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Too big to fail

Aviva’s fund arm has carried several brands down the years but a global restructure in 2008 gave the group fresh impetus to carve out its own investment identity.

Under these changes, the group made asset management into one of three Aviva pillars, sitting alongside life and pensions and general insurance arms. As part of this, CEO Alain Dromer brought 12 fund groups owned by the company under the single Aviva Investors brand.

John Clougherty, chief executive of retail investments in the UK, says there was previously no sharing of resources or stock ideas and the 12 operated autonomously. “Following the merger, the challenge has been developing an asset management identity away from the old life company model and continuing to grow our external third-party assets,” he says.

Since the restructure, Clougherty has highlighted steady market share growth in the UK – from 2 per cent to 4 per cent – which seems small but actually represents £80bn in terms of new business flows.

Looking across Aviva Investors products, property has always been a cornerstone, with the group now looking to highlight its global expertise.

It took over the former New Star International Property fund last year and split the assets across European and Asian mandates. “We are promoting the diversification argument for property. Investors are told to spread their equity and bond portfolios but this rarely extends to bricks and mortar,” says Clougherty.

Meanwhile, with multi-manager expected to be a key product area after the retail distribution review, Clougherty again highlights Aviva’s underappreciated capacity in this field. “We can lay claim to being the biggest multi-manager no one knows about, running £10bn of external fund assets for the life company’s with-profits and balanced mandates,” he says.

Aviva had previously outsourced its fund of funds and manager of manager business to FundQuest and Close respectively but recently brought both back in-house.

Ian Aylward and Peter Fitzgerald joined to run this £1bn-plus book of business, signalling the group’s designs to become a major retail multi-manager force. “We expect demand for multi-manager and multi-asset funds to grow rapidly following the RDR and that this will be the largest part of our business in five years’ time,” says Clougherty.

“Our previous outsourced arrangements would struggle to cope with the kind of scaling we expect in the multi-manager market so we opted to bring these funds in-house.”

Clougherty sees Aviva’s scale as a potential differentiating factor in the crowded multi-manager sector, with many incumbents boasting high-profile managers but little route to market.

“Another element of our multi-manager is that we can provide bespoke solutions, with advisers using our platform to tailor investments for their clients,” he says.

“Advisers can piggyback on our assets and get a bespoke range without the need for major seed capital to keep costs down.”

Aviva has been criticised in the past for its lack of must-have product in the UK equity sector and Clougherty admits managers such as Scott McKenzie and Dan Roberts have left after building strong track records.

He singles out Chris Murphy on the income fund and the recent appointment of Trevor Green to bolster the desk.

Latest to launch is a US income fund managed by US firm River Road Asset Management, acquired by Aviva early last year. “River Road has a seven-year track record in this area and has been in the top 5 per cent of performers every year, meaning the fund would have topped the IMA sector if available,” says Clougherty.

Looking ahead, he sees Aviva Investors as well placed for the challenges of the RDR. He believes current estimates of around 30 per cent of advisers leaving the market after the review may prove conservative, with surviving IFAs healthy and new models developing to cater for the mass market.

“We see the RDR as a boon for asset managers, leading to the demise of high-commission products such as investment bonds and a focus on portfolio contents as opposed to the wrapper.

“We are not expecting a rash of RDR products but this focus on assets over wrapper should increase sales of collective investment schemes.”

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