When Mick Sweeney took over as chief executive of Bank of Ireland Asset Management (BIAM) at the beginning of last year morale was understandably low.
What had once been Ireland’s best-performing international asset manager had seen a dispiriting outflow of institutional business, particularly its North American business where there was a 75% fall in assets. Total assets under management had fallen from € 57 bn to around €44 bn in less than two years.
Today he detects a turnaround in both morale and performance. “Our business has stabilised over the last six to nine months, however, our performance over the past three years has been unsatisfactory and disappointing and as a result confidence and conviction had ebbed. What we’ve seen in the last six months is that confidence, conviction, and morale have all flowed back with the improvement in our performance.”
This turnaround will be accelerated by changes to the structure of the business, he says. Last August, Bank of Ireland took the dramatic step of ending BIAM’s stand-alone status and incorporating it within a new capital markets division.
Sweeney was brought into BIAM from Bank of Ireland where he was head of the global capital markets business. “Both businesses have a lot in common, dealing with investment markets, working with multi skilled teams of professionals and striving to deliver customer solutions.”
The purpose of incorporating BIAM within the capital markets division was to align the asset manangment strategy with Bank of Ireland’s business model, he says.
“The Bank of Ireland strategy, which has been developed in the last 12 months, has three key objectives. The first is to maximise returns from our leading position in Ireland as a bank. The second is to substantially grow our businesses in the UK. And the third is to grow our portfolio of niche, skill-base businesses internationally.
“To enable it achieve the third objective, Bank of Ireland has created a capital markets division which incorporates the wholesale side of the business - global markets, corporate finance and corporate banking - with the formerly free-standing asset management services.
“The capital markets division brings together like-minded businesses in terms of skill, talent, and global focus. All of those businesses now have access to a broader pool of talent within the division than they would if they operated uniquely or in a silo.”
Asset management will retain its identity, he says. “BIAM is an autonomous business unit within the capital markets division, with its own strategy but we are now also able to draw on the extensive resources of the capital markets division. We now have more product diversification and more structuring skills at our disposal.”
This is part of a broader strategy to re-instate BIAM as a Dublin-based global asset manager, says Sweeney. “We need to be and we will be a world class provider of investment solutions delivered by a highly motivated team.
“The good news is that we were there before. It was only a few years ago that we had a team that provided world class investment performance with a single product, the global equity product. Going forward, what we’re building is a BIAM that will deliver top quartile performance across a broad range of products and durations.
“The strategy to do that is very simple. We need to fix investment performance. We need to bring new products to market. And we need to find new distribution, or new shelf space globally. We’re also looking at the big industry move from defined benefit to defined contribution pension schemes to see what opportunities that will create for us.”
The strategy has required a new business structure. As a first step, BIAM has appointed three new managing directors to replace its retiring chief investment officer. “I believed that the days of the CIO-centric organisations were declining and there was very much a trend towards specialisation, promoting product champions and product heads,” Sweeney explains.
“So that was the model I put in place, and that is the model that I believe will deliver the acceleration in turnaround in performance. It also gives us more depth for the future of the business.
As a second step, BIAM has beefed up its investment capabilities. In the past two years the complement of the investment team has grown from 28 to 40. “One of my primary roles when I came on board was to assess the strength and depth of the investment team and to subsequently strengthen it” Sweeney says. “We have recruited and appointed seven new people into the investment team if you include the managing. And over the last 18 months we have added another five people.”
The aim is to add breadth and depth, rather than just numbers, he says “The broader and deeper talent base that we’re bringing in is adding to the existing experienced investment team. We’re bringing in specialist talent, whether it’s in research, portfolio management, structuring capability or a derivative overlay capability.”
Besides new people, BIAM needed new products, says Sweeney. “Three years ago we were essentially a single product provider in BIAM. We need to broaden and deepen the product line because the customer requirement is changing. Customers are no longer comfortable with investment managers dressing up beta and calling it alpha. Today there’s more of a quest for demonstrable alpha out there.”
BIAM’s new products will include absolute return funds, money market funds, enhanced indexed products, liability driven investment (LDI) strategies and on a longer-term basis, infrastructure funds, syndicated property funds and currency overlay funds.
“They are all new areas that we are either in or will be moving into,” Sweeney says. “They are all in the pipeline and as long as we have a rich vein of new ideas , populated by diversified products - that will give us a much more robust underpinning to our business.”
In the development of its new products, BIAM will benefit from its closer relationship with the capital markets division, Sweeney says. “We’ve a lot of different products that we can deliver with our colleagues in the capital markets division - because that’s where the skill-sets reside.”
One successful capital markets product is a dollar denominated liquidity fund “That’s been the number one performing offshore dollar fund in the world for two of the last three years and now has $2.3bn assets under management.
“We also have a successful concentrated EAFE product which has been running for a year at this stage and is one of the top performing funds in the world.”
BIAM has broadened its specialist product range with the acquisition of New York-based fund of hedge fund manager Guggenheim Alternative Asset Management (now Guggenheim Advisors), a joint venture with Paul Capital Partners and a partnership with State Street Global Advisors,
“What we doing here is leveraging manufacturing capability. Guggenheim, Paul Capital and State Street all manufacture products and we’re leveraging those products with our distribution capability. It’s the fusion of manufacturing and distribution that gives us the bigger picture and the broader play.”
There will be no change to BIAM’s investment philosophy, an approach which has served us well in the past, says Sweeney. “We are steadfastly committed to our investment philosophy.
“It’s part of the DNA of BIAM as an investment house - we pick cheap quality stocks. We run active, concentrated portfolios with a quality bias, focusing primarily on the large and mid cap sectors.
“We do that over the longer term better than most international houses. Our investment time horizon is longer term, so we hold stocks for two years plus. And we bring a consistent valuation discipline to everything that goes into our client portfolios.
“Clearly we haven’t achieved consistency over the past three years, but over 20 years we have an impeccable consistency around delivering on longer term performance.
Sustainable long-term performance is ultimately the key to winning back business, Sweeney says. “The first thing clients are looking for is performance, and we need to provide a consistent, sustainable performance. So we’re putting in place the foundations to accelerate the turnaround in performance which will stem and reverse the decline in the client funds under management.
He identifies three ways that BIAM is doing this: “First we are looking at our business from a global sector perspective. There are 10 global sectors and that’s how we like to manage our investment focus.
“We’ve also increased the range of investment tools at our disposal. We have a broad range of quantitative and qualitative investment tools through which we screen all of our stock picks.
“And we are using specialist skills. We have research specialists and portfolio management specialists, and each will bring their rigour and acumen to bear on the stocks that go into the portfolio and ultimately will deliver performance to the client.”
The results are coming through, he says. “We have improved our performance. For example, in 2005 our global product was 650 points behind the benchmark. In 2006, we have improved on that performance significantly and finished the year ahead of the benchmark.
“We’re very bullish about the outlook,” Sweeney concludes. “We believe that because we’re now at the cutting edge with our capital markets franchise and skills, we should be able to deliver investment performance and solutions to our clients a lot quicker than some of the traditional asset management businesses.”
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