L&G steps out of the investment shadows

Legal & General Investment Management director Simon Pistell is building a team for the future and hopes its new UK Alpha fund will blow away the company's passive image.

Trying to get Legal & General Investment Management to become a top player in active equities might strike some as mission impossible ­- akin not just to getting your grandfather down the disco but actually pushing him out on the dance floor to do his thing.

Yet this month sees the launch of L&G's UK Alpha fund ­- described by one senior executive in the company as 'all sex and violence' - ­ which aims to blast the market index off its hinges by a full five points with a heroin-fuelled, double-digit tracking error. Blimey! This is after all, the king of index tracking. L&G has no less than £50 billion of index-hugging money invested in the UK market alone (it does indexing around the world as well), which means it owns at least 3.6 per cent of every company in the FTSE All Share index.

If might is right, then this sort of clout is a sign of success, whatever one's instincts are about index-tracking as a way to invest. And to add to the case for the defence, L&G tends to be pretty good at attacking a market when it puts its mind to it. It had no name at all in actively managed fixed interest investment until John Monckton arrived seven years ago to build what remains a very strong department, albeit one still in complete shock from his brutal murder last year.

L&G has also built up successful franchises in distribution bonds and structured products, and has shown its risk appetite with a venture capital side and a fledgling hedge funds business. Its parent company, meanwhile, is one of the few insurance companies whose brand on both the life and general sides has survived the mauling most of the industry has taken over the past decade.

But active equities, particularly in core UK markets? Lousy doesn't begin to describe the track record of some of L&G's funds in recent years where fourth quartile performance has been the general order of the day.

Simon Pistell, L&G's retail investments director, argues L&G's poor reputation in active equities is unfair, albeit not that greatly. 'We are good in the Far East, the US and Japan and we have always had pockets of very good active management,' he says. 'But all that has been overshadowed by the UK being not so great. For a UK house, people look to their UK funds first ­ hence the slightly mistaken impression that we are not very good at active management.'

Fair or unfair, as Pistell is fully aware, nobody is going to buy funds with that sort of performance ­ hence the recruitment in 2003 of Mark Burgess to shake things up. Burgess came from 11 years at Deutsche Asset Management working alongside the likes of Adrian Frost and Roger Yates, ending up running the business end of the UK equity and balanced side.

Shaven-headed with a determined look in his eye, Burgess's mandate was made clear. 'They wanted to diversify profit reliance away from indexing so my brief was to repeat what Monckton had done in fixed income by restructuring the underperforming areas and growing the business,' he says.

For underperforming areas read UK and Europe where Burgess has made wholesale changes to both the people who ran the funds and the way they were run. Of the eight people in the UK division, just two remain in a team that has been reduced to six and headed by Robert Churchlow, former head of UK institutional equities at Invesco. In Europe, Alia Baig was imported from AXA Investment Managers to run matters in a team where three of the four members were shown the door.