The head of Architas says the investment firm has always strived to forge a separate identity from insurance parent Axa and he believes it is time to expand its distribution network
Having a large insurance company parent can be both a blessing and a curse. On the one hand, there are few asset management businesses that could build over £12bn in assets in just five years, on the other, insurance and investment have never been entirely comfortable bed-fellows. Having built its reputation with the help of a strong parent, Architas plans to take its proposition to a wider audience.
Since inception, Architas has strived to build a separate identify from Axa, even giving itself the code name ‘lone wolf’ in its early days. Hans Georgeson, managing director at the group, says: “When I joined in 2010, we wanted to create a boutique feel, independent of the insurance company parent, with separate infrastructure. This would create an environment in which individuals were given freedom and responsibility.” The group shares a building with its parent company, but has operated largely independently.
That said, Architas has historically been largely dependent on the Axa Wealth business for the distribution side. While this has helped it build a substantial asset base, Georgeson says it is time to expand its distribution network, adding: “The business has grown ahead of our ambitions and expectations, but now we are beginning to think about how we grow beyond the Axa Wealth platform and stand on our own two feet.”
Georgeson admits that this is not easy, given the number of new entrants into the outsourced investment solutions market in which the group operates, but he says that the regulatory environment is on his side. Also, they have the necessary investment and administrative infrastructure in place. He adds: “The investment engine is Caspar Rock, our chief investment officer, and his team and we are pleased with the way that side is working. The infrastructure is also working well and will certainly be fit for purpose for a number of years. The sales and marketing side is our strategic focus from here.”
He has taken some early steps in this regard. In December last year, the group made the full range available outside the Axa Elevate platform for the first time. The range is now available on Cofunds, FundsNetwork, Transact, Nucleus, Ascentric, Seven Investment Management, Hargreaves Lansdown and Standard Life.
Georgeson recognises that simply being on a platform ‘does not get you very far’ and that they will need to put support in place to bring it to life and build adviser interest. The group recruited Daniel Haylett in April to focus on taking the group’s range out to financial advisers. In the longer-term, the group has loftier ambitions and would like to look beyond the IFA market as well, possibly to charities or private banking though Georgeson says that it is very early stages.
However, this expansion on the distribution side is not going to prompt any rethink of the product range or a wave of new launches. Georgeson is clear that, having spent two years honing the range, it is now ‘crisp and clear’. The group renamed the active part of the multi-manager range last year to the Architas Multi-Asset Active range and has had the full fund range analysed by risk profiling firms Finametrica and Distribution Technology. It now has three, distinct risk-profiled fund ranges – multi-asset passive, multi-asset blended and multi-asset active – and Georgeson is happy that these offer the requisite simplicity and transparency for their client base.
The funds have been run along the same lines since Rock took over from Richard Philbin as CIO in 2010. All three ranges are driven by a strategic asset allocation model that comes from E-Value, but each will employ it slightly differently. The passive range simply takes the asset allocation weighting and then find the cheapest, best tracking instrument to cover that weighting. With the active and blended funds, Rock can apply an active asset allocation policy, as long as the fund stays within a volatility band. The asset allocation policy is consistent between the active and blended funds, but they are run by different managers so the speed and date of the implementation may differ.
The investment and fund selection process is the same for all three ranges – a quantitative screen, then a qualitative screen with 1,500 or so manager meetings per year. Rock says: “We wanted to try and build a proposition that was very simple and clear, that does exactly what it says on the tin. Investors would know and understand the benchmark, and could then choose from passive, blended and active funds.”
There is no set amount that Rock aims to generate from either asset allocation or fund selection. Rock aims to deliver a better risk-adjusted performance on the active range than on the passive range. In general, this has been the case with the fund statistics suggesting that Rock has been doing a good job on the fund selection side; the active funds have substantially outperformed the passive funds after costs. The Active Intermediate Income and Active Progressive are top quartile in the Mixed Investment 20-60% Shares and Mixed Investment 40-85% Shares sectors respectively over three years. The UK Equity fund is also top quartile in its sector over three years. Performance on the rest of the range is respectable with the Monthly High Income fund the only weak spot.
Rock says that he is not trying to reinvent the wheel, but wants to do things consistently and ensure that the funds reliably display certain attributes: “We are not doing anything earth-shatteringly new, but we aim to do what we do well.”
The risk profiling imposes a degree of discipline and risk management, but Rock still takes punchy positions where necessary. For example, he has long held nothing in dedicated gilt exposure. He has also historically made use of areas such as infrastructure to boost yield or balance other underweight positions.
Georgeson says: “The range in its current guise allows us to say ‘do you want cheap and cheerful’ with the passive range ’or ’do you want something different? It has served us very well. This performance history enables us to have a powerful conversation with the IFAs. We can show that the active range has delivered more than the passive range after costs.”
That said, the majority of the group’s flows are still into the passive range. A year ago, as much as 70% of the flows were into the passive range as investors fretted about market conditions. Recently that has become more even, with 50% of flows now going into passive funds and around 25% each into the active and blended ranges. Of those in the higher risk profile, more is in active funds.
Rock says advisers that have segmented their client bases will tend to use Architas for their smaller clients with portfolios of £100,000 or below. He adds: “Above that level, they tend to go for discretionary managers. Other advisers use our funds as the core of their portfolios and then selectively allocate funds round the edge. Our investor base is almost exclusively retail, which is why we focus more on the downside risks. Investors in this part of the market have greater aversion to losses.”
Where there has been development, it has been on the pricing side. For example, at the start of June it introduced nil AMC share classes on its passive range. These share classes have a 2% initial charge, and there are still some fund administration charges, but if investors hold them for four-and-a-half years or longer, they will start to do better than they would have done with annual charges. It is designed to encourage long-term investors. For the time being, the new share class is only available on the Axa Wealth Elevate platform and the Cofunds institutional platform, but the group is in discussions to have them on other platforms.
“The marketplace has been quite rigid in its charging structures,” says Georgeson, “We wanted to try and innovate in this area, and make a change. There was plenty of response to the move. I was happy that it provoked debate on what is a good and appropriate structure.” He believes that the market has to offer more options for advisers to offer to their clients.
Georgeson has a task ahead in taking the Architas proposition to the wider IFA market and beyond. However, he is building from a robust base, with a decent performance track record and substantial assets under management. He also believes that there is still plenty to play for, with lot of advisers still undecided about their investment proposition for the future. He is expecting a wave of activity in the Autumn with market participants increasingly forced to show their hands. From there, Architas should be able to see its future beyond its life insurance parent a little more clearly.
Launched in 2008, Architas is part of the AXA Group with assets under management and under advisory exceeding £12billion. The group has a range of risk-profiled active, passive and blended managed funds of funds, plus income generating and specialist funds.
Ian Robinson ACIB DipPFS, Managing Director, Chilli Financial
“We recognised some time ago that we needed to re-engineer our investment proposition to support our advice process and allow us to spend more time with clients on the things that really matter to them, such as retirement planning.
This meant we needed a very focused investment proposition that specialised in multi-manager investing. Selecting Architas was ultimately easy for us as they offer everything we need, from a highly skilled and experienced team, robust, in-depth research into fund and asset manager selection and very effective ongoing monitoring. The availability of risk-profiled funds is an added bonus.
“While Architas might not be a widely recognised name for our clients, the backing of the AXA Group is a major reassurance for them and us. The latest figures we received clearly show that the Architas investment process is working consistently across the entire fund range both in terms of performance and volatility management. It is this consistency that is in-valuable for us, but more importantly for our clients, and the ongoing management of their expectations.
Yianni Theodorou, Director, Logic Independent Financial Advisers
“We use the Architas blended range of funds to comprise the core holding for some of our clients and as part of the firm’s outsourced investment proposition. The risk profile of the client is measured through Distribution Technology and the appropriate risk graded Architas fund is then matched up.
“We do not classify any adviser within the firm as a ‘professional stock picker’ and we like the concept and methodology of Architas as a professional and well-resourced research team at our disposal. Clients are very attracted to having a rebalanced portfolio comprising of 35-40 funds and a team of experts behind the scenes.”
Jason Strain, Director of HB&O Financial Services
We use Architas for a number of our clients. We like the investment process, and its use of the heat map and believe it’s a strong investment team. We like the access to active, passive or blended ranges, which gives us a range of cost options from very cheap to fully multi-asset allocated. We can have a straightforward strategic asset allocated fund through to a more tactically asset allocated fund, or blend the two for cost reasons.
We also like the fact that it’s not just the normal, staid portfolio of funds. Rock and his team will allocate to newer funds where they have done full due diligence. We have also seen areas such as infrastructure in the funds – there is a bit more diversification, which is certainly a point of differentiation.