At asset manager F&C, you get the sense the vessel is ship shape and ready again for the high seas, after arriving in the safe port of the Eureko group. Not that chief executive Bob Jenkins has negative things to say about the port F&C sailed from in 2000, that of HypoVereinsbank.
HVB’s decision to sell was purely strategic, and once the German bank opted for the ‘open architecture’ route, F&C was no longer required on the voyage. “But HVB worked with our management to find a new shareholder,” he says. The pan-European group of insurers, of which Dutch group Achmea is the principal shareholder, took 100% control in 2001.
The deal here was simple, maintains Jenkins. Eureko injected into F&C all of its wholly owned asset management subsidiaries, making it the manager for the insurance companies’ assets, so consolidating all the assets with hopefully the accompanying synergies. But F&C is to be active in the European marketplace and build value as an asset manager by growing organically.
The last couple of years have been in dry-dock, more or less. The immediate challenge in 2001 was to integrate all the different asset manager activities into a single, central and autonomous operation. This brought together Achmea Global Investors, BCP’s asset management business in Portugal, and that of Friends First, Eureko’s Irish subsidiary. “This we finished by end of that year,” he says.
Last year was one of consolidation. “Our integration has been successful as we did not lose any clients in the Netherlands, despite the radical restructuring of the Dutch business. Our costs have come down, head count has reduced, duplication of effort has been eliminated, and despite the bear market, our earnings rose 21% last year on a comparable basis.” Though assets fell 10% and revenues fell 3%, costs fell more than 15%.
In Jenkins’ view, the change in shareholding prompted a “transformational change”. “We moved from being a UK-centric E40bn AUM company to being a $100bn pan-Europe group, with significant or leading market positions in six markets.”
This grouping also created a very well balanced business, he claims. “Half of the assets are fixed income, some 40% are equity, with the balance being property and structured products. That balance has been particularly helpful in the last two years.” The revenues are balanced with 50% institutional and 50% retail, the latter includes a stream from the investment trust side – still a core business after 130 plus years.
From an earnings perspective, one third come from the UK, a third from the Dutch market, and the balance is diversified among other markets.
Despite being an insurance-owned group, F&C is firmly in the third-party manager camp. “Some 90% of revenues come from third party and only 10% from in-house funds. So while we benefit from our shareholders funds we do not depend on them.” The internal ‘captive funds’ come to around 18 to 20% of assets. In fact, Achmea has a strong third party business among Dutch industry-wide pension schemes, with connections with some 85% of schemes in the sector, he reckons.
“The first thing we had to decide in bringing all the assets together was whether we should be a single company, or to have semi-autonomous investment teams and companies,” says Jenkins of the initial challenges of integration. “We decided we would be one company – one brand – one investment philosophy and process – one set of corporate standards – and one CIO!”

The reasoning was to grasp the synergies on the revenue and costs sides by having a “coherent and consistent message” for clients irrespective of their market of operation, and the consultants who are increasingly playing a part in these markets. “And it was a credible model that could easily accommodate other injections of asset management units, as and when Eureko expanded further.” That the F&C philosophy would apply through the group on was agreed at the time of the acquisition.
Performance improved during the year of integration, which he attributes to keeping the portfolio management team insulated from the changes, other than the bulk of asset management was centralised in London. “Around 90% are now based here.”
Jenkins expects costs to fall further in 2003, so expects to make more money this year than last. “We have put behind us the sort of consolidation and mergers that our competitors are going to have to face to get their own financials back in line.”
“This year is the one where we are looking forward in terms of growth,” maintains Jenkins. “Now our mission is to build a leading pan-European autonomous asset management company, focused on shareholder value.” He considers the firm well on the way to achieving this goal, as it is the second largest third party manager of Dutch pension funds on an active basis, as well as being the biggest institutional and retail fund manager in Portugal, as due to BCP’s dominance controlling some 35% of the investment funds market there and 25% of the institutional market. In the UK, F&C ranks tenth in the active manager stakes for UK pension funds and similarly in Ireland it is in the top seven. In Germany, HVB remains a client and a distributor. “But we have a growing institutional business there outside the HVB relationship.”
F&C is looking forward to is being back on consultants’ lists in the UK, having been on hold since the acquisition. “We expect to resume consultant-driven organic growth before the end of 2003.”
In addition to being consultant-tested, the process is GIPS compliant and being FSA-regulated and operated to best UK practice are very reassuring for clients, including those outside the UK, he maintains. “But we have local client servicing teams, with full local responsibility for client management. This makes us quite different from competitors working from rep offices, without full service capabilities.” So in the Dutch market there is now around a 100-strong team, most of whom are servicing the market. “This is very visible to clients.” The story is much the same for Portugal with the interface with clients all handled locally.
Last year was a record year for institutional client acquisition on the continent, but a disappointing year in the UK, due to the consultants’ embargo. “We had around E1.5bn in new business wins, in France, the Netherlands, Denmark, Portugal and Germany. Also, though not strictly new business, there were some Dutch pension contracts coming up for renewal and we renewed over E5bn of this business last year. That was very gratifying, after winning E670m in 2001 and E200m the previous year. The momentum seems to be in the right direction.” The retail business was a different story being affected by investor appetite solely, he says.
Jenkins feels F&C’s business on the front foot at last. “We are very optimistic about the growth opportunities, particularly on the continent.” A sales office has been opened in Frankfurt to have a German presence independent of HVB and results are expected to come through in 2003, with the opening up of the Spezialfonds market. “We have a team of over 20 German speakers in London to support these activities.”
While F&C is purely a money manager and does not distribute any of the parent group subsidiaries products, it looks for opportunities to work with the insurance companies to jointly develop investment or unit-linked products. “We are the factory for this business while they distribute.” For the institutional mandates won by the insurance companies, F&C will manage the assets, and will participate in joint marketing efforts with them, frequently when they are offering full service pension solutions.

In Scandinavia, F&C has long had a market presence for specialist mandates, particularly with emerging markets products. The Netherlands is regarded as a growth area – again for specialist products.
France obviously is seen as a key market, where a strategic partnership is in the course of being put together, though the details are still under wraps for some months. “Switzerland is an area of continuing focus, but we are not putting much resource into Italy or Spain currently.”
Greece is a market due to come on stream in the next few months for F&C, due to Eureko’s acquisition of bancassurer InterAmerican, which owns Intertrust, the market’s fourth largest mutual fund provider. “Intertrust is to be injected into F&C and become F&C Greece, once approvals come through. Though it is 100% retail, we see it becoming an institutional over time.”
The group’s faith in equities is long term. “Investors have to remain in equities or to rebalance into them. That is the most important topic facing the market – how to manage the volatility and the upside of equities.”
In the months ahead, Jenkins sees an immediate appetite for bonds, including corporates. In the UK there is the strategic shift to bonds due to maturing pension schemes and in mainland Europe, a passive rebalancing to bonds. “There is certainly an opportunity for high yield bonds including emerging market debt, where we have an expertise,” he says. “We have launched first time single strategy absolute return fund and have commitments from internal and external clients of $250m for this – our first fund started with $80m.”
In five years, Jenkins would like to have achieved F&C’s mission – to be a leading asset manager on a pan European basis and be recognised for this. “But success won’t be defined in terms of how many flags we have planted across Europe, but in being an important and profitable force in the European asset management industry. We measure ourselves in terms of three criteria – how we rank in European sourced assets, how we rank in terms of profitability margins, and how we rank in terms of client service, and in the view of our clients. We would want to be able to show leadership against those three measures.”