Michael McLintock, the chief executive of M&G, has challenged the presumption that platforms will be able to drive down fund fees.
‘I have a sense that people are suddenly realising that actually cutting prices is a road to hell and doesn’t necessarily make sense for anybody,’ McLintock (pictured) said. ‘People are starting to realise that the aggressive cutting of fees simply slices the revenue off your own book so you basically engage in a war against yourself.’
M&G has not been one of the eight fund houses - Old Mutual, Cazenove, Henderson, Investec, Neptune, Schroders, Standard Life and Threadneedle - to acquiesce publicly in the rush to superclean share classes, and McLintock maintained that M&G could withstand such pressures.
‘We are not joining in a cut to zero. Of course there are tough negotiations that are happening across the market and continue to happen. I think we will be regarded as one of the leading players and our negotiating position reflects that.’
Rather, McLintock argued that simply making the right products widely available is the route to success. ‘In asset management, you don’t need to go out paying for business. If you get the right idea and if you have effective distribution, then money walks in off the street. It’s a beautiful model.’
McLintock nevertheless acknowledges that the coming years may not be as stunningly successful for M&G as those since 2009. Between 2003 and 2008, M&G’s net sales – incorporating both its retail and institutional businesses – averaged £3.6 billion a year. But between 2009 and 2012, they leapt to an annual average of £11 billion. They stood at £8.9 billion for the first three quarters of 2013.
‘The experience between 2009 and 2013 has probably been an exceptional one,’ said McLintock. ‘I think that M&G will revert to a lower natural run rate in terms of net new business. It’s a battle every year.’
Yet McLintock insisted that that was not a problem. ‘I’m not in some desperately pessimistic mood at all. All I am saying is that you would be wrong to extrapolate from the very high levels of net new business we have seen over the last few years. There is a lower natural run rate, with which we will be perfectly happy.’
M&G now manages more than £240 billion, although McLintock doubted that that size conferred many advantages. ‘I think that a lot of rubbish is spoken about scale in fund management,’ he said. ‘You enjoy economies in certain areas, but delivering performance undoubtedly gets more difficult the bigger you get.’
He added: ‘I very specifically take exception to all those commentators who talk about scale leading to breakthroughs in different markets. I don’t buy into that at all.’
‘I’ve had conversations with rivals at other fund management houses who speak with envy of the ability to get those kinds of volumes,’ McLintock said. ‘Frankly the issue we have with this fund is how we control the growth and don’t let the fund get too big, too fast.’