Sunday, May 12, 2024

Meanwhile, in London: "Why your super-rich fund manager is facing oblivion"

Change is hard.

A massive piece from the Telegraph, May 5:

An existential crisis has gripped the City’s once-mighty stockpickers 

“It’s been tough for the industry to remain relevant through all the change,” says Martin Gilbert, who founded Aberdeen Asset Management and guided it through several transformative mergers before stepping back in 2019 after nearly four decades. His firm has since had to struggle on without him – and its vowels after rebranding as Abrdn.

His view is hard to challenge. Today’s fund managers are no longer the masters of the universe they once were, as a range of factors combine to drain power away from an industry that was formerly the City of London’s crown jewel.

It is a story of new investment trends, ill-thought-through pension reforms, a struggling stock market, overzealous regulators and a growing culture of risk aversion in the UK. Add a dash of scandal, such as Neil Woodford’s dramatic fall from grace, and you have a toxic brew.

But it didn’t have to be this way.

The golden age
The ascendancy of fund managers can arguably be traced to December 1994, when most people were scratching their heads as to why Yasser Arafat was being awarded the Nobel Peace Prize and how East 17’s Stay Another Day could possibly be beating Mariah Carey in the Christmas charts.

There was similar incredulity in the City. But this was the result of SG Warburg’s revelation that it was about to be bought by the Wall Street bank Morgan Stanley.

Here, just eight years after Margaret Thatcher’s Big Bang of financial deregulation, was definitive proof that even the most celebrated corporate finance house in the UK, a constituent of the FTSE 100 no less, couldn’t hack it alone and was succumbing to foreign overtures. 

But that wasn’t even the worst of it: within days the talks collapsed and the US business revealed it had only really wanted to get its hands on SG Warburg’s asset management business.

Sir Siegmund Warburg, who had founded the eponymous firm with Henry Grunfeld in 1946, was no doubt spinning in his grave. The German-born banker rarely bothered to hide his disdain for asset management, describing that side of the business as mere “share-pushing”. 

His prejudice survived. A few years ago, one former employee told me: “Asset management was where you were sent if you failed in corporate finance.”

To distance itself, SG Warburg renamed its fund arm Mercury Asset Management and floated a quarter of the business in 1987. Just seven years later, the American barbarians at the gate were suggesting it was one of the choicest morsels in the City. 

In 1995, SG Warburg was bought by Swiss Bank Corporation, starting the slow subsumption into what became UBS and allowing Mercury Asset Management to gain full independence. If you were trying to pinpoint the dawning of the UK fund management’s golden age, this would be a good candidate. 

True, Mercury was itself bought by Merrill Lynch, another Wall Street bank, in 1997 and rebranded as Merrill Lynch Investment Managers. However, unlike its erstwhile parent, it managed to retain its corporate DNA, continue as the most important buy-side firm in the UK, and become an extraordinary hotbed for investment talent.

At one point, Mercury was managing pension fund assets for more than half the companies in the FTSE 100. Alumni include Paul Marshall (now of hedge fund Marshall Wace and a potential bidder for The Telegraph), Nicola Horlick (who was for years ubiquitously known as the City’s “superwoman”), Anne Richards, Andreas Utermann, Elizabeth Corley, Saker Nusseibeh and Stephen Zimmerman. 

Many went on to run the plethora of new buy-side firms moving to the UK or being set up from scratch. Despite the original misgivings, the influx of foreign firms helped turn London – with a significant offshoot in Edinburgh – into the leading fund management hub in the world. Today the UK is home to 1,100 asset management firms that collectively look after £11.6 trillion. 

One of the most impressive power players at Mercury was Carol Galley, who was at the vanguard of a new breed of star fund managers at other firms such as Anthony Bolton (who was famous for visiting every company before buying its shares), Nick Train, Terry Smith, and Neil Woodford.

All were household names in the 1990s and 2000s, bestriding the corporate landscape and the City news pages. Galley did far more than merely manage money and was, for example, credited with masterminding Granada’s takeovers of London Weekend Television in 1994 and Forte Group in 1996.

Toby Nangle, a former fund manager himself and now an independent financial markets commentator, remembers Sir Clive Thompson, the father of one of his university friends and the longtime boss of Rentokil, excitedly telling him about meeting Chris Poil, the head of UK equities at Baring Asset Management: “That was how it was back then: Footsie chief executives were starstruck by equities managers.”

Industry in crisis
How the mighty have fallen.

When fund managers are in the papers these days, the news is almost invariably bad. The industry is in turmoil and UK asset managers, especially those of the listed variety, are struggling badly. 

Jupiter, a perennial takeover target that never gets bought, has been hit by a wave of customer withdrawals and the departures of industry veteran Richard Buxton and star stock picker Ben Whitmore. 

Shares in St James’s Place plunged earlier this year after it was forced to set aside £426m to deal with a fee fiasco and possible crackdown by the regulator. The company has now lost nearly three-quarters of its market value since the beginning of 2022.

The share price of emerging markets specialist Ashmore is approaching lows not seen since the financial crisis. Even Baillie Gifford, which achieved brilliant returns thanks to early bets on tech companies such as Amazon and Tesla, has been forced to start cutting staff. Its assets fell by a third to £223bn in 2022 as central banks started hiking interest rates and growth stocks floundered.  

Few firms are having a tougher time than Abrdn. Its search for additional revenue streams has seen it head down a succession of dead ends.....