RLAM CEO: 'In a few years' time, there will be no institutional investor, it will all be retail' Monday 30 Nov 2015

RLAM CEO: 'In a few years' time, there will be no institutional investor, it will all be retail'

Royal London Asset Management CEO, Andrew Carter, tells Hardeep Tawakley how the group is 'reinventing itself' to broaden its appeal to retail investors and capitalise on new pensions freedoms.

With the largest mutual life and pensions group in the UK as its parent, it is little wonder Royal London Asset Management (RLAM) has historically had a greater focus on the institutional market.

But the recent revolution in retirement rules means change is on the horizon for the investment manager, according to CEO Andrew Carter.

"New pension freedoms are leading to a huge wave in retail investing and the institutional side will decline," he says.

"The freedoms provide investors with a huge opportunity because they can look at investing in a whole array of funds, instead of buying an annuity.

"Part of the push for retail investing will start to capture that pension money and in a few years' time, there will be no institutional investor, it will all be retail.

"Even group pension schemes are just using the purchasing power of a company to invest, and whether funds have been brought by them or an individual, it will all be the same."

As long as we have direct institutional sales flowing from our sister company and decent retail sales, I will be happy.

RLAM was originally formed as a wholly-owned subsidiary of Royal London in 1988, with a focus on managing the parent group's life funds.

However, by the time Carter joined from Gartmore in 2001, its mission had changed to building a "proper" investment company and selling fund management services externally.

"When I joined, Royal London had just transformed itself via a series of acquisitions – it had acquired Union Fund Management, boosting assets by some £1.4bn, and it had also bought Scottish Life.

"The aim was to get the majority of revenues generated externally, and build a first class investment management house," he says.

The group still manages a significant portion of its assets on behalf of more than 150 pension funds. This totals around 80% of its £83bn AUM, with the remainder in the retail sector.

But, according to Carter, these figures should naturally become more balanced over time.

I want a balanced business – a good book of fixed income and decent equity and property flows so that come the next 2008 crash, we do not think the world is about to end.

Retail focus

As a long-term pensions manager, the group has always had a strong presence in the fixed income arena and Carter says he inherited a "superb fixed income team" when he joined, with best-selling products including its £787m Corporate Bond fund (managed by Royal London veteran, Jonathan Platt).

But RLAM had issues in "articulating" what it did well on the institutional side to the retail market, says Carter.

"While we were selling into the retail market a fair bit before I joined, if you looked at the top ten net sellers, RLAM was never in that list.

"We were focused on high-end wealth management, rather than the broader retail spectrum. But over the past five years, we have been reinventing the organisation."

In 2014, Royal London brought all of its businesses under one banner by rebranding, with a purple pelican logo as the focal point. It also launched a series of TV adverts to expand its retail investor reach.

Meanwhile, the group hired former Kames Capital head of international equities Piers Hillier as chief investment officer to help RLAM move into the "next phase of growth".

This year the group also recruited former Fidelity director Trevor Greetham to head up its multi-asset division and broaden its capabilities in this area, particularly in the retail space.

Finally, Rob Williams joined as head of distribution from Skandia Wealth.

"The skillset we had before was very institutional-focused," says Carter. "We have been rebalancing, and a lot of what we are building now is moving to a more retail-focused operation.

"Having been at Gartmore, I know it requires a very different firm to do this. For example, we have broadened our distribution line towards IFAs – still the most strong and dominant part of the investment chain."

We have not had a boom year in the sense that we are selling large amounts of our funds, but we are in a secure position of getting a billion pounds a year net into the key funds we run.

Product range

Success has been seen at a fund flow level too. RLAM was the seventh biggest net seller of unit trusts in the UK in 2014, according to the Investment Association. This was powered by inflows into funds including UK Equity Income, run by Martin Cholwill, which has swelled from £500m in 2013 to £1.7bn today.  

The group is considering launching a new global income fund for the manager, although further product development is likely to come from the multi-asset arena.

Carter says: "Royal London pensions has a very large Governed income range and our aim is to keep this but in a unitised form that can be sold via platforms. That will fill a gap and 90% of the needs of individuals who want a good investment product that is easy to access."

RLAM is also developing a range of five multi-asset strategies, which will probably be launched at the beginning of next year and available through ISA wrappers, as well as a global credit fund.

"As long as we have direct institutional sales flowing from our sister company and decent retail sales, I will be happy," Carter says.

"I would like to have a broader retail range so there is less to worry about, as currently only a few of our institutional products are available to retail investors.

"I want a balanced business – a good book of fixed income and decent equity and property flows so that come the next 2008 crash, we do not think the world is about to end."

New pension freedoms are leading to a huge wave in retail investing and the institutional side will decline.

Business growth

The retail push is imperative for RLAM's future growth, and comes asthe group revealed it suffered a 66% drop in net sales for the nine months to the end of September, falling from £1.6bn in the same period last year to £552m.

In contrast, the wider Royal London group saw new pensions business rise by 35% to £4.9bn, with consumer products seeing a 330% boost.

This is the result of what Phil Loney, group chief executive of Royal London, noted was more advisers "choosing to transfer their clients into our flexible personal pension arrangement in anticipation of exercising freedoms at some point in the future".

However, Carter argues growth in the funds industry overall is actually going backwards, despite it appearing like a boom time for the sector, making the challenge even harder for providers to gain significant traction.

"Looking at asset growth in the funds industry, the net increase in assets [under management] is 1.5% per annum. Institutional is going backwards. It is only at a fund level that makes it superlatively a growth industry.

"But when you look at who is getting the money, a handful of players are getting half, then there are people like us who are growing decently, but there is a large group that are seeing huge outflows.

"We have not had a boom year in the sense that we are selling large amounts of our funds, but we are in a secure position of getting a billion pounds a year net into the key funds we run."