Standard Life Investments chief executive Keith Skeoch looks back at the eventful decade since the company was spun out of Standard Life. Ian Fraser reports
Keith Skeoch is nothing if not consistent. Four years ago, the Standard Life Investments chief executive caused a few ripples in the investment world when he labelled hedge funds a passing fad that had yet to prove their worth.
He has not changed his view in the intervening years, and says the Edinburgh-based investment group he has led since 2004 has no intention of launching hedge funds.
“We’re not interested in fad or fashion,” says Mr Skeoch. “We didn’t launch tech funds; we didn’t launch split-cap funds. What we strive to do is to deliver product into the market place that meets clients’ needs and will be resilient over the medium term.”
However, he does say the group may launch 130/30 funds later this year.
Mr Skeoch, who started his career as a civil servant before spending 19 years on the sell-side with James Capel, adds: “If you look at the most recent stuff from Watson Wyatt, in which they talk about a vision for the future , they say they are going to take much more notice of absolute returns rather than hedge funds and funds of hedge funds per se.”
He acknowledges, however, that hedge funds have provided a wake up call to the long-only community, alerting it to the increasing investor appetite for absolute returns.
“We’ve learnt some lessons, and now the whole absolute return investment space is maturing.
“If you look at alternative investments, we are the 11th largest property manager in the world and we’re the 13th biggest private equity fund manager in the world. Those are two big blocks of alternative assets.”
He also points out that SLI runs a number of absolute return mandates and launched a Global Absolute Return Strategy (Gars) fund in 2005. It has already amassed some £1.7bn (€2.2bn, $3.4bn) in assets in this area, including £330m in the GARS fund.
When life insurer Standard Life spun out its investments arm into a separate business with a view to pursuing third-party mandates in November 1998, investment consultants were initially mistrustful.
“There was a good deal of scepticism that a life company could build a world-class investment business out of its investment department,” admits Mr Skeoch, who joined as chief investment officer the following year. A decade on, the consultants appear to have been won over. They seem to like Standard Life Investments’ team-based approach to investment and the upper-quartile performance across its range of funds. Today they cite it as one of the most successful of the life company subsidiaries.
Third-party funds reached £47.7bn (33 per cent of assets under management) in December 2007, up from just £5.3bn (8.5 per cent) at launch. Last year, third-party net sales hit a record of £7.9bn.
SLI is also an important profits diversifier for its parent insurance group. In 2006 it made pre-tax profits of £60m, an ebit (earnings before interest and taxation) margin of 27 per cent, which Mr Skeoch believes is not bad for an institutionally-focused player. He hopes to raise this to at least 35 per cent in coming years.
It might have all been so different. Between 2003 and its 2006 flotation, the parent insurance group went through a distinctly rocky patch. Among other things it was forced to abandon its cherished mutual status and float on the stock market.
Mr Skeoch acknowledges the instability surrounding this move “could have derailed us” and that at least one institutional mandate went elsewhere during the period. He believes the fact SLI had already become recognised as a “successful standalone asset manager” enabled it to weather the storm. His message to the group’s 780 employees at the time was to remain focused on managing money and not get sidetracked into worrying about the travails of the wider group.
The timing of SLI’s November 1998 launch was propitious. At that very moment the dominant position of Gartmore, Mercury, Morgan Grenfell, Philips & Drew and Schroders in the UK pensions market was starting to unravel. So SLI was pushing at an open door when seeking third-party mandates from UK pension fund trustees and consultants. “We came along, we were different, we were generating performance, and we had critical mass,” says Mr Skeoch.
The group’s ability to attract talent from the City of London and further afield has also been critical and Skeoch concedes this would have been impossible unless the parent insurer had granted autonomy on aspects like remuneration packages.
He says: “We continue to work quite hard to ensure our packages are competitive against the rest of the fund management industry.”
Mr Skeoch sees his next challenge as being to internationalise SLI’s distribution. Currently some 70 per cent of its third-party assets are sourced from UK clients, with just 30 per cent coming from overseas. Mr Skeoch believes the proportions can be reversed, which will mean he and his institutional sales team will be clocking up a lot more air miles.
His strategy will be to offer “category killer” products in market sectors where he believes the firm has demonstrable “alpha” — skills-based outperformance — and where he detects an emerging appetite among institutional clients.
These include global equities, global fixed income, global property, global absolute return and global private equity. SLI will also focus on the “liability-driven investing component of fixed income”, an area where Mr Skeoch believes it has a head start thanks to its life company and actuarial heritage.
Although there are some negatives to being part of an insurance group, Mr Skeoch believes there are also plenty of advantages, not least the £95.7bn of insurance assets it still looks after for its parent. The link also provides SLI with a source of what Mr Skeoch calls “warm retail”, thanks to the parent insurer’s move towards open architecture and wraps.
Overall he believes that being 100 per cent-owned by Standard Life but 95 per cent autonomous is a combination that works well.
What about the persistent speculation that Mr Skeoch is being lined up to replace Sandy Crombie when the latter retires as Standard Life chief executive next year?
Mr Skeoch will not be drawn on this, saying only: “I have the best job in the world, working with some of the best people in the world. Markets have been in my blood forever.”
Curriculum Vitae
Keith Skeoch
Born: 1956
1978 : University of Sussex, BA (Hons) in Economics
1979 : University of Warwick (MA)
1979 : UK government economic service
1980 : International economist, James Capel (Now HSBC Securities)
1984 : Chief economist, James Capel
1993 : Director of economics and strategy, James Capel
1998 : Managing director international equities, James Capel
1999 : Chief investment officer, Standard Life Investments
2004 : Chief executive, Standard Life Investments
2006 : Board member, Standard Life
Standard Life Investments
Established: November 1998, following Standard Life’s decision to create a standalone investment business
Assets under management : £143.4bn
Head office : Edinburgh
Number of employees : 780, of whom 580 are based in Edinburgh
Ownership : Wholly-owned but operationally independent subsidiary of Standard Life, which is listed on the London Stock Exchange.
This article was published in the Financial Times, FTfm section, on Monday 10 March 2008