The decision by Walter Scott to step down as chairman of Walter Scott & Partners, the Edinburgh-based firm he co-founded 25 years ago, is symptomatic of the need for an asset management group to have different types of leader and a different management approach at distinct phases in its evolution.
Walter Scott resigned as chairman on 13 May last year and was succeeded by Kenneth Lyall, a lower-key figure than Mr Scott, who has been with the firm since its launch and previously worked at Edinburgh University and Arthur Andersen. The handover was communicated to clients, investment consultants and staff but was never publicly announced.
Although Mr Scott — who made an estimated £280m-£300m (€380, $590m) from selling the business to Mellon Financial in 2006 —has remained as a consultant since stepping down, he is increasingly taking a background role.
A 61-year-old former nuclear physicist and rowing fanatic, Mr Scott acknowledges that he was probably not the best person to lead the business following the sale to Mellon.
“I ran the company in a very personalised manner, almost as a family company, and that sort of management approach isn’t always compatible with a large corporate,” he says. He was renowned for flying the company’s private jets to attend meetings with US clients, to which he invariably wore a kilt.
Alan McFarlane, a former managing director of institutional business at Global Asset Management who became Walter Scott & Partners managing director in 2003, says he has never worn a kilt to a client meeting and never intends to — partly because of his knees. And employees now take commercial flights, he adds.
Mr McFarlane is seen as having a more conventional management style than Mr Scott and as more comfortable within the BNY Mellon multi-boutique structure.
Ron O’Hanley, chief executive of BNY Mellon Asset Management, says: “Bringing in the next generation of management is something that I’d like to think we’re particularly good at. Walter had already started to put the groundwork in place.
“The most obvious thing he had done was to bring in Alan and change the shareholder structure. He had given up managerial control well before the acquisition. In the end, he decided to take a background role sooner than we expected — it was Walter’s decision.”
Mr McFarlane has played a big part in diversifying and growing the company’s asset base since becoming its managing director. He says: “This company has kept a low profile over the past 25 years — partly as a consequence of the fact there’s not much need for visibility in the defined benefit [pension fund] space.
“Because his name was over the door, there was a tendency for our identity to be conflated with that of our founder. Now that Walter’s no longer around and we’re part of BNY Mellon, it makes sense for us to open up a bit more. With DC [defined contribution] investment products being sold not bought, it’s no longer viable for us to just be quiet in the corner and expect people to find us.”
Rumour has it that Mr Scott resigned in annoyance that Mellon announced its merger with the Bank of New York in December 2006 without informing him. The news emerged within 10 weeks of the completion of the estimated £400m sale of Walter Scott & Partners and there are suggestions he felt bitter about not being notified. He does not directly deny this, but says: “It would have been impossible for them to have done that [informed him] for regulatory reasons.”
He adds: “I had reached the age of 60 and thought it was time for Ken [Lyall] to have a crack at being chairman.”
Despite Mr Scott’s departure, Walter Scott & Partners’ assets under management have risen by 22 per cent from $27bn at the time of the Mellon deal to $33bn (£16.7bn, €21bn) today. Staff numbers have risen from 56 to 74. The firm has been reducing its dependence on US-based pension fund clients and is seeking to make a bigger splash in the market for managing defined contribution pension schemes.
In order to achieve this the firm, which intends to rebrand later this year, is looking to form sub-advisory relationships with additional retail-oriented asset managers, on top of existing arrangements with Macquarie, BMO Nesbitt Burns, CIBC, Standard Chartered and Dreyfus Corporation.
Despite volatile market conditions, Walter Scott & Partners has beaten the index in almost all its asset classes over one, three and five years – and expects to remain fully invested throughout 2008.
The flagship global equities fund is up 7.7 per cent in the year to 31 May, compared to a 3.7 per cent fall in the MSCI World index in its main currency, dollars. Annualised returns are 17.3 per cent over three years (12.3 per cent for the index) and 18.7 per cent over five years (14.3 per cent for the index).
Much of this stems from the firm’s decision to go overweight in both energy and Asia in the late 1990s. Mr McFarlane says it has also not owned any European or American financial stocks since the late 1990s. A report to investors for the year to 31 December accused the Federal Reserve of “throwing petrol on the flames” of bank irresponsibility by reducing short-term rates to 2 per cent in 2002.
There have been suggestions that, like Stewart Newton before him, Mr Scott will now seek to start a second funds boutique.
“My response to that is ‘never say never again’,” he says.
This article was published in the Financial Times’ fund management section, FTfm, on Monday 30 June. To view on the FT website click here.