July 2007

COMPANY PROFILE: Resolved to win

Resolution has turned Britannic’s struggling asset management business around with a mixture of vision and toughness, writes Fionnuala Synnott 07_07_resolutionWhen Jonathan Polin joined Britannic Asset Management in 2004, the firm was suffering from a crisis of confidence. The company had come unstuck in the technology bubble and investment performance had suffered. Polin said: “Although the firm was running pockets of great performance across the wider business, performance was pretty indifferent. The institutional business was leaking, while the retail business stalled.” Gavin Stewart had already been appointed CEO earlier on that year, and together he and Polin set about “reinvigorating the internal machine”. The idea was not only to manage the group’s captive life funds (the firm currently manages funds for 7m policy holders) but also to attract new business from the institutional and retail marketplace. “But it can be difficult to attract fund managers to what, in the past, has been a fairly shaky business,” says Polin. The firm, which changed its name to Resolution Asset Management in May last year, came up with a new business model that would appeal to entrepreneurial-minded fund managers. Management recognised that talented fund managers are often attracted to operations in which they own a significant equity stake and where they are not subject to the politics and restrictions that are often associated with larger investment houses. In Resolution’s model, each investment boutique remains autonomous, pursuing its own investment process and style while Resolution provides a stable platform, seed capital, distribution networks and all back office functions. Argonaut Capital was founded over two years ago and today the joint-venture investment boutique, which focuses on European equities, has over £1bn (€1.47bn) in assets under management with the bulk of money in its European alpha portfolio. Apart from a setback last year, when the boutique was forced to cancel the launch of its European Equity investment trust because of a lack of investor interest,  Argonaut has performed well and is so far the most successful of Resolution’s three joint ventures. Argonaut’s European income fund returned over 20% in the year ended 9 April 2007, ranking it first out of 94 funds in the IMA’s Europe Ex-UK sector. Resolution’s second joint venture, Cartesian Capital, was launched at the end of 2005. Polin claims that Cartesian, a UK equity specialist with around £500m under management, is responsible for re-introducing Resolution to the UK institutional market. Cartesian launched a UK opportunities portfolio at the beginning of 2006, followed by a hedge fund and is set to launch a 130/30 portfolio later this year. Hexam Capital, Resolution’s third joint venture, focuses on the emerging markets and has six specialist fund managers and £200m of assets. The boutique has launched two long-short institutional portfolios (the EMEA and the global resources absolute return fund), as well as two long-only Dublin-domiciled OEICs, designed to appeal to mainly non-British investors. These joint ventures obviously demand a different approach to managing in-house funds: “You can’t order people to do things. You have to work very closely and realise that the business also belongs to the fund manager and develop the business to your mutual interest.” But, according to Polin, the overriding principle is that everyone wants the boutique to be successful. “Normally we get the right course of action by holding open discussions, we haven’t come to an impasse yet. We may disagree when it comes to style but we always come to an agreement at the end.” Complementary strategy
It is easy to see why this joint venture boutique structure would work for an ambitious fund manager, but how did Resolution’s existing investors feel about the asset manager taking such a then unorthodox route? “We were lucky in our timing as the move towards a boutique structure stuck a chord with our existing investors as well as the people that we wanted to interact with in the future.” Polin is anxious to emphasise that the joint-venture strategy is intended to complement the group’s in-house funds rather than cannibalise its business or resources. “People often presume that the boutiques are doing better than the in-house funds because alpha-producing boutiques are seen as sexier.” In fact, Polin claims that the JV structure has captured the imagination of the in-house team and has spurred them on to perform better. “As well as raising expectations about the level of performance that can be achieved, the JVs have put the focus squarely back on performance, something Resolution had lost in 1999-2003.” Internal managers also compete with external managers. “It is important for our in-house managers to have credible funds for third-party distribution. Our in-house funds compete with our joint venture boutiques in the same way that they would compete with a Fidelity fund.” Polin feels it is important to continue investing in the development of the in-house funds and Resolution has been working to strengthen areas of weakness such as US, European and UK core equities. “The days when we were slightly too generous to people regarding underperformance are over.” The asset manager has taken steps to address the poor performance of the European growth and UK general funds, which have been in the fourth quartile over one- and three-year periods.  Resolution has recruited Andrew Darley and Jonathan Fearon from Gartmore and appointed Ian Ormiston from Singer & Friedlander to manage the European equity team. According to Polin, the fund’s performance has since improved and has moved from fourth to first quartile. Meanwhile, Terry Ewing has joined Resolution from Old Mutual Asset Management in order to co-manage its £120m American growth fund. Polin says the fund, which was posting third quartile returns and underperformed its peers over one- and three-year periods, is now in the first quartile. Resolution has a top UK small companies fund but, according to Polin, the two core funds have yet to reach their full potential. “We have always operated a team approach but I’m a great believer in giving people responsibility and making them accountable for the performance of their funds. Since the UK funds have named fund managers, their performance has improved.” Resolution has put new people and processes in place to improve the performance of the general UK equities funds, but “these are large funds so it will take a while before these changes filter through to performance returns”. But Resolution is not about to get complacent: “We have ramped up confidence in our in-house funds but we must continue to monitor our performance very carefully.” New business
Resolution’s sales have increased tenfold, albeit from a low base, since the end of 2004. These new business flows have primarily been driven by the retail business, which has grown exponentially. In 2004, Resolution only brought in £100m of new retail money but last year it brought in £1.1bn of new business. The institutional business has also really taken off, attracting £400m of new institutional money so far this year. According to Polin, this is mostly down to Cartesian, which “is key to re-engaging with the consultant-driven institutional market”. At the moment, Resolution’s client base is largely made up of fund of fund managers, discretionary managers and IFAs. But, in the future, Polin hopes that a greater percentage of Resolution’s business will come from non-UK investors. Polin believes that alpha generation will remain a key priority for investors and intends to launch more joint-venture boutiques covering every asset class. What is clear is that the asset manager’s new name has been accompanied by some serious change and Polin is excited about Resolution’s future. Polin would like to see Resolution within the top five asset managers, with British retail sales of around £2bn to £2.5bn per year. With current performance and growth of assets under management, it appears that Resolution is on the right tracks to achieving this.  At least what is certain so far is that the rebranding of Britannic Asset Management as Resolution Asset Management was more than just a marketing exercise. © fe July 2007  

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