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Aviva Investors emerges from ‘hell of a year’

The past year has been one of huge change for insurance giant Aviva and its fund management arm Aviva Investors. By the group’s own admission, in recent years Aviva “has not lived up to its potential and has disappointed shareholders”, but after a year of streamlining the group is set to change investors’ perceptions.

In January 2012, Aviva Investors – one of three core business lines under the Aviva umbrella, alongside its life and savings and general insurance arms – announced a number of changes. These included focusing on the key asset classes of fixed income, real estate and multi-asset solutions, leading the group to sell its SRI business to Alliance Trust Investments, and cutting about 160 jobs globally, representing 12 per cent of Aviva Investors’ workforce.

As part of the restructure, Aviva Investors CEO Alain Dromer left the business in May last year, with Paul Abberley stepping in as interim chief executive. The group is currently looking to hire a permanent replacement for Dromer.

“All in all it has been one hell of a year,” says Jeremy Leadsom, sales director UK financial institutions. “There has been a lot of corporate change against a difficult backdrop. We have trimmed back our fund managers and we have had to make the business more efficient. In a difficult environment you can never assume there won’t be change. The mark of a good business is if you cope with change well.”

He adds: “Like others we are not immune to economic challenges. Companies cannot be all things to all people. The market looks at the noise but not through the noise.”

In the face of this market noise, Leadsom remains sanguine on the prospects for Aviva Investors.

Despite offloading the SRI funds the UK Oeic business saw its assets under management grow to £14bn at the end of 2012, up from £13.5bn 18 months previously. Sales were strong in the UK retail business, with net sales of £290m, up by £70m on the year before while IMA stats point to most UK fund businesses seeing net outflows during that period.

Leadsom describes the group’s managed solutions range as “one of our great strengths” and “a major part of our DNA from the beginning”.

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The group has recently been building the profile of its five risk-profiled multi-asset funds, having been amongst the first to come to market with a risk-targeted range; three of the funds mark their third anniversaries this year. The range now has £200m in AUM, £140m of which was raised last year.

One of the biggest sellers in the UK Oeic is the US Equity Income fund, which raised £160m last year and is now £280m. Launched two-and-a-half years ago and managed by River Road Asset Management – a US value asset manager Aviva acquired in 2010, it is run from Kentucky.

Meanwhile Aviva’s flagship fund, the Aviva Investors Property Trust – which launched in 1981 and was one of the original two property funds – brought in £300m last year, boosting it to £1.5bn.

More recently, Leadsom says they have drawn investors’ attention to the six-strong fixed income range. The suite comprises the Corporate Bond, High Yield Bond, Higher Income Plus, Managed High Income, Monthly Income Plus and the Strategic Bond funds. All bar one of these funds are managed by Chris Higham, with Monthly Income Plus run by James Vokins.

“The Strategic Bond fund is £125m now and we have already taken £40m this year – all in a challenging fixed income market,” Leadsom says.

However, Leadsom reckons the number of funds in the fixed income range is “too many”. While he says there are no plans to close any of the funds, he adds: “It is worth investing time in making sure you have an efficient fund range. Just because you launch a fund does not mean it has a life span of forever.”

Overall Leadsom is “generally very happy” with the fund range and although they are in no rush to launch funds, he observes the absence of an Asian fund despite the group’s Asian fund business, based in Singapore.

Upcoming changes include plans to convert the Kirrill Pyshkin’s World Leaders fund into a global equity income mandate. Subject to regulatory and unitholder approval, the £59m fund will adopt the same process used in the Aviva Investors Global Equity Income fund – a Sicav which Pyshkin has run since July 2010 – and will target an annual income yield of at least 1.25 times the income from the MSCI World index.

The group is also looking to convert AIPT to a Property Authorised Investment Fund structure in the fourth quarter this year.

Fund selectors have mixed opinions on the group. Patrick Connolly, head of communications at AWD Chase de Vere, says: “Aviva Investors has struggled to be recognised as a genuinely good quality investment manager since establishing its own identity away from the life assurance company.

“This is not helped by its focus on fixed interest and property investments, areas where life companies have traditionally been more competitive, and its failure to establish an attractive equity proposition. The only Aviva fund we currently use is UK Equity Income, although we did previously use some of their SRI products before these were closed down.”

Darius McDermott, managing director at Chelsea Financial Services, says: “Aviva is well known for its property funds…Both UK funds suffered badly in 2007 though and were dragged down further with the rest of the sector in 2008. Performance since then has never really recovered.

“Their fixed income team has a good reputation and the corporate bond funds in particular have done very well over both the long and short-term. They also have a solid equity income fund and a good UK smaller companies fund. Their fund of fund range has also stood up well.”

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