When Investment Week was launched in January 1995 Helena Morrissey was just a ‘fine fund manager’ with Newton Investment Management. Now, she is the group’s CEO and content with its consistent and sustainable culture
At a time when many financial firms have lost their way, Newton Investment Management appears an oasis of stability, even calm. CEO Helena Morrissey is content with the image. For many years stability was a rather underrated attribute, as banks and asset managers strived to produce the biggest New Thing.
Morrissey is anything but complacent about the financial turmoil of the last two years, but she talks about the firm’s “inner compass” which attaches something close to moral authority, as well as investment strategy, to it.
She was hired in 1994 by founder Stewart Newton, who rated her as one of the finest bond managers in the business. Transferring from Schroders, which at that time – along with Gartmore, Phillips & Drew and Mercury Asset Management – was regarded as one of the Big Four in the UK asset management business, Morrissey soon achieved notable success. “She had an exceptional ability to look at markets in the round – to see the bond market through the eyes of an equity manager,” commented one associate at the time.
Newton, who now runs Veritas Asset Management, was from 1997 progressively selling out his stake in the firm to Mellon Financial Corp, but Morrissey worked closely with him for some years before he left. She remains grateful for his mentorship and admiring of his style: “He was very dedicated to the ideals we still stick to,” she says.
Newton traces its roots to 1978, when it was a joint venture with Reed Stenhouse, the Scottish insurance broker. Alexander & Alexander acquired the company in 1986, when it was re-organised and renamed Newton Investment Management. Management bought out the Alexander & Alexander stake in 1992, and two years later acquired the Capital House group of companies from the Royal Bank of Scotland, with RBS purchasing a 33% interest in the company.
In October 1998, Newton sold to Mellon, now BNY Mellon, a majority stake. In July 2001, Mellon exercised its option to acquire most of the remaining shares, and a further transaction in May 2002 completed the deal. Newton was Mellon’s first substantial acquisition outside the US.
A core plank of Newton’s investment strategy has always been the idea that change leads to opportunity, and investment structures must be flexible enough to take advantage of such change. The investment philosophy is supported by the corporate history.
Morrissey has survived through all the changes in shareholders, the loss and gain of some major mandates and big names among fund managers. “The culture has remained remarkably constant, probably because we all like it as it is,” she explains.
“Some people go, and then come back. We are all about performance, teamwork. It is a meritocracy where people really do listen to your ideas. I was never told I was too young, or too inexperienced. A performance fee structure keeps everyone focused, and we aim to be the best, rather than the largest.”
Tough times
The stability of the team and the investment approach has seen the firm through some tough times. In the early 1990s, Newton had less than £10bn under management. It now tops £40bn, with some 384 staff making up one of the better-known wholly-owned investment boutiques within BNY Mellon Asset Management.
Morrissey recalls the industry in the mid-1990s – a focus on balanced mandates, the outrage surrounding the appropriation of his company’s pension fund assets by Robert Maxwell, and the rise of hedge funds as the new set of “alternative” structures.
By 2001 the Myners Review, trustee responsibility and the relationships between asset managers and clients was at the fore, and the growing trend of Defined Benefit pensions moving towards Defined Contribution schemes shifting the risk from the employer to the employee. “What is notable in the intervening years is how stretched (but not necessarily strained) the manager-client relationship has become,” says Morrissey. “The demands have grown enormously, but we often find ourselves further away from the clients themselves.”
Investors now enjoy a far wider choice of manager and investment strategy. However, equity investors have been disappointed over the last 10 years, and are now realising they were carrying risk they did not know about. “It is no use telling a client their portfolio is 200 basis points above the benchmark when the market is down 40% as occurred in 2008,” she comments.
That has driven the search for real returns. In the last year, around 85% of Newton’s institutional new business was for multi-asset-targeted return strategies, up from almost nothing two years previously. The same trend is seen in the retail sector, where real return funds are now one of the IMA categories.
If retail investors are reluctant to get to grips with the financial complexities of pension provision, it is up to product providers to communicate better, Morrissey says. “The RDR will affect that. We always try to ensure everything meets the ‘talking to your mother’ test. It is important to be able to explain things in a way people can understand.”
Tried and tested
In the past 15 years the range of funds offered by Newton has remained remarkably stable. Long-stayers include the Newton Income fund, Balanced Managed, Asia ex Japan, International Bond, Higher Income and European funds. “We have consistently had about 20 funds in the range,” explains Morrissey, “but we have been adding more equity income funds and now unconstrained and absolute return funds.”
Retail net inflows into the retail fund range managed by Newton and distributed by BNY Mellon Asset Management were £1.4bn in 2009. She has shut down also-ran funds, but has also been very careful how that is done. “You have to be transparent about why it is happening and what you are offering instead. It is not enough to say to investors ‘Trust me’. They have to see by your deeds they are being looked after.”
She admits to one clear mistake – the launch in March 2000 of a Global Innovation fund, which quickly lost its way. “I have regrets about that – it was a mistake. We thought we were clear on what we were doing, and how, but it did not work. We had never had a ‘sector’ fund before and learned from that. What we took from it is that you have to be true to your core principles.”
For Newton, and Morrissey, that means sticking with tried and tested structures, complemented by a limited number of changing, but well-considered themes. The questions she says every product and process must answer are: Are you creating more wealth for the client? Are they better off because of what you do?
She says the business is obviously acutely aware of the need to take opportunities, both in businesses and markets. Often, lead indicators come from Newton’s considerable private client base, which accounts for around £8bn of the firm’s business.
“If you get it right for the private clients, you tend to get it right more widely,” notes Morrissey. “They have very sensitive antennae and are informed investors with real money. But we find increasingly there are not so many differences between the needs of retail, private client or institutional investors. Treating customers fairly does not fall into a single category. It is all about what you are in business for.”
Unique style
Morrissey assumed senior responsibility relatively early in her career and has developed a unique style as one of the most influential women in the UK asset management industry. “She is technically extremely competent,” said a one-time colleague. “She is very quick at mastering complex scenarios and cutting to the heart of the issue.”
Another fund manager who has worked with her for years said: “There are some big egos in this business. But when Helena is in a meeting, everyone seems to behave better. She engages very directly, and professionally. She manages to bring out the best in people, to get them to work together, and that includes managing upwards.”
Morrissey herself talks only about process, structure, discipline, consensus, patience and that recurring phrase – the firm’s “inner compass”. As the parent company expands (last year Insight Investment was snapped up from Lloyds Banking Group for $235m) the collaborative effort required increases. But Morrissey relishes the collegiate structure and the low-touch management that allows each subsidiary operational autonomy.
She is a great contributor to the industry and dedicates considerable time to her various roles. She has been a member of the Investment Management Association Board since 2005 and sat on the Asset Management Working Group, chaired by Bob Jenkins, which last year produced a report on the future of the industry in the UK. For the last three years she has been a member of the Financial Services Authority (FSA) Practitioner Panel, and has been a member of the Royal Academy Corporate Board since 2007.
Answering the wider question on regulatory effectiveness before it is asked, she notes: “The industry as a whole is still learning from what happened through the credit crunch. We all have to learn because we were all complicit – investors, asset managers and regulators. It is clear the market has to pull together to push standards higher.”
She expects Europe to make its presence felt in the UK much more forcefully in coming years, while the UK undeniably has to “defend and repair” its credibility abroad. “The FSA is devoting a lot of time and resources to that question.” The Practitioners Panel is set to re-survey the market this year, an election year, and the report is expected to throw up new issues for further discussion.
One of Newton’s key themes last year was More Government – the growing role of governments in everyone’s financial affairs. “What we are looking at now is the new force of de-globalisation, as governments get much more protective of their markets,” she notes.
Diversification
In 2008, Morrissey started to think about diversification of the business, and decided to focus on the US. “We have had partnerships in the US since 2006. It is easy because of the language, the BNY Mellon connection and because people there identify with our commitment to independent thought,” she explains.
Newton now has $4bn under management in the US, including large segregated mandates and some pooled funds. Through Dreyfus, a sister company, Newton also gets access to the US retail market. “It is satisfying to see it grow and know it is making the business more robust,” she adds. “Less than half our segregated business originates in the UK now.”
Asia is another region of interest. “We fully understand the shift in alignment of wealth and power that is happening, and we are watching the expansion and development of the pension fund industry in Asia with great interest. We are gathering clients in China, Taiwan and Japan and have been pleased with their early response to how we work. They are sophisticated investors who set a high bar for service, but that does not worry us at all – we are here to offer the highest quality. We do not have to reinvent ourselves in this market.”
She sees a future where the “family fund manager” becomes like the family doctor – a trusted adviser and confidante, but on a fully professional basis. “We have to review the process of engagement.” She says she is constantly looking at how Newton can expand its contact with investors – notably now through internet connections, freely accessible online presentations and direct stakeholder meetings.
She is particularly proud of how Newton (slogan: The Power of Ideas) is moving up the rankings of “thought leaders” as researched by Greenwich Associates, a market-leading research consultancy based on Boston.
The next 15 years will see Newton developing business through its three main strands: equity income, unconstrained investing and absolute return products. She is dedicated to a multi-asset-managed approach because of the perspective that offers, and says investors are now returning, having dabbled in alternatives.
But there will be no gimmicky moves. “We always say, repetition is reputation. That creates the foundations of the business. The process is consistent and sustainable. But the great thing about active investment management is that it attracts talent and intellect. Then we have to put that together to continue to create services of value for our clients.”
