F&C unveils US and Japan mandates

The Foreign & Colonial investment trust has implemented proposals to outsource the management of its American and Japanese equity portfolios in a bid to improve performance. It has also overhauled its charging structure and introduced a performance fee system. Changes to the portfolio took place over a two-week period and the new mandates went live on July 27.

Jeremy Tigue, manager of the 2.4bn trust, says that poor stock selection, particularly in America and Japan, has cost the portfolio in performance terms over the past two years. The trust’s board was keen to remedy this by outsourcing but gave F&C “first refusal” on formulating a strategy.

The American equity portfolio (excluding small-caps, which continue to be managed in-house) is now run on a multi-manager basis, using three segregated portfolios and one fund. F&C employed Investment Manager Selection to find US-based managers offering a blend of styles to run $804m (458m) of the trust’s assets. IMS recommended four managers – Barrow Hanley, a deep-value manager, will run $281m; Gartmore, whose pragmatic growth style and mid-cap bias are best embodied by Gil Knight, gets $119m; large/mid-cap growth investor Loomis Sayles will run $243m, while $161m goes into the $5.3bn GMO US Core fund, which is value-tilted but with momentum factors.

F&C considered using a multi-manager approach on its Japanese assets too, but instead has entrusted the trust’s 5% Japan weighting to Goldman Sachs Asset Management, which will run it on an “active quantitative” basis. The 120m mandate invests in a fairly concentrated selection of 73 stocks and, says Tigue, offers “just as much performance but for less risk and lower fees” than a pure active management strategy.

Under the new structure, strategy and performance monitoring are the responsibility of the board of the trust. F&C and a private equity committee formulate asset allocation and the gearing policy. American and Japanese equity performance is outsourced, US small-cap, British, European and Asia/ emerging markets equities are managed in-house by F&C, and HarbourVest Partners and Pantheon Ventures take care of the private equity portion of the portfolio.

A performance fee of 10% of outperformance above the relevant hurdle (0.5% above the performance of the benchmark index of 40% FTSE All-Share and 60% FTSE World ex UK) will be taken by F&C, capped at 0.3% of assets.