Company profile: 'The big boutique'

Martin Currie head of UK intermediary sales Alan Burnett explains how the group managed to survive the economic storm.

The term 'unprecedented' was banned from the Martin Currie offices last year. Although it was the only way of summing up the extent of the market free-fall, the investment house decided it was over-used. Instead of wallowing in the desperate situation all fund management houses found themselves in, they decided prompt action was necessary.

Head of UK intermediary sales Alan Burnett describes how chief executive Willie Watt called one of his regular 'town meetings' for staff. Martin Currie is entirely owned by its staff including fund managers and they would all have a say in how the group would tackle the crisis.

Burnett explains: "Willie said we either cut 20% of the head count or cut costs in other ways. Some people did go but not from our client facing and fund management propositions. We agreed to scale back on bonuses which enabled us to keep the client proposition fully intact and come through the last two years with positive momentum retained."

Martin Currie's strategy clearly helped it ride out the rough times as its operating profits were up 27% to £32.6m for the year to December 31 2008.

Turnover fell 16% year-on-year to £87.3m but the group managed to reduce costs by 24% year-on-year with what it calls a 'minimal headcount reduction'.

Pre-credit crisis, the group had around £1.5bn of retail money in its OEIC and the figure is not far off that now; no mean achievement considering plunging equity markets (the firm only offers equity based funds) and huge retail outflows across the industry over the period.

Burnett says the group's strategy of sticking to its core strengths during times of crisis paid off.

"We are an equity only house - that is our singular focus. Last year, we were in the IMA's top ten net retail sales list which is great for a group of our size especially when you consider the market environment. This won't happen this year as we are not in fixed income and this area has dominated the sales charts. It would have been easy for us to launch a fixed income business, and clients did ask us to consider this, but that would have been completely the wrong thing for us and for them. We have set out our stall as active equity managers and we dedicate the whole business and all of our resources to this. Our focus is to be globally competitive as asset managers not as asset gatherers."

The retail sales figures are a source of pride to Burnett who joined Martin Currie four years ago from Liontrust, where his clients included multi-managers, private banks, family offices and discretionary fund managers. He began his career in investment sales at Ivory & Sime in 1990 but has also worked for AXA Investment Management, Morgan Grenfell and Robert Fleming.

His challenge at Martin Currie was he believed the brand was well known amongst investors but there was a view some advisers were still unsure what the group stood for.

Building up the sales force

Burnett's first task was to build up his sales force which numbered only three plus a temp four years ago. This has now been boosted to nine and includes a two man strategic alliance team which focuses on building on the increasing demand for the funds from the broader IFA market. The other team members look after other clients such as wealth managers, stock brokers and banks.

The decision to add to the client-facing team paid off during the last year as client communication became even more important as unease about the global economy grew. Burnett believes talking to clients about their needs and acting on their demands will be crucial to Martin Currie's success going forwards.

He says: "A lot of what we are doing is asking questions. We want to know what challenges are facing advisers. How are they viewing the RDR and do we have a role in helping them with that?"

One area Burnett is keen to highlight to potential investors is Martin Currie's 'big boutique' structure.

"The ownership and culture is 'boutique' while the 'big' is the platform of people and resources we have up in Edinburgh. What most long-only investors don't see is our hedge business and the strength we have there.

"It is not just about how we pick stocks but about how we construct portfolios. Our risk team is really world class but I think we probably undersell this and our research team is hugely respected in the institutional marketplace and we need to highlight this deep resource to all our clients."

He believes Martin Currie's unique ownership structure will also attract clients as it makes it more likely the fund managers and other staff will stick around as they have invested in the company. The group continually works to spread its ownership across its entire staff. It wants all employees to act as owners and it sees this as a critical part of aligning long term interests with clients. Alan bought his holding from a colleague who was retiring.

"He had had a great ten years and I wanted the same. If you work at a Plc you can own options or shares and can come or go quite easily. In a company like ours you don't leave on a whim. A Plc structure for a business of our size would be wrong. It is not just about pay, as if it were fund managers would move every two to three years. If you have good people and a nice working environment and build the set-up well there then you can attract other good people."

The culture and business model of a big boutique along with the ownership structure not only helps in retaining the talent at Martin Currie but to attract it. The company has just announced that, in response to growing client demand for global equities, it is expanding its global equities team with two senior appointments. Burnett says the company is seeing a growing trend that clients are moving from a home-market bias to allocating assets on a global basis and believes this is set to continue.

"We have invested heavily in our research and portfolio-management capabilities, and these latest additions reinforce our ongoing commitment to grow the assets we manage in our global equity strategies".

Expanding team

Christine Montgomery and Neil Robson will join Martin Currie's global equities team by the end of the year. Montgomery has 20 years' experience of global equity markets and joins from Edinburgh Partners, where she was an investment partner, responsible for managing segregated institutional accounts totalling US$742m. Robson has 23 years of experience in global equity markets and joins from Pioneer Investments where he was head of global equities. At Pioneer, he was responsible for the four equity teams run from the Dublin office with US$17.7bn assets under management.

Responding to client demand is also the driving force behind the development of Martin Currie's fund range which is divided into core, unconstrained and long-short vehicles.

The group has 12 sub-funds within its OEIC which include both core and unconstrained versions of global, Japan and US mandates.

The unconstrained portfolios tend to be more concentrated portfolios, with around 25 names in Tom Walker's US fund for example, while the core portfolios would have closer to 40 holdings. Demand for the different types of portfolio depends on client needs but switches can easily be made.

Advisers are also keen to use Martin Currie's newly launched dollar share class on its US funds and move between the share classes as their view on currency changes.

Burnett explains: "We launched the currency classes as people were saying to us they could get the market right and get currency wrong."

Investor demand

So where is investor interest moving now? According to Burnett, clients are now starting to move up the risk curve, especially people close to retirement whose pension pots have been eroded in the past 18 months.

Burnett also believes demand for resources funds is picking up which is good news for the group's Global Resources SICAV fund, which has distributor status. He says the group would consider launching the fund as an onshore vehicle but only if there was client demand there. Martin Currie has also been taking money into its Global Energy fund, which launched at the bottom of the market in March and is now around £40m in size.

Many ETFs are being launched into the resources area and attracting IFA interest but Burnett appears unfazed by the competition.

"I tend to think there is always space in the market for other products. If you want cheap beta and think you can market time then ETFs are useful although I don't think many can do this efficiently. You must be able to get in and out at the right time."

There are also questions to be answered about the possibility of Martin Currie launching a retail absolute return product, bearing in mind its hedge fund expertise.

Burnett says: "We would consider it but would need to look at it from an investment perspective in terms of the team and the platform we have and what assets we would be able to raise. Would we get beyond management capacity in that structure? Would the portfolio be completely liquid at all times? We are watching this area with interest though and don't think the ship has sailed."

The investment trust space could also present opportunities as IFAs will have to consider a wider range of vehicles outside of unit trusts post-RDR to be considered 'independent'.

"They are good vehicles if they fit into a client's portfolio. However, it is not for us to decide which type of products the IFA puts in a wrapper for his client," Burnett says.

He believes Martin Currie can organically grow and take more money into existing funds as there is a lot of diversity in the product range. Its expertise in Asia, and in particular China. could present strong growth opportunities as in 1994 it made a significant investment into the region and now has a team of 11 based in Shanghai. For UK investors, the group's Greater China SICAV is set to attract even greater interest as investors continue to flock to emerging markets and especially China.

A return to stock-picking will also play to the group's strengths according to Burnett.

"A lot of companies bounced strongly in the last nine months so we need to see earnings catch up with share price movements as in a lot of cases we are in a 'not going bust rally' which we may start to see petering out. It is likely there will be a move back to stock-picking as fundamentals will reassert themselves and this is exactly the type of environment where Martin Currie thrives."