BGI
Global fund manager BGI continues to attract investors and outperform its indices
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| Andrew Skirton |
Ask pension fund consultants in Europe, the US and Japan which fund manager they rank most highly on a global basis, and they will most likely answer Barclays Global Investors. The fund management house has gone from strength to strength over the past few years, expanding its product range and attracting an increasing number of institutional investors. Over 2004, BGI’s total assets under management increased by 19% to $1.36 billion from existing clients buying new products and 100 new institutional clients from Europe, the US and Asia. In the first quarter of this year net new inflows of assets were already $36 billion.
With a keen eye on costs, BGI has become a hugely profitable business. Profit before tax excluding goodwill increased a hefty 82% over 2004 to £347 million ($631 million), and its cost/income ratio improved to 61% from 71% for 2003.
Its decision to broaden its product range to reflect the changing demands of investors has paid off. BGI’s currency overlay products have attracted clients looking for other sources of alpha, while its exchange-traded funds under iShares have appealed to US investors disheartened by mutual funds. Last year, the house took on $40 billion of net new business in iShares, two-thirds of which came from US retail investors.
BGI has also enjoyed tremendous success in Japan. Regarded as the most successful foreign player in the market, the firm manages $120 billion there. “There’s a strong demand for alpha-generating products in Japan and both corporate and public pension funds have also been very receptive to our indexed products and absolute-return products,” says Andrew Skirton, global co-CEO of BGI.
Hedge funds have seen increased focus from institutional investors, and BGI has become the largest provider of hedge funds to this client segment – an $11 billion business. Its long/short range has been expanded to include long/short US credit, and there are plans to introduce a long/short European credit fund.
Being at the forefront of product innovation, BGI is also well positioned to catch the trend of pension funds using liability matching.
“We expect to see a progressive shift in portfolios to fixed income and have been developing our capabilities in this area,” says Skirton. Over the past 18 months, the firm has trebled its fixed-income resources and has already started to see the results. This year it has won $3 billion in active fixed-income business.
In Europe, particularly in the UK and the Netherlands, BGI is working with pension funds to build tailored portfolios that include inflation-linked and long-dated bonds, with the use of swaps and derivatives to match liabilities.
Skirton cites performance as crucial in attracting new and existing clients to new products and attributes the firm’s track record to its research capabilities and quantitative methodology. “We approach investing in a scientific way so the emotion is taken out of decision-making. It is very objective,” he says. “And while our headcount has remained more or less constant over the last four years at 2,000, we have been outsourcing some of our back-office activities and reinvesting in people in product areas such as research. We now have a team of 130 researchers globally trying to find new sources of returns, developing investment ideas and working on improving existing products.”
Performance is key in fund management, and BGI’s investments into research have been paying off – as has its move into actively managed funds now. BGI has $116.7 billion in active equity assets under management, of which almost half are in US equities. This fund, Ascent Life US, has performed exceptionally, outperforming the index and the CAPS median on a three-year, five-year, and 10-year basis.
BGI’s active equity funds in the UK, US, Japan and Europe have all outperformed their indices over the past 12 months. The European active equity fund has outperformed the index by 4.1% over the past 12 months. “The business has been really successful over the last few years, and you can only keep gathering assets as long as clients are satisfied and performance is strong,” says Skirton.
