Columbia Threadneedle: Brexit will not stop our growth plans

Burgess-Mark-Threadneedle-2013-700.jpgColumbia Threadneedle Investments’ Mark Burgess is quick to show his dismay about the result of the EU referendum. We meet in the week following the UK’s vote to leave the EU and the asset manager’s CIO and global head of equities is clearly personally a Remainer and saddened by the result.

Columbia Threadneedle itself did not hang around in its reactions to the Brexit vote either, announcing less than a week after the result that it plans to move jobs, and fund managers, out of the UK and into the EU.

The £323bn firm says that, ahead of the UK leaving the EU, the business will expand its existing Luxembourg office to ensure it can still serve EU clients. It will also replicate some funds from its UK Oeic range into its Sicav range and will move fund managers to the base. However, it says it does not plan to move its head office.

“Like everybody else it wasn’t the outcome we expected,” says Burgess. “But we had entered the referendum relatively defensively positioned because we live in a low growth, low interest rate, low inflation world and having a lot of risk on the table didn’t feel the right thing to do anyway,” says Burgess.

“So while Brexit was a shock and surprise I’m not concerned really. Clearly markets have fallen modestly, and it is only modestly, but I think we will have done a good job for customers.”

That said, Burgess says the bigger implications of the referendum outcome are waiting around the corner.

“Putting aside my personal views, this is not a parochial UK event. It’s a European problem. Because of the rising tide of populist politics this may act as a catalyst for Holland, Denmark, Italy, France and Spain to hold their own referendum. We have seen calls already from the far right in France and Holland to have a referendum so they too can follow Britain out of the EU,” he says.

However, Burgess says the Brexit vote will not put the UK’s third largest retail asset manager’s long-term plans on hold, insisting the manager is still “in a good place”.

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Among those plans are growing the global solutions business, which is one area Burgess says the asset manager is seeing more demand for, offering investors specific products to match their needs.

“What our clients increasingly want are global solutions, whether it be equities or fixed income. Clients are looking for very specific issues that we can solve for them, and ask us to package together a variety of propositions to help them,” he says.

While this seems like the kind of product that would typically have only been packaged together in the institutional world previously, Burgess says that the wholesale retail space is increasingly operating like an institutional investor, with similar demands.

The merging of the US-based Columbia business with the UK Threadneedle business in March last year, and the subsequent rebranding of the group, has helped the firm offer products such as this, he says. While not badged as a formal merger and not leading to any investment management changes, the tie-up allowed the UK division access to greater resources, particularly on the US equity side. While the asset manager still has UK-based US equity managers, it is now able to access 32 equity analysts in the US, offering a greater depth of research on the US market.

“We have significant US equity capability here, and have always done a good job in US equities. The difference now is we have 32 equity analysts on the ground in North America meeting companies day in, day out providing research and additional support to the US equity team here, who in turn support our global equity capability. The quality of ideas going into US equities and in turn global equity portfolios are based on much more fundamental research.”

Asset growth in global equities has been steady, rising from around $2.5bn four years ago to around $11bn today, which Burgess puts down to both customer demand and “our ability to do it”.

The firm is also planning to move into the smart beta space. Burgess says he “worships at the temple of active management” and the asset manager would be “extremely unlikely” to move into the passive space, but it is looking at the active/passive middle ground of smart beta.

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Columbia Threadneedle Investments has more than 2,000 staff across 18 countries and manages £323bn of assets across developed and emerging market equities, fixed income, asset allocation solutions and alternatives. The asset manager is the fourth largest for UK retail funds and the 13th largest in the US. In March 2015 Threadneedle Investments rebranded as Columbia Threadneedle Investments as it merged with the US Columbia Management business. Both companies are owned by Ameriprise Financial.

“We will move into smart beta in North America and have got products in place for doing that,” he says. “Smart beta have outperformed the indices but the active managers using the same factors have outperformed smart beta, so then it’s down to customer choice. Do you want a quant-based approach or the fund research based approach?”

Burgess says the company will trial the products in North American and judge reaction and asset flow before deciding whether to launch in the UK and Europe.

Looking further out, Burgess believes the continuing onslaught of regulation and market trends place a large global firm such as Columbia Threadneedle in a good position to compete.

“The regulatory agenda is the broadest and deepest I have ever experienced in my working life. It’s very complex and complicated and in places quite intrusive, but it is the way of the world,” he says. “I think on one level it is an additional burden that we have to work through, but I think a large company like ours has a competitive advantage over some of the small companies who simply don’t have the resources to get through the regulatory agenda.”

So do those struggling smaller companies present a buying opportunity for Columbia Threadneedle? Perhaps, says Burgess.

“I think we can compete their business away without going through the arduous process of buying them,” he says. “We have got a strong balance sheet, a cash generative parent company and a growth agenda, so if it makes sense we will consider acquisitions, but it would have to be in an area we are looking to bolster. I think M&A will feature but I don’t think it will be the driving force.”

It has not been entirely smooth sailing for the team. Columbia Threadneedle EMEA chief executive Campbell Fleming left the firm in April to join Aberdeen Asset Management as global head of distribution. Veteran fund manager Leigh Harrison announced his retirement from the company earlier this year, and bond manager Martin Harvey left the firm in February after a decade there. Meanwhile head of product Nick Ring moved to Jupiter last year.

Burgess says the company is in the “very early stages” of replacing Fleming, with Tim Gillbanks taking over as interim regional head of EMEA in the meantime.

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“Turnover is a fact of life in the industry, and people move more tactically now than they used to. I don’t think we have any higher turnover than the competition,” he says.

Elsewhere, the company has been making big strides in improving its gender diversity. It was the first asset manager to publish the gender breakdown of staff across its business, releasing the data voluntarily, with Hermes Investment Management now having followed suit.

In October last year Columbia Threadneedle revealed how female representation at the firm had shifted from 2013 to 2015, with the number of woman in senior management rising to 19 per cent in 2015, from 11 per cent in 2013. However, Burgess thinks there is more the industry can do.

“I think we have done a poor job of letting the world know it is a great place for a woman to work,” he says, arguing that the hours are conducive as they are typically tied to when markets are open, and the industry mainly works on a team approach, making maternity leave more viable.

“I feel very strongly that you get better decisions if you have a diverse set of inputs into the team,” he says.

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