Q. LV=Asset Management [LVAM] already runs £8 billion for LV= [formerly Liverpool Victoria] and other organisations. Why have you decided to target the retail market? A.
A.We have a good fund management record but it is only available to our internal customer base. LV= entered into an agreement to buy Tomorrow [formerly the GE Life business] earlier this year. A lot of that is pensions business and customers can hold various investment funds as part of the products.
The acquisition was a good reason to develop our range. Second, there are other areas we want to get into, such as fund of funds selection. It is an area that is meeting people’s needs and builds on what we are already doing.
Q. Where is the £8 billion invested? A.
A.About 10% is in real estate. The rest of it, broadly speaking, is 45% in equities and 45% in bonds and cash. We manage the global asset allocation and UK and European elements of our portfolios. The US and Asian aspects are managed by other people on our behalf.
Q. LVAM has launched a UK Property Oeic. How does the fund get its exposure to property? A.
A.UK Property is mainly bricks and mortar, but it is able to buy shares. We aim to hold 70% in direct property at all times, although that can go up to 90%. It is an interesting time for property because the market is acknowledged to be coming off the top. There could be good opportunities for us to buy at distressed prices.
The fund launched on September 7, and we expect to start investing money within the next month or two. Howard Meaney, who manages the fund, arrived from Cushman & Wakefield at the start of September.
Q. The firm plans to launch 12 further funds by the end of 2007. Which areas are you looking at? A.
A.We will have a variety of fixed interest funds and two funds of funds – Balanced Managed and Stockmarket. On top of that, we will have a range of regional equity funds. We will look at other opportunities going forward, but this is our core range at the moment. We will only put out products that we can do well.
Q. What research capabilities are your managers able to access? A.
A.We have four or five fund managers with research responsibilities in each area. But we are not trying to generate original research – we are using what is already out there.
Q. Some of the funds will be outsourced to external managers. Why has the firm decided to do this? A.
A.The US Growth, Japan Growth and Pacific ex-Japan Growth funds will be run by Wellington, Nomura and JF Asset Management – part of JP Morgan. We have used external managers since LVAM came into existence.
Looking at the asset pools we had, we did not have sufficient scale to attract managers with the capabilities we needed – there was not the option of opening an Asian office, for example. The external manager model has worked well for us over the years.
But it is not just about outsourcing and we have an interactive approach. We have an ongoing dialogue with our managers, as well as reviewing performance on a regular basis. For example, Wellington has been with us from the outset and we made changes to the style of its mandate earlier this year.
The model is flexible and we brought our European mandates back in-house six years ago, after running them externally. We can make changes quickly because all of the managers are on rolling contracts with short notice periods.
But, as fund managers ourselves, we try to understand why a blip in performance has occurred. Sometimes it is right to allow a manager to continue. Other times it is not.
We look for external managers who can outperform on a consistent basis. Consistent second quartile performance can build into first quartile performance over time. Managers who have good but volatile long-term track records do not suit us.
Q. LVAM is also planning to develop a multi-manager business later this year, following the recruitment of Tom Caddick from F&C. How many funds of funds do you plan to launch? A.
A.Tom will have input on Balanced Managed and Stockmarket, but we want him to look more broadly and establish new funds.
We will look at a range of possibilities when he arrives in December, with a view to launching funds in 2008. We are starting the business from scratch, so I do not expect we will replicate the F&C funds of funds exactly.
Q. Do you expect to see quicker growth from the single manager or multi-manager side of the business? A.
A.The fund of funds growth should come through quicker from a standing start because Tom is well-known and he has a good track record. It is a competitive area but it is definitely a growing sector.
Q. LVAM expects to double its staff over the next three years. In which areas of the business are you recruiting? A.
A.I am looking for a chief investment officer and a senior person for a role in asset allocation. We are also looking for someone in structured risk – several of our clients are liability-based investors and it is an area we can expand in. I have already recruited Ann Roughead as chief operating officer [COO], from her role as COO at Citi Private Bank.
Q. What are your priorities for the business, in the short to medium-term? A.
A.I want to make sure we have a team and infrastructure that can provide fund management capability on an ongoing basis.
Putting that in place and making it robust will take a good 18 months. After that, I aim to make the business grow as rapidly as possible.
I have been set some challenging targets and we aim to double our assets under management over the next three to five years.
Q. How do you aim to raise awareness of the LVAM brand? A.
A.LV= is known in its own markets, but LVAM clearly is not. We will have to look at how we go out to a wider audience – you can spend a great amount of money on advertising and not get much back.
We may also bring in other well-known managers. The board wants the right level of fund management capability. As part of that commitment, we can offer the packages necessary to recruit people who can make a difference. During the recruiting process, we have found that interest is quite high. We are starting from scratch but with £8 billion behind us – that is an attractive proposition for people to come into.
STEVEN DANIELS is the managing director of LV=Asset Management, and responsible for £8 billion in assets under management. He joined LV= in 1988 as UK fund manager, and was appointed group director of investment and a main board director in 1996.