The chief executive at Standard Life Investments meets George Mitton to talk about the RDR, losing members of the GARS team and the weather in the south of France.
The walk to the Fairmont Monte Carlo takes me along the seafront and around that hairpin bend so recognisable to viewers of Formula 1 racing. I’m going to this hotel to meet Keith Skeoch, chief executive at Standard Life Investments, who, like me, is in town to attend the FundForum International conference, the annual meeting for the funds industry that has been held for several years in Monaco.
Outside the hotel a sign advertises the “Billionaire’' Lounge” – because millionaires are so passé in this town. I pass a Rolls-Royce or two before entering the lobby and ascending to a rooftop bar, where Skeoch’s assistant offers me
tea or coffee. “Or champagne or beer!” she says, as an afterthought.
While I wait, I look at luxury yachts at anchor in the bay and admire the sunlight glinting off an azure sea. It’s a tough gig, the funds industry.
It’s not all fun and games, though. Skeoch’s assistant tells me she’s been “working him hard today” and when I am brought to his table, he does look a little tired.
He steels himself for my questioning, however, and we settle down to 45 minutes of conversation – over coffee, not champagne – to discuss his 13 years at the helm of Standard Life Investments.
During our conversation Skeoch rarely makes eye contact. Today, he wears horn-rimmed glasses and has a polite, gentle manner. He speaks carefully and precisely, clearly a practised speaker, and I sense early on that he is unlikely to let slip an injudicious remark. His whole persona is one of quiet control.
I start with a question
about his company’s market-leading Global Absolute Return Strategies (GARS) funds. Why has this strategy attracted such demand?
“The reason it’s a success is it does what it says on the tin,” says Skeoch. “It has a target return of Libor plus 5% over a rolling three-year time horizon and, by and large, since GARS was launched, it has delivered that return in some of the most difficult financial conditions seen in a century.”
GARS, which began as a solution for the company’s own in-house pension fund, is so popular it accounted for half of Standard Life Investments’ inflows in the first six months of the year. Yet Skeoch insists there are no capacity constraints as yet. “It’s scalable,” he says.
One reason GARS is able to absorb large inflows is that it is a multi-asset fund investing in everything from equities to derivatives. Lately, the company hired an emerging market bond team to expand the GARS strategies.
But some critics say such a diverse and complex fund is not suitable for retail investors. Is it wise for investors to put their money in a fund that is too complicated for most of them to understand?
Skeoch laughs. “I need to be careful what I say here.”
He thinks for a moment before replying.
“Our job is to put a proposition into the market that’s as simple and transparent as possible” – this proposition is the Libor-plus-five target over a rolling three-year period.
“Does someone need to understand the calculus behind that, and the maths?” he asks. “There are probably few people at this conference [who can].”
He thinks a little while longer about the question.
“If you’re going to deliver outcome-oriented solutions that dampen volatility, this is really complex stuff. If we are going to constrain people's ability to invest in anything but exposure to beta, we’re letting them down, in my view.”
Last September, three
members of the GARS team left to establish a rival multi-asset group for Invesco Perpetual. Some investors were concerned the performance of GARS would suffer. I ask, was it difficult to manage the transition?
For a moment, Skeoch betrays the hint of annoyance.
“No, it was difficult to manage the perception. First of all, these were three high-quality individuals, and I was sorry to see them go.”
He pauses. Perhaps he has faced this line of questioning before.
“If you were to lop the arm off Standard Life Investments and you looked at what ran through our veins, as well as blood you would see a DNA which spelt ‘team’.”
As an explanation of the company’s philosophy, this metaphor is perhaps not the most elegant, but Skeoch has a point. Standard Life Investments has eschewed the “star culture”. Many of its funds, GARS include
d, are run by teams.
The firm also holds on to its people. Wesley McCoy, who managed the UK Equity Unconstrained Fund, left the firm in 2008, only to rejoin it last year. It was “a matter of great pride” to Skeoch that he came back.
Although Standard Life Investments is aiming to be a global firm – it has relationships with John Hancock Mutual Funds in the US, Sumitomo Mitsui Trust Bank in Japan and HDFC Asset Management in India, for instance – the firm still got over half its flows in the first quarter from the UK. I ask how the retail distribution review (RDR), which outlaws trail commissions for financial advisers, affects the business.
Skeoch says he is “massively in favour” of the RDR.
“The idea that all funds will be losers from RDR is nonsense,” he says. “As an economist, I’m a great believer in the workings of the market. Clients want a return. If you can deliver a return with innovation, and true diversification, you can charge a premium price for it.
“GARS has proven that. We don’t discount and we’ll never discount on GARS. If, however, you’re delivering active investment performance which is actually dressed-up, expensive beta, then prices need to come under pressure.”
Skeoch took charge of Standard Life Investments in 2000, two years after it was launched as a separate company from its parent firm, the Scottish insurer Standard Life. The insurer is still the asset manager’s biggest single client, but accounts for slightly less than half of the £179 billion (€210 billion) of assets that Skeoch’s teams managed, as of the end of March. The rest are from third parties, which supply three-quarters of Standard Life Investments’ revenues and 80% of its profits, according to its latest financial statement.
Standard Life Investments now accounts for a fifth of the group’s profits and, perhaps most significantly, Skeoch says his staff refer to Standard Life, the insurer, as a sister company, not as in previous years, a parent.
Of course, Standard Life Investments is also a European player and subject to the whims of European regulators. I ask Skeoch’s view on a hot topic at the FundForum conference – moves by European politicians to impose limits on variable pay for fund managers. Skeoch says he fears such attempts may perturb non-European investors in Ucits funds.
“I think some of the Europeans need to be very thoughtful,” he says. “Ucits is a phenomenal European success. If it starts to get political, and it’s used for things it wasn’t intended for, it isn’t just that people will move, it’s that other wrappers will emerge elsewhere in the world.”
Before leaving, I ask if Skeoch has enjoyed his stay in Monaco. Perhaps surprisingly, it is his first time at the FundForum conference. In previous years, a board-meeting clash prevented him from attending. Earlier in the day he spoke at a panel on responsible investment, and later, he tells me, he spent two hours manning the Standard Life Investments stand. He says he enjoyed the experience, joking that “the weather is slightly better than in Edinburgh”, where Standard Life Investments is based.
As I take another look at the sun over the French Riviera, I am inclined to agree.
©2013 funds europe