departure of Roger Webb as head of credit portfolio management.

 

Clougherty says he was encouraged by the firm’s ability to increase assets under management without relying on its “mainstay” of commercial property for most of last year. Nevertheless, property remains an important asset class, he adds, and the Property unit trust was a major beneficiary of resurgent appetite for bricks and mortar in the fourth quarter of 2009. The fund, which took in some £250m, was one of the best-selling products on Cofunds over the period.

Nick McBreen, an IFA at Worldwide Financial Planning, recommends the Property fund alongside offerings from Henderson New Star, Aberdeen and Premier Asset Management. “We have used the Property fund for a long time,” he says. “It is a decent, robust fund with a good track record and a wide property portfolio. It hits all the right buttons.”

McBreen is also upbeat on the UK Ethical fund and Sustainable Future (SF) European Growth in which he is personally invested.

McBreen and Burdett are less enthusiastic about the rest of Aviva Investors’s traditional fund range. The firm’s British equities team in particular has suffered a turbulent year during which it was hit by the departures of Dan Roberts, the former manager of the UK Equity Income fund, and then Richard Colwell.

However, Clougherty remains bullish on Aviva Investors’s capabilities in domestic stocks and singles out Chris Murphy for praise. Murphy took over the £600m UK Equity Income portfolio last April, after Roberts moved to Gartmore.

“Chris Murphy has built a strong track record on the UK Equity fund, and he has continued that on UK Equity Income,” says Clougherty. “There are encouraging signs and we are seeing strong inflows. The market is clear on how Chris runs money—he has a very pragmatic approach.”

 

Other members of what Clougherty describes as a “young and hungry team” include Alex Wroe and Braydon Barcham, who took over the UK Equity Income & Growth fund after Colwell’s defection to Threadneedle. Wroe, who previously worked at Duet Asset Management and Fidelity, is a product of the Aviva Investors graduate training programme. “We have a strong group of junior managers and we look for opportunities to push them forward,” says Clougherty.

He also tips Julius Lipner, who joined Aviva Investors a year ago from Magnetar, an alternative asset manager, as “a real star of the future”. Lipner runs the UK Absolute Return fund, which was soft-launched last August. Despite its relatively short track record, the Ucits III long/short portfolio appears to have met with a positive response from investors, accumulating £65m in assets by the end of 2009.

On product development, Clougherty says an inter­nationally-focused absolute return offering may be of interest in the future, but the next launches are likely to be long-only. In particular, he points to possible American and Asian equity portfolios, which could be run using the firm’s existing resources. Aviva Investors already has offices in Singapore and Australia which run money for institutional clients.

An American fund could use the expertise of River Road Asset Management—a value-orientated equity manager based in Kentucky. Aviva Investors announced the purchase of the firm earlier this month, and the deal—which boosts the group’s assets under management by a further $3.6 billion (£2.2 billion)—is expected to be completed by the end of the first quarter.

Despite its success in selling offshore funds in Britain, Clougherty says the firm is unlikely to consolidate its offerings into one Luxembourg-domiciled range when Ucits IV regulations come into force next year. “There have been a lot of predictions around the demise of the Oeic structure, but they have not been substantiated on the ground,” he adds. “Where we have strategies with global appeal we will launch offshore funds, but we have no plans to merge the ranges.”