Aviva aims to be valuable asset in global market

AS MARKETS around the world continue to hit new lows, one could be forgiven for thinking that it may not be an ideal time to launch a new asset management company.

However, Alain Dromer, chief executive of new investment manager Aviva Investors, doesn’t think so. The company, which was launched on September 29th, represents the integration of the asset management businesses of insurance firm Aviva, including its Irish entity Hibernian Investment Managers and the UK-based Morley Fund Management.

The globally integrated asset manager will be known as Aviva Investors, with more than 1,100 employees in 21 countries across the UK, Europe, North America and Asia and assets under management of some €297 billion.

Aviva is taking a radical approach to its new structure and is adopting the asset management barbell strategy, whereby at one end the company will concentrate on indexed products that will be managed centrally, and at the other end it will have small, boutique teams concentrating on active management or “alpha generation”, which will customise products to the local market. Dublin will have one of these “alpha” teams.

The strategy has been used by other asset managers to deal with the squeezing out of traditional investment strategies, with investors looking to pay less for passive strategies or more for alternative or specialist strategies.

“We have decided to more or less ban traditional long-only funds,” says Dromer, explaining that the firm will instead “blend” its low-risk products such as index funds, with high risk “alpha” funds, in different proportions.

“We will manage pure components, eg pure alpha, pure index, and we will overlay this by a global solutions group which will be able to combine all these different components in solutions that will satisfy clients’ needs,” he says.

Nevertheless, Dromer does recognise the difficulties that current market conditions impose on an asset management firm.

“It is the most challenging market we will ever live in in our working lives,” he says, adding that “there are more uncertainties than certainties at this moment in time.

“The key thing from an institutional point of view is that it is a situation which is being incredibly discriminating between those who are strong and those who are weak. We are seeing the end of a highly leveraged economy based on access to cheap credit.

“This access to credit has led to excesses that we have to unwind before we can move to a sounder base,” he says.

While Dromer supports the US government’s $700 billion intervention to stabilise the financial sector, he says that it is very difficult to price many of the assets that are part of the federal proposal.

“This issue of pricing is at the heart of what’s being debated in Washington,” he says.

“One of the issues is that some of these products are so complex and it is very difficult to see through them. If there is a lesson to be learnt, it is that we need simpler, more transparent products.”

Looking ahead, Dromer says that recent events will have a major impact on the asset management industry and on the type of products that will be on offer.

“We see today the importance of liquidity. In the future, we will probably have to pay separately for liquidity as it has not been valued enough in our industry,” he says.

Dromer acknowledges that Aviva’s constituent entities have seen outflows from funds over the past number of months.

“We have seen some outflows from equity funds, particularly in Spain and Italy,” he says, and adds that the firm has also seen “much less inflows than we were planning”.

Dromer remarks that recent market turmoil has also cast doubt on the standalone boutique model, which hedge funds in particular have used to great success.

“From an asset management perspective, there were suggestions that being a standalone boutique was enough to succeed. However, everything you see about hedge funds today would lead you to reconsider this model as being the only successful model,” he says.

Dromer asserts that the globalisation of Aviva will boost the Dublin operation, by allowing Irish investors access investments produced by the global group, while at the same time enabling the Dublin funds team to gain a wider distribution network for its products.

For example, the firm’s High Yield Equity Fund, which was designed and is managed in Ireland, will soon be available to Aviva Investors clients globally.

The move may also see an expansion in headcount at Aviva’s Dublin operation. The firm employs 33 people focused on asset management, but Dromer says it is now in “growth mode and is ready to attract talented people”.