View more on these topics

Small firms make it big

Press and commentators love to speculate about which small fund group is set to become the next leviathan.

Headlines such as Who&#39ll become the next Jupiter/Perpetual/Fidelity/Schroders? have been commonplace in the trade newspapers and weekend financial press.

If we are to believe these art-icles, the aim of all small fund management groups is to grow as fast as possible, expanding their range of products, funds and services. Once a dominant position in the unit trust and Isa sales and Pep transfer league tables is achieved, this enables them to broadcast to everybody about how marvellous they are and why everybody should buy their funds.

Why should small fund groups want to be big ones? Does big mean better? Do you get better service, fund performance and quality of staff if you are part of a big fund manager? Of course you don&#39t. One only has to look at the casualty list among the big groups to see that, all the time, talented people are leaving to establish their own businesses.

Bigger fund managers often spend more time worrying about what is leaving via the back door than what is coming in through the front door. The rise of the smaller fund management group at the expense of the bigger groups will continue. I believe there are four main reasons for this and why more and more people want to establish their own businesses and, more important, why investors are prepared to back these start-ups with their funds.

First, creating one&#39s own working environment is more conducive to delivering better performance and service. In a small firm, you live or die by what you do or do not deliver. There is no hiding place.

This concentrates the mind wonderfully. Having to compete with other start-ups as well as the established industry players means that your offering has to be different. In a crowded and mature marketplace, launching me-too products is not an option.

Second, while general differentiation is crucial, having a clearly defined investment process is more important than ever. Clients have become more discerning, wanting not just results but a clear understanding of how these results have been achieved.

By developing and articulating a clear investment process, you can reinforce your own point of difference. That is what we have done. Our three proprietary investment pro-cesses, along with our people, are the most important assets we have. This is what makes us different.

Third, success breeds success. There are now more applications to establish new fund management operations than ever before. A few well publicised success stories of people managing to create their own businesses from scratch can be a very powerful motivation for others who are thinking of taking the plunge.

It does also work the other way, of course. A few well publicised failures could dampen enthusiasm but on balance an essentially entrepreneurial business such as fund management should always have a long list of talented people prepared to take the risk of leaving the sec-urity of a big organisation.

Ironically, the fourth and final reason why smaller groups are flourishing is down to the bigger groups themselves. For too long, the big firms have got away with relying on their brand names and distribution channels while providing poor performance. Complacency has set in. What is happening in the UK pension fund industry is a salutary lesson to them and worth retelling here.

Six years ago, when we established Liontrust, breaking into the UK pension fund market without a track record was considered impossible because the big five balanced pension fund managers had the market sewn up.

Traditional pension fund consultants and trustees were unwilling to take a risk and try new managers. But this started to unravel when the big balanced managers started underperforming and new consultants, often from the US, entered the market and challenged convention.

They looked at the industry in a fresh way and were willing to give smaller niche players a chance to prove they could deliver better results. They recognised that capable fund managers are not defined by their employers. They themselves have the capability, their employers merely control the working environment. A cap-able manager in a more suitable, relaxed environment usually becomes more effective.

The result is that smaller fund firms have broken into the market traditionally monopolised by the big balanced managers. This will continue.

In our view, the age of the big balanced manager is over. It is starting to happen in the unit trust market too. New US-style multi-managers are coming in. They owe no allegiance to the way things were, preferring to allow smaller players to demonstrate their ability.

Nigel Legge

Joint chief executive, Liontrust Asset Management


Axa&#39s world of opportunities

Phillips says: “Fine as far as managed funds go. I do wonder whether the expertise can be as focused in a fund with so many options, as it is in a more specific fund.”Looking at the disadvantages of the fund, Mills says: “No outside fund links.”Phillips points out: “No track record, may not appeal to […]

Consumer credit up 9 per cent

Total consumer credit outstanding increased 9 per cent to £128bn in 2000 from £115bn in 1999, equating to an average debt of £2,810 per adult in the UK, according to research published by Datamonitor.The biggest increase was in credit card debt, which increased 46 per cent to £38bn in 2000 from £26bn in 1999. The […]

Bank of England cuts mortgage rate

The Bank of England monetary policy committee has cut interest rates by 0.25 per cent to 5.25 per cent, their lowest level for over 30 years.The cut was widely expected as inflation has remained below the Government&#39s 2.5 per cent target and fears of a downturn in the economy persist.

Supermart move by Charles Schwab

Charles Schwab finally took its first steps into the UK fund supermarket arena this week, extending its broking services to include unit trusts and Oeics. The move comes as Misys says it is signing up with fund supermarkets Skandia and Cofunds, giving its members free access to the platforms through M-link from the end of […]

Key themes for 2017

Capital Market Notes, December 2016 Dave Lafferty, chief market strategist at Natixis Global Asset Management, assesses the accuracy of his 2016 outlook and provides his thoughts and outlook for 2017. Click here to read the full article


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm