Ferrans proving a safe pair of hands for HBOS
By Ian Fraser Financial Editor
Published: Sunday Herald
Date: June 15th, 2003
FAST-talking Douglas Ferrans is not one to let stock market turmoil divert him from the task he was given two years ago by Lord Dennis Stevenson, chairman of HBOS and his colleagues on the HBOS board.
Stevenson asked Ferrans to throw in his job as marketing and sales director of Glasgow-based Britannic Asset Management to build one of the top five asset management groups in the UK.
Ferrans was to do this through leading a rejigging and, perhaps, a rebranding of the Anglo-Scottish bank’s existing investment operations – which included the fund management arm of insurer Clerical Medical and part of Equitable Life – through a mixture of bolt-on acquisitions and organic growth.
The HBOS board, clearly regarding this as a core business, said it was been prepared to invest at least £100 million on the new venture.
Despite everything the present bear market has thrown at the asset management sector – which has led to diminishing fees, dissatisfied clients, weakening margins and consolidation – Ferrans is adamant he can achieve the goals laid down.
Glaswegian Ferrans, a fellow of the Institute of Actuaries and an ardent Rangers fan who commutes each week from Newton Mearns to London’s City Airport, believes that Insight (as the new operation is now known) is capable of breaking the fund management mould through combining the merits of a young business, including energy and drive, with the strength and stability afforded by its parent group.
Ferrans says: “The HBOS board has been hugely supportive of the strategy of creating a new investment business within the group. It’s pretty contrarian, when all around you are losing their heads and heading for the hills.”
He adds: “Eighty per cent of the asset management businesses in Europe are either owned by insurers or banks – and those sectors are in difficulty from a capital perspective at the moment. But HBOS is very well capitalised; it’s one of the strongest banks in Europe and is in a very good position to invest in an asset management business.
“This is the biggest investment in any asset management business in Europe at the moment. But given the scale of HBOS, it’s a relatively modest investment. Our business plan suggests we will produce very good returns on that.”
Ferrans believes that, even if the FTSE-100 index continues to languish at around 4100 for the next 18 months, Insight Investment “will be in profit in 2004”.
But he admits the contribution will be modest and gives it three to four years before Insight delivers “meaningful” profits for HBOS.
He says: “In effect, commodity asset management has probably gone out the window. What we’re doing is working with institutional clients to leverage up their portfolio, to actually work their assets rather than just buying and selling shares.
“We’re providing more than fund management, we are creatively working those assets to get a higher return than just a typical stock-market return. And I think that will differentiate us in the future.”
On the retail side, Ferrans believes that having access to the Halifax and Bank of Scotland branch networks and distribution channels will, sooner or later, bring in walls of new money. In this context, the Insight brand is being used in a rather low-key way compared to that of the parent bank brands, a situation that Ferrans says bears parallels to the “Intel inside” approach adopted by the silicon chip-maker.
Before joining what was at the time an amorphous ragbag of investment subsidiaries in June 2001, Ferrans concedes he had to think long and hard about Halifax’s offer.
This was primarily because it involved “a lifestyle change”, including the weekly commute from the south of Glasgow, where Ferrans lives with his wife, daughter and son, to the Square Mile. However, he now seems happy with the commuting and manages to spend at least three nights a week at home.
Halifax was an early convert to “bancassurance” – in which a retail bank cross-sells its own life insurance, pensions and investment policies to its existing customer bases. This occurred ahead of chief executive James Crosby’s 1996 acquisition of insurer Clerical Medical. But to make the model work, Ferrans believes it is essential also to have “a low-cost investment manufacturer within the group”.
The aim was to build on the investment department of Clerical Medical and create a distinctive investment brand that would have credibility with third parties (i.e. non-customers of Halifax) in both the institutional and retail markets.
Ferrans explored various branding options, including the use of the HBOS moniker, before adopting the Insight name. But he adds: “The reality is that to achieve our strategic objectives it was more advisable to create a new brand in the investment space.”
Ferrans says the bank’s investment in rebranding and setting up a different corporate and legal structure was “relatively modest in comparison to the prize that was available.
“The return on investment HBOS is looking for is high. It’s the biggest investment of any owner in an investment management business in Europe in the last 18 months. We have recruited more managers than any other fund manager in Europe.”
They include Nigel Whittingham from Edinburgh Fund Managers, who joined with a view to developing a multi-manager business. Insight also recently hired Neil Pegram from Prudential subsidiary M&G, who has already launched the UK Dynamic Fund.
Others who have joined included around 160 people from Rothschilds Asset Management, which Insight acquired for £60.8m this year. But around 100 RAM people have left the group.
Ferrans says: “It was a great opportunity to spring clean and freshen up the organisation. We managed to retain all but a few of the ones we wanted.”
Overall, Insight now has a total staff of 560 people at its Old Broad Street offices in the City of London, of whom 121 are investment professionals.
Ferrans is delighted that HBOS paid only 0.4% of assets under management for RAM (for the sake of comparison Prudential paid 10% of assets under management for M&G in 1999), and also at how swiftly RAM was brought into the Insight fold. He says: “Many looking in from the outside were amazed at the speed with which we’ve done this.”
He says that many RAM staff welcomed the change of ownership. “Many of the Rothschild people felt they’d been on ‘death row’ for months as it was speculated who was going to buy them and there were straightforward consolidators out there who were going to close the operation down and take the assets.”
Other bidders on the final shortlist are understood to have included Schroders, Investec, Mellon and Societe Generale.
“But for us the value in the business was in the people, the products the processes, the access to new distribution, so we were a much better buyer than anybody else. Our new colleagues in Rothschild business recognised that, so they were very upbeat.”
Ferrans says that Insight’s strategy is now based around organic growth fuelled by expedient bolt-on acquisitions. He has seen around 10 of the 19 asset management companies currently up for grabs in London. On the institutional side, Ferrans is positive about relations with the important actuarial and benefits consultants who act as gatekeepers for the industry.
“The reality is that in the UK most fund managers have blown themselves up in some shape or form,” says Ferrans. “The old days of balanced mandates are dead.
“It’s now all about core index portfolio plus specialist satellites, so the consultants are looking for a specialist fixed- income manager, specialist global manager, or European, or currency overlay.
“We’ve got all these specialisms and we’re very, very strong in certain areas. Forty billion pounds worth of our assets are in fixed income and the consultants can see that and so we’re back on the watch list. That’s despite the fact we believed we would be put on ice for some months. The reality is we are pitching. This week we pitched for two fixed interest mandate of in excess of £500m.”
In equities, Ferrans acknowledges it may take a little longer to receive recommendations from the likes of Mercer, partly because there is more competition.
He says: “The fact is that, for an equity product, consultants want a little bit longer, plus there are more people to choose from.”
On the retail side Ferrans is upbeat about luring punters back into savings and investments, even as the markets struggle to recover.
He says: “We will not just launch vanilla products but come out with absolute return funds, structured product funds, guaranteed funds, which are much more low-risk, for the risk-averse customer, as we have moved in the cycle towards risk aversion. As the cycle swings and people build up their confidence, they’ll pile into equities again. There’s lots of opportunity there, it’s a big market and we’re just scratching the surface.”
Mini profile: Douglas Ferrans, 48, became chief executive officer of HBOS’s Insight asset management arm in June 2001. A Glaswegian, he started his career as a student actuary at Scottish Amicable in 1977. In 1995. he became CEO at SAIM and led its sale to Britannic Asset Management in 1997.
Copyright 2003 SMG Sunday Newspapers Ltd.
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