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Fund manager Henderson eclipses New Star

Date: Monday, March 8, 2010
Author: Mark Cobley, Financial News

Fund management can be an unforgiving business. From next month, there will be precious little left visible of the legacy of John Duffield, the founder of New Star Asset Management, and one of the industry’s highest-profile figures of the past decade.

In April it will be a year since New Star’s fund managers switched on their trading screens at Henderson’s offices on Bishopsgate and began to settle in at their new home. Henderson has proved a more stable berth than New Star had become since it ran into trouble in the credit crisis and was taken over by its banks.

Henderson, which manages a total of £58.1bn, has not been slow to lay New Star’s ghost to rest. The two companies’ fund ranges have been merged and rationalised, trading platforms standardised, and the New Star name is set to vanish within weeks. David Jacob, chief investment officer, said: “The New Star name has served its purpose. We are in the process of letting clients know at the moment. That will be the last part of the puzzle.”

The integration cost Henderson an 8% dip in profits for 2009, to £73.7m, it reported two weeks ago, which it is likely to view as a reasonable investment. The firm believes it has successfully turned around the New Star business. A spokesman said that in January last year, outflows from its retail funds were running at £10m a day. By the middle of the year that had fallen to £1m a day, and by December 2009 the flows were neutral, or even slightly positive.

There have been a few disappointments, such as star financials manager Guy de Blonay leaving for Jupiter Asset Management. But Bill McQuaker, head of equities at Henderson, described the integration of the two teams as “pretty seamless”, and retail fund analysts, such as Rob Harley at Bestinvest, agree that Henderson “has not dropped any major balls”.

The firm has retained some New Star staff, including Richard Pease, whose new fund was launched in November and has attracted £120m. McQuaker said they have found a more entrepreneurial atmosphere at Henderson than they may have been led to expect. New Star’s marketers, led by Mark Skinner, have also stayed on board, and are busy selling the Henderson brand to financial advisers.

Henderson’s chief executive, Andrew Formica, has said he wants the firm to be a top-five participant in UK retail by next year. It failed to reach the top 10 last year, according to data from fund analyst Lipper. Henderson has a long way to go to catch the likes of M&G, Invesco or Jupiter Asset Management, but inflows of £872m in the fourth quarter mean it is snapping at the heels of Fidelity International and Schroders.

No further big deals are expected, Formica has no plans to emulate the ever-acquisitive Martin Gilbert of Aberdeen Asset Management, and his lieutenants state a preference for bolt-on rather than transformational deals.

Jacob said: “We are comfortable with our footprint. We have some strategic priorities, we would like to have an emerging-market equity offering for example and, in the hedge fund arena, we are always looking for interesting opportunities. We have had good performance for our hedge funds, particularly in Asia and Europe, and success with institutional buyers.

“For the past two years the approaches we have had from hedge funds firms have all been about ‘how do we access that market?’. But we have not done many deals, because in most cases we offer a similar product ourselves.”

Henderson signed a distribution deal with an Australian hedge fund manager Attunga Capital in 2008. Attunga specialises in commodities and power-trading – niches in which Henderson has no presence. This is the kind of opportunistic deal the firm is still open to.

In performance terms, Henderson’s record looks increasingly strong. In fixed income, Jacob says that every one of its institutional fixed-income mandates outperformed benchmarks last year, while in equities, McQuaker can point to excellent results in Stephen Peak’s European team.

Peak’s European focus fund was up 96% for the year, against 36.8% for the MSCI Europe index. But McQuaker is concerned about underperformance in UK equity income, which he concedes needs to be worked on.

In retail, Bestinvest’s Harley said he likes Henderson’s multi-strategy fixed income offering, and added that James Gledhill, formerly of New Star, staying on and working well with Henderson colleagues John Pattullo and Jenna Barnard, is a big plus.

Harley also researches the former New Star international property fund, which has recently re-opened after closing in the teeth of the crisis. He said: “That fund is in a much stronger position now with Henderson’s institutional resources. It is starting to get traction with investors. There is still a bit of a cloud over the New Star name, but that name is going.”

There are a few other clouds on the horizon, such as the woes that have affected one of Henderson’s infrastructure funds, purchaser of construction group John Laing in 2006, for which it paid £1bn following a bidding war with Allianz.

John Laing turned out to have a hole in its pension scheme that had swollen to £260m by last June, reducing the value of Henderson’s investment. Nevertheless its managers have told clients they remain confident of achieving the fund’s targets in the long run.

The episode has not dulled Henderson’s appetite for new opportunities. Last summer it launched an asset-backed securities recovery fund, set a capacity of €250m and filled it within three months. It has also begun advising troubled fixed-income portfolios, including collateralised debt obligations, on a similar model to BlackRock.