Benefiting from supportive partners

After an eventful year, more changes are planned for Premier Asset Management with ongoing support from Electra, its ‘cash rich’ private equity partner. Hannah Smith reports.

Premier Asset Management is on the acquisition trail as the boutique looks to grow its fund range and assets through several potential takeovers.

The Guildford-based firm has been through an eventful 12 months, with manager departures and hires, and a revamped product range. There are more changes afoot this year, says Simon Weldon, the managing director of sales and marketing at the group. Premier has about £1.3 billion under management and could as much as double this through M&A activity this year.

“I would be very surprised if we did not make at least one acquisition over the next six to 12 months,” Weldon says.
Last year Premier’s management was aware of what was happening in the marketplace in terms of worsening conditions and the trend towards consolidation, Weldon says. “But in 2008 the prices were still too high – people wanted top dollar for their assets,” he adds.

Weldon says the support the company has received from its private equity partner, Electra, has put it in a strong position to expand the business. Electra backed the company’s management buy-out in 2007.

“The best thing that happened to us was taking the company private. If we were still a PLC we would be strapped [for cash] – we might be at 25p per share but not the £2.85 per share we sold at. It is also faster to make acquisitions as
a private company because you are only accountable to
the shareholders.

“Electra is very cash rich and has been supportive in a difficult environment. They made it clear we have cash to spend. It is all about adding scale to the business,” he adds.

The companies Premier has been looking at are complementary to its own organisation in terms of the funds, managers and overall business. Weldon says the group is particularly keen to build on its specialist product range and may look to fill the gaps with offerings such as American, pan-Asian or Japanese equity funds. There is also scope to develop the fund of funds business, perhaps bringing in fixed interest or European fund of funds for David Hambidge, an investment director.

“Where there is overlap, we have the proven ability to process mergers and acquisitions of funds. For example, we have bought funds from Solus and Framlington in the
past, we have converted unit trusts to Oeics and so on,”
Weldon says.

One outside fund that was brought in-house and restructured recently is China Opportunities. It was formerly known as the Thai Euro fund and was managed by Aberdeen. Premier refocused the Guernsey-domiciled vehicle to concentrate on Hong Kong and China, with a portion of assets in American and British companies. The narrower mandate was passed to Premier’s own fledgling manager Fen Sung and Russell Cleveland of RENN Capital.

Sung was formerly part of Premier’s private client team but was promoted and given money to run last year. He is one of several manager moves the company has seen recently. The latest outside hire was Chris Wright, a hedge fund specialist who joined Premier from Thames River
Capital in September. He was given Paul Branigan’s Dividend fund which was later repackaged as the Optimum Income fund in a bid to improve performance.

Weldon says: “We gave the Dividend fund a facelift and renamed it Optimum Income. It is running at a yield of 10% per annum at the moment and the capital side is ahead of the pack as well. Using exchange-traded options to gain income is an interesting way of using Ucits III tools.

“We have also gone pan-European on the fund in the simplest way – why buy Aviva when you can buy Axa? We are in the European Union and strategies focused just on the UK are out of date.”

However, it is actually a European offering that has been the worst performing fund in Premier’s stable on a three-year view. European Growth fell 46.11% over the three years to March 16, ranking it right at the bottom of the 83 funds in the peer group, according to Morningstar. The fund was handed to Mike Jennings, another recent hire, earlier this month as, its previous manager Rupert Morrell left the industry.

“Rupert had an appalling couple of years but we were happy to run with it because his strategy was so different from everything out there focusing on Europe,” Weldon says.

“Multi-managers bought his fund as a high risk investment because he took lots of positions on the basis of holding stocks for sometimes just a day. The focus was on technical positioning. In a rising market this frequently put him in the top decile but in a down market the strategy did not work at all. Rupert went through a difficult patch and decided he had had enough.”

Jennings joined Premier last year after stints at Morley and Sarasin, where he developed a thematic approach to investing. This was implemented on the Global DSR fund Premier launched for him soon after his appointment.

“Mike has covered Europe since his time at Sarasin and is very conversant with the region,” Weldon says. “We wanted him to do something completely different. Should he go in and follow Rupert? No. He will run the fund along his process of being a thematic investor.” There will typically be a 30% to 50% overlap in holdings between European Growth and Global DSR, Weldon says. Global DSR reaches its first anniversary in May. The fund invests in global equities, with its largest regional weightings currently towards Europe and North America, and a cash position of 15%.

“We were trying to do something different [with this fund]. You can’t stand out from the crowd with a broad brush fund when there are other well-established funds out there,” Weldon says.

Despite a tough time for some of Premier’s products, the strongest performer on a medium-term view is UK Money Market, run by Paul Smith. The fund delivered 12.81% over the three years to March 16, ranking it fourth out of 26 funds in the Investment Management Association (IMA)’s Money Market sector.

“The fund has hit its sweet spot and now has about £65m under management,” Weldon says.

Of the 18 funds in Premier’s range with a three-year track record, 10 are in the fourth quartile of their IMA peer groups over three years. Weldon says funds’ performance against their relative sectors is not the best indicator of performance because many sectors do not compare like with like.

“We suffer from apples and pears. You have funds like Barings Korea and Threadneedle Latin America in the same sector as our Pan European Property Share fund. If you look at its sub-sector, compared to other European property share funds it is doing well. David Hambidge is also above average on his income fund – it is run to an investment formula not to an IMA sector,” he says.

Looking to other areas of the firm, Weldon says business is booming for Premier’s private client arm, lead by Fred Fulcher. “Private client is snowballing. It is the fastest growing part of our business, with 250% growth over the last year,” he says. “We are taking several million pounds a month into our discretionary fund management business,” he adds.

Premier has been developing its structured product offerings in recent months, choosing Citigroup as a backer and avoiding the fall-out from Lehman Brothers-backed products. “Demand for structured products came right off the tail end of last year, but it has come back again now due to low interest rates,” Weldon says. “The world is thirsty for income.”

As well as private client, third party distribution is another string to Premier’s bow, and one it hopes to develop over the coming months.

“The distributor Oeic side of the business is seeing a lot of enquiries,” Weldon says. “We are taking the institutional style of management into the retail arena.”
Premier remains a small fish in a shrinking pond, but as consolidation dominates corporate activity within fund management, the firm look set to become a much bigger player.

Premier Asset Management's fund returns over one and three years

Best over three years: premier UK money market

Worst over three years: Premier European Growth

Best and worst funds
The best and worst funds for each group profiled in the Focus are shown on a relative rather than absolute basis. The percentile ranking of a group’s funds are shown relative to their respective sectors.