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Can F&C regain focus?

Chris Salih looks at the power struggle at F&C

The recent news that Sherborne Investors has won its battle to oust F&C chairman Nick MacAndrew and install three of its own members to the board has resulted in more questions over F&C’s future direction.

Sherborne founder Edward Bramson has been appointed chairman of F&C. Sherborne chairman Ian Brindle and independent director Derham O’Neill were appointed as new directors at a general meeting of shareholders on February 3.

The news follows a spat between Sherborne, which acts as the managing member or general partner of entities that invest in publicly traded com- panies, and F&C, in which Sherborne has built a 17.5 per cent stake.

Last month, Sherborne sent a letter to F&C shareholders urging them to approve the appointments. The firm also highlighted concerns over F&C’s £53.6m acquisition of Thames River, which was announced last April and concluded in September, as well as the acquisition of Reit Asset Management in 2008, saying it risked major dilution to the interest of current shareholders. Sherborne pointed to the fact that the profits incorporate a large element of volatile performance or other non-recurring fees, which carry a lower market rating.

It said: “The combined resulting cost of these two acquisitions could amount to approximately £340m, which is greater than the entire stockmarket value of F&C, approximately £270m, at the date Sherborne’s shareholding was made public.”

F&C, which had already announced plans to appoint a new outsourcing provider in a bid to cut the annual costs of its business by £12m, quickly hit back at Sherborne. It claimed the activist investor had “misunderstood the economics” of the Thames River and Reit Asset Management acquisitions.

It said: “Will Bramson’s executive chairmanship of Nautilus, a US-based manufacturer of gym equipment, the share price of which has fallen by around 75 per cent since Sherborne acquired its 20 per cent interest, together with his other responsibilities, allow him to carry out properly his proposed role as chairman of F&C? Will Bramson confirm that neither he, nor any other of Sherborne’s nominee directors, will take any executive role at F&C?

“F&C has already announced an annual cost-saving programme of £12m. How does Sherborne intend to improve F&C’s profit margins further, whilst protecting client service standards and invest- ment performance?

“Does Sherborne intend for F&C to raise further equity capital, potentially underwriting any such issue, thereby requiring shareholders to invest further or be diluted?”

However, with Sherborne’s influence now prominent on the board, are we set to see yet more changes at F&C in the coming weeks and months?

Hargreaves Lansdown senior analyst Meera Patel says F&C needs to change the way it operates if it wants to stand out from the crowd.

She says: “I struggle to see where F&C has an edge in the market at present. When you have around 2,000 funds in the market you need to be exceptional to get noticed and I just do not think it has many exceptional offerings that give that edge.

“It has had a bit of a fall from grace, a bit like M&G did a few years back, and what it may need is someone senior on the investment side to help turn things round.”

Patel says the Thames River deal did bring a good pedigree of fund manager to F&C, thanks to the boutique environment at Thames River.

Chelsea Financial Services managing director Darius McDermott say he would be surprised if F&C ditched Thames River on the back of the Sherborne trio’s appoint- ment to the board.

He says: “Sherborne has a view on the Thames River deal and it would be fair to say it is one we do not agree on. Looking at it from a distance, it actually looks like a good fit as F&C has a strong institutional offering as well as strong retail franchises in Europe, fixed interest and its Stewardship ethical offering. Thames River is a relatively new firm that is more dynamic and has a strong retail offering. We see it as a good deal for shareholders.”

F&C’s latest results paint a positive picture for the asset manager. The statement shows F&C’s assets rose to £105.8bn at December 31, compared with £97.8bn at the end of December 2009, with positive net business flows in the fourth quarter of 2010 and for the full year.

It cites improving fee margins, saying Thames River is performing well with 65 per cent of its assets now in products with performance fees that are at or within 5 per cent of their high water marks.

Bestinvest senior investment adviser Adrian Lowcock says the key is for F&C to settle its management issues quickly and focus back on its performance.

He says: “F&C has to make its decisions on what it wants to do with Thames River and other parts of the business as soon as possible. The firm has had a lot of highly regarded funds in the past, like the Stewardship range, and it is important that it resolves any management problems and gets back to focus on its fund range.”


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