In his first interview since becoming Threadneedle CEO, Campbell Fleming says outperformance alone is no longer enough for a top tier asset manager - and expresses concern charges may go up 'at every level' post-RDR.
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“You cannot run an asset manager on a shoestring. You cannot do it in a garage in Mayfair anymore,” he said.
Ownership
As one of the larger players of the UK fund industry, Threadneedle is not struggling with size issues, and is part of an even bigger unit, having been owned by US financial services giant Ameriprise Financial since 2005.
Threadneedle CEO on performance and fees
Prior to that, the group had undergone a series of ownership changes over the past 15 years – the group was acquired by Zurich in 1997 and sold to American Express in 2003, before Ameriprise Financial was spun off from the latter in 2005. Fleming said those times of upheaval have now ended.
“We have a hugely stable and hugely supportive parent. The issue around our ownership is now closed.”
More recently, the talk surrounding Ameriprise has focused on acquisitions, not divestment, though rumours of an £800m bid for Scottish Widows Investment Partnership were all but dismissed by the group last week.
From Threadneedle’s perspective, Fleming said any acquisition would “have to be pretty attractive to take our eye off the ball”. But he added Ameriprise had a “good track record” in integrating businesses in the past, having acquired the likes of US asset manager Columbia for $1bn in 2009.
Pricing
For some observers of the UK fund industry, an uptick in M&A may only serve to highlight the increasing pressure on margins in the industry, driven in part by the focus on fund pricing.
For Fleming, the ongoing debate over headline price levels masks what has been a notable drop in entry and exit prices over the past two decades.
He points to 1995, when a front end fee of 500bps, an AMC of 150bps and other costs meant he bought a fund at total cost of 725bps.
“Today, I get that at 168bps. People are forgetting that while headline costs have been stuck, the strike price clients have been getting in and out at has been falling.”
The rise of platforms has clearly helped lower these entry costs, but here too pricing is under pressure as the industry moves to a post-rebate era.
The consideration of ‘preferential’ clean share classes, where fund groups give preferential terms to some platforms but not others, is a work in progress for Threadneedle, Fleming said.
He added any preferential share classes the group did decide to provide would be supported by a comprehensive “audit trail”.
“Those who can get a discount need to demonstrate a robust selection process, an industrial process, purchasing power and a quality client proposition. We try to look at these things in a matrix, so that we can independently point to an audit trail justifying a discount.”
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