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MacKinnon: Regulation, not profitability, motivated Ingenious deal

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MacKinnon: Regulation, not profitability, motivated Ingenious deal

Thurleigh founder Charles MacKinnon says the decision to merge with Ingenious Asset Management was driven not by concerns over profitability but rather a long-term view on regulation.

‘The rationale behind the deal was very clear our side and theirs. We think this is an increasingly regulated industry and that regulation will intensify rather than loosen. We will be better placed as a £1.8 billion organisation rather than a £300 million organisation,’ he told Wealth Manager.

MacKinnon (pictured) said there was no ‘burning building’ and the deal had been motivated by taking a three to five-year view on the business, while also providing a solution for succession planning.

He added there was no pressure to merge with Ingenious AM as Thurleigh is, and is likely to remain, profitable.

Ingenious AM has around £1.5 billion in assets, while Thurleigh has £300 million. The deal, for an undisclosed sum, is set to complete at the end of April and takes the form of an operational merger. Legally Thurleigh will be acquired by Ingenious.

MacKinnon said: ‘The luxury we had is we are well regarded and profitable and didn’t have to do anything. What David Rosier and I were very clear about was that for investors, clients and ourselves, we tried to look forward three years and we could see we would be less profitable because of regulation.

‘If we had not done the deal, not a lot would have changed. A lot of organisations are struggling with declining profitability, so they are making deals on a slightly different basis. This was very much our choice,’ he added.

Over the 12 months to the end of March 2013, Thurleigh posted a £1.5 million profit before members’ remuneration and profit shares. This was a fall from £1.8 million the previous year.

In comparison, Ingenious AM posted a £1.2 million pre-tax profit over the year to 5 April 2013, down from £1.4 million in 2012. Ingenious’s Guy Bowles, who will be chief executive of the enlarged group, highlighted shared cultural similarities and a good chemistry between the two organisations.

‘They set up the same year we did in 2003. We both buy best of breed funds and ETFs, focus on downside risk and we have got a number of funds in common, so it made perfect sense to bring the businesses together. Their typical account size is £2 million and ours is more like £100,000. We have a greater IFA-bias and they have a high net worth bias,’ he said.

Thurleigh’s four-strong investment team are set to join Ingenious’s 12-strong team, with a small number of redundancies expected elsewhere in the business. While the two processes have similarities, MacKinnon said the organisations would take their time to integrate.

He anticipates a 25% commonality in holdings across both boutiques, which could rise to 50% in a year’s time. For the foreseeable future the two organisations will continue to be run separately in order to ensure minimal client disruption. A decision on the name of the merged business is yet to be made as well.

‘The important part is what we are doing for the client. We don’t think the name is central as neither of us are retail brands,’ MacKinnon said.

Looking ahead, where do the opportunities lie? MacKinnon highlights the £3 million to £7 million bracket, which he describes as ‘woefully underserved’, alongside the platform sector, where both firms have developed propositions in recent years. ‘The financial adviser community has changed radically over the last few years. We have now got high quality advisers and we can deliver a high quality investment management solution to them,’ he said.

Bowles, meanwhile, highlights the charity sector as an area of interest, where the combined entity will run some £100 million.

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