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Consolidation nation

Consolidation was a major theme of the investment industry in 2003.

At the forefront was New Star, which continued its bid for world domination with the acquisition of Edinburgh Fund Managers, Exeter Fund Managers and – deep breath – the bulk of Aberdeen Asset

Manage-ment&#39s retail funds. Inter-esting deals by John Duffield and at good prices, too.

New Star was not the only acquisitive group on the hunt. Amex&#39s purchase of Thread-needle in June was big news and gave the US giant the foothold in the UK it had been seeking for years. It was also the biggest buy it had made since the mid-1980s, which perhaps reveals the extent of its ambition in the UK.

Gartmore came up with the coup of the year when it poached Bambos Hambi and his fund of funds team from Insight Investment which had recently acquired Rothschild Asset Management – mainly for the Fof team.

Last month, Gartmore did a New Star and acquired the majority of Gov-ett&#39s management contracts from Allied Irish Banks. Clearly, buying funds is the new fashion in the investment world.

Fund groups&#39 cockles were warmed this year by the rise of the stockmarkets, with the FTSE 100 climbing to 4,373 at the time of going to press from its March low of 3,287. Since everyone claims to be a stockpicker these days, this 26 per cent gain should not have had too much of an impact on the fund managers themselves but it has certainly saved some necks from the chopping block. This is not to say, however, that the staff merry-go round has slowed down. Perhaps the biggest victim was Scottish Widows Investment Partnership which not only had to contend with losing Sandy Nairn and Graham Campbell but also with their subsequent efforts to strip the company of its most talented staff.

Edinburgh Partners, Nairn and Campbell&#39s new company, is just starting up but it seems worth keeping an eye on, which can be said for very few groups at present.

Another major trend was the clamour to launch wraps, which no one can agree on. Are they just fund supermarkets with pension wrappers or a complete solution to help IFAs run their business more efficiently?

Which ever way you look at it, everyone wants one. Skandia, Abbey National and National Australia Bank are just a few companies jostling for position in the wrap market, if there is such a thing.

Fund supermarkets – ever desperate to boost their funds under management – are also making noises about their wrap plans and Norwich Union has just raised its stake in new venture Lifetime.

Again, the industry seems to be reverting to a herd mentality in a not dissimilar way to the ongoing drama that is the fund of funds market.

Fofs have had a bit of a weird year. After a relatively slow start, they have gone off like a rocket and now every company either has one or wants one.

M&G established a Fof operation in February with Cazenove.

Unfortunately, it had pulled in just £14m by September, which shows how difficult it is even for major firms with big marketing budgets to challenge the leading lights.

It was not all bad for Cazenove. After swiping star managers Chris Rice and Tim Russell from HSBC Asset Management late last year, it saw more than £400m pour into the latter&#39s UK growth &

income fund in just 10 months. Rather ironically, most of this came from Fofs, which shows how perverse this industry can be.

Nevertheless, Hargreaves Lansdown believes retail investors will soon be flocking to plough their hard-earned cash into the fund, which unsurprisingly found a place on its new Wealth 150 list.

Oh yes, the Wealth 150. Characteristically controversial, Hargreaves Lansdown irritated some the big groups by snubbing the majority of their products on its list of the funds that it believes direct investors should not look beyond.

Surprises were plentiful but the main eyebrow-raisers were Artemis, which was delighted to see seven funds on the list (that is one more than Fidelity, by the way) and M&G and Threadneedle, which had just two apiece.

For groups their size with ranges that wide, it must have come as a bit of a slap in the face although M&G was pleased to see an equity fund – its recovery portfolio – making the grade.

Clearly not making the grade was Lloyds TSB&#39s salesforce, which was apparently confused about which sort of customer they should sell Scottish Widows&#39 extra income and growth plan to.

Everyone knew it was coming but it was still something of a shock to see the FSA hit Lloyds with a £1.9m misselling fine and an order to pay £98m in compensation to disgruntled customers.

Standard Life finally unveiled its mutual fund platform at the start of December. With only 11 groups, I am not sure whether it classifies as genuine open architecture but, like HL&#39s wealth list, it was nevertheless most interesting for the groups it was lacking – tiddlers such as JP Morgan Fleming and Threadneedle. Oh, and New Star.

It seems the issue was price. When Standard Life opened negotiations at 30 basis points, some groups just walked away and did not return.

Whether the company has made the right decision remains to be seen but the sort of riches that Standard is believed to have told groups that it can deliver seems to be a little on the high side for my money.

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