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Brave NU world as CGU is consigned to the history books

Consolidation among fund managers can be a messy business. In the past year, few UK fund management groups have escaped the shake-up arising from merger and acquisition, with many emerging gravely wounded from the resulting restructure.

Scottish Widows&#39 merger with Hill Samuel Asset Management earlier this year resulted in the departure of many of its key fund managers, culminating in the resignation of the newly formed Scottish Widows Investment Partnership&#39s chief executive Orie Dudley in August.

This week, it was the turn of Norwich Union to put its house in order following its merger with CGU. In a bold move, the company has elected to ditch the CGU brand.

The majority of the 48 NU and CGU funds will be merged into NU products. Three funds will be closed, while the remaining funds will be converted into an NU Oeic next May. The restructure will leave the new company with just 22 funds.

The strategy has emana-ted a refreshing air of confidence that has not been characteristic of other recent mer-gers, acquisitions and internal restructures.

Old Mutual elected to keep its Capel Cure Sharp fund range separate from the Old Mutual Asset Management funds. But its decision on which range to expand was confused, concentrating first on CCS before it decided to pool its best resources under the Omam brand.

All eyes will now be focused on the new NU to see whether the strategy will pay off. Many investors and IFAs who put money into CGU funds will soon find themselves effectively invested in NU equivalents run by different managers. This could potentially upset some investors.

The changes of management have already taken place. All the funds that are due to be merged are now managed by the same fund managers, with the remaining fund managers dismissed in July.

NU sales and marketing director Mark Skinner is confident the changes will be well received. He says: “We are concentrating our efforts on ensuring no one suffers any inconvenience. We hope people will be convinced these changes are in their best interests.

“There will always be a small number of people who take their money away when there are changes but we are not expecting many redemptions.”

For those who are not happy with the newly merged funds, NU will offer free transfers to any other funds within the group. However, eight of the new funds will be Cat-standard, which do not carry any initial charge anyway.

Investors in the three disbanded funds will be given similar roll-over options or the choice of taking a cash payout.

IFAs&#39 initial reaction appears to be positive. Although changes of fund manager are rarely welcomed, most are satisfied NU&#39s consolidation will produce stronger funds by taking the best from both brands.

Hargreaves Lansdown head of research Mark Dampier says: “Unlike Scottish Widows, where they lost all their fund mana-gers, Norwich Union seems to have made the best decisions and has managed to keep the best managers. I do not think these changes are going to present any major problems.”

If there is a worry across the industry, it might be that the merged funds will be too big. Most IFAs feel safer in smaller, more manageable unit trusts.

David Aaron Partnership financial adviser Jason Bevan says: “Some managers cope very well with big funds but they are usually a lot harder to manage. It is also becoming a worry with some of the Artemis funds which are growing incredibly fast.”

But Skinner insists the size of the funds was taken into consideration when planning the mergers and that none of the new funds will be unmanageable.

CGU&#39s flagship Monthly Income Plus fund has £1.4bn invested but, despite its recent flagging performance, NU has resisted the temptation to merge this with its corporate bond fund.

Ditching the CGU brand is perhaps one of the bravest moves by the merged company. Since CGU&#39s creation out of the merger of Commercial Union and General Accident in 1998, millions of pounds have been ploughed into promoting the brand.

But Norwich Union is a strong British brand that has also seen heavy marketing in the past two years.

After a hard look at the two, the board decided to retain the Norwich Union brand but has incorporated CGU&#39s colours into the new logo.

CGU will be dispatched to the history books except in certain countries where it has proved to be stronger than NU.

IFAs claim NU has not been a mainstream favourite of the IFA in the past decade but Dampier says he feels there has been a turn-round in the past three years.

Building its reputation as the UK&#39s leading Cat-standard fund provider, as well as developing a strong UK team, have not gone unnoticed by both investors and advisers.

The changes present an ideal opportunity to wipe the slate and build on what most perceive to be a solid brand. It has a captive audience. Now it just has to give them something to get excited about.


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