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Investment view

F&C Management and Isis Asset Management will propel themselves into the top five UK fund groups with their proposed £750m merger deal.

Both firms have been keen to emphasise the fact that they will have £120bn under management, leapfrogging rivals to become the fourth-biggest asset manager in the UK.

But, aside from sheer presence, what does the deal mean for both firms?

Isis has always said its aim was to become a top five player by 2007, hence its aggressive – and hugely expensive – advertising campaign to establish its brand in the UK.

It has had some success – even the most non-financially-minded train travellers could probably identify multi-manager chief Richard Philbin, whose image has been ubiquitous on posters in recent months.

But now the brand has been scrapped, with Isis – or rather parent Friends Provident – clearly deciding that size could be achieved sooner by tearing up the old strategy and going for the takeover option.

IFAs, while largely welcoming the move, have been left wondering why the Isis brand was so readily sacrificed for the holy grail of size. Writing in Money Marketing last week, Isis chief executive Howard Carter, who keeps his position for the new business, argued that dual branding would not have worked.

He wrote: “An option would have been to run two parallel brands but we do not believe this is a credible way of building the enlarged business. It would duplicate expenditure and send confused messages. We believe it is right to adopt one brand and get fully behind it.”

The F&C brand, which essentially came into being in 1868, appears to have won out due to its position in the European market, which Carter says will be crucial to the pan-European business.

But while the F&C name gives Isis instant prestige in countries such as Germany and France, this is not the case in the UK IFA market, which F&C effectively pulled out of when it closed its intermediary salesforce last April. Despite this, IFAs do not believe the decision has had much of an impact.

Bestinvest business development manager Justin Modray says: “By that stage, F&C had long been struggling to attract business, so closing the salesforce was not that big a deal. Neither F&C nor Isis have the strongest brand anyway but, out of the two, F&C&#39s is probably better.”

Modray also points out that, as much as the firms are keen to highlight their combined £120bn under management, a sizeable chunk of these assets were gathered through parentage or acquisition, not through strong sales.

This is particularly true of Isis, which simply by buying Royal & Sun Alliance Investment Management in 2002 doubled its assets under management to £70bn.

Even so, £120bn is a lot of money to run and it offers the firms – if not IFAs – particular benefits. One fund group says: “The biggest bonus will be the stripping out of an enormous amount of cost and they will now have critical mass. But there will be a lot of sorting out to do in terms of cultures, egos and getting rid of people. It will be good for shareholders but I am not sure it will have any impact on IFAs.”

In fact, so far, there has been very little fallout from the deal. The biggest casualties have been Isis&#39 chief investment officer Robert Talbut and head of fixed income Andrew Tunks, who are being replaced by their F&C counterparts. But with the firms&#39 investment processes set to remain the same, IFAs believe the impact of these changes could be negligible, although more staff are expected to move positions over the coming months.

Given that F&C specialises in investment trusts and institutional business and Isis focuses on retail open-ended products, there is also not expected to be much fund rationalisation either.

For IFAs, therefore, there seems to be little of interest in the deal. But even some fund groups fail to grasp the point of the merger.

One source says: “OK, the new firm will be big, which gives it some clout. They can do something reasonable with that. But neither company is known for any particular skill, at least in the retail market. I cannot really see what is behind the deal. I am struggling to see a positive other than size.”

In the current market, however, size matters. The prevailing wisdom is that in order to flourish – or at least survive – groups have to be either big or boutique-sized, as almost all investors&#39 money is going into a very limited pool of funds. Some IFAs believe that the F&C/Isis deal not only illustrates this point but also shows how insurers are seeking ways to save themselves as their traditional business streams dry up.

Hargreaves Lansdown head of research Mark Dampier says: “Insurers are dead in the water with products like with-profits finished. I think that Friends looked at Isis and thought it was big but not big enough. F&C gives it that critical mass but, from my point of view, it is just another big house. What about performance?” Dampier believes the deal will be the first of many over the next 18 months as firms realise that markets are unlikely to improve and that investors will continue to shun equities.

For IFAs, this means there will be more monolithic firms jostling for position and perhaps fewer funds. It does not necessarily mean performance is likely to improve and that, ultimately, is all investors and IFAs really care about.


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