Dan Jones talks to RWC's CEO Dan Mannix about how the group is adapting to the post-RDR shake-up of retail financial services.
The post-RDR shake-up of retail financial services may only just be starting, but a busy 2013 has already cast a spotlight on the fund boutique business model.
A long-promised wave of consolidation in the sector began to emerge last year amid uncertainty over the sustainability of some firms.
It is not all doom and gloom. There are, as ever, winners and losers. RWC, now one of the larger companies in the boutique space, saw assets under management rise by almost 50% last year, up from £3.1bn to £4.7bn.
Net inflows were also strong, standing at £978m for the year. But CEO Dan Mannix is keen to point out the group is not focused on asset growth.
“It has been a strong year for the business, but asset growth is not the thing that defines success. We look at the longevity and sustainability of what we do. What is important is what the client gets when they are invested with you,” he said.
RWC has sought to diversify its offering to clients in recent years in a bid to encourage this kind of longevity, but Mannix said the group “does not chase product areas”.
The company’s policy of bringing in teams of managers is not dependent on the market cycle, he added.
“That may make asset raising harder in the early days, but it is all part of the sustainability of the business,” said Mannix.
Accordingly, some of the boutique’s recent product rollouts have come in lesser-heralded areas: the September 2012 acquisition of a 12-strong team from Hermes, for instance, saw RWC acquire a dedicated capability in activist investment via the $800m ‘Focus’ range.
In contrast, many of the group’s peers are looking to expand into crowded areas, such as the asset allocation space, where fund groups can aim to provide a diversified, flexible offering in one product.
Mannix, however, is unsure how sustainable this trend is, and questioned asset allocation products’ ability to offer the downside protection many investors are looking for in the aftermath of the financial crisis.
“Often the ability to protect on the downside comes from the ability to call the market. Asset allocation strategies are in vogue, but increasingly I think there will be times where they do not call the market,” he said.
When it comes to its own sustainability, one immediate advantage RWC has over rivals can be found in its shareholder structure: Schroders took a major stake in the business in 2010.
Mannix took over as chief executive in February 2013 from Peter Harrison, who left to become Schroders’ global head of equities. He has described this change as a natural progression for the firm and is unequivocal about the advantages of having Schroders as a backer.
“In the likes of Schroders we have genuinely long-term investors: We are not subject to short-term pressures, which means we have the ability to do things which may not appear obvious in the short term,” Mannix said.
Key among these aims is the focus on a diversified business model, particularly given the pressures RDR is now exerting on the industry.
These include what Mannix terms the ‘binary risk’ of buy list consolidation, as discretionaries and wealth managers focus on an ever-smaller pool of core funds, and the pressure this can place on individual fund managers.
“For a UK-only investment business, it is absolutely critical their funds are on buy lists. If they do not have that, it is very challenging to grow. This has consequences when it comes to designing products, which can put different pressures on fund managers.”