Ashcourt Rowan chief executive Jonathan Polin expects fund pricing to fall much lower and faster than the industry anticipates, as distributors publicly drive groups down on charges post-RDR.
The former Ignis marketing director (pictured) told Wealth Manager his decision to move into wealth management in late 2011 had been motivated partly by a realisation that a shift in the value chain from fund managers to wealth management distribution was on the horizon.
He said he was broadly supportive of fund pricing coming down in order to reduce the total expense ratios in Ashcourt’s client portfolios, but acknowledged the dangers of pushing fund groups too low on pricing at the cost of the sustainability of their models.
‘People need to be careful with bullying tactics with fund managers and have to remember there are costs that fund managers have to incur,’ he said.
Nonetheless, he expects to see greater differentiation in pricing between fund managers with track records of alpha generation and capacity constraints, and those without. And he warns this pricing pressure could hit fund groups much harder and faster than they currently think.
‘We all know that the end price is going to be around 50-60 basis points and not 75. I think this is actually going to happen quicker, and that momentum is gathering pace as we go through the next 18 months,’ he said.
‘There comes a point when some fund managers who are rather reticent have to wake up and smell the coffee and realise that is where we are going. They need to recognise they will get an appropriate fair price for real alpha producers and products that have capacity constraints but that does not mean we will accept all fund management products.’
Polin’s comments come as the group announced plans to acquire Generali Portfolio Management’s onshore private client business, which has around £200 million in assets, for £1.1 million in cash up front and a deferred consideration of up to £1 million payable over the next 24 months dependent on asset retention.
The deal is set to complete later this year following due diligence, which includes a portfolio review to make sure the assets fit Ashcourt Rowan’s suitability profile.
‘It is a process we need to go through so
we can feel comfortable that everything is meeting our regulatory and internal objectives,’ Polin explained.
A team of up to seven are expected to move over from Generali and Polin said he would look to do further bolt-on deals of a similar nature, where there is a cultural fit.
‘Generali falls completely into our sweet spot. We are looking for good quality bolt-on businesses that we can merge into our asset management business,’ he said.
While the firm is actively seeking acquisitions, Ashcourt’s chief said valuations of potential targets of both the financial planning and investment management businesses still looked overvalued.
‘There are still people who have what I think is an overinflated view of the value of their business and this is on both sides.
‘That is a process of negotiation and discussion to make sure that what we are not going to do is overpay for businesses at this point in the cycle – because there a lot to choose from,’ he said.
Now that Ashcourt Rowan has returned to profitability, with profits of £2.8 million posted over the year to the end of March, Polin believes the group is on track to meet other medium-term targets, which include growing the operating margin to 25%. The group currently runs £3.7 billion, of which £1.6 billion is discretionary.
He is seeing growth opportunities for both the financial planning and investment divisions in the corporate pension market, particularly with the wider introduction of auto-enrolment next year.
‘We are a good five to six years away, but this will be one of the biggest drivers of fund flows for the investment sector and if you can build in one’s own platform into the work place, it gives people the ability to do DIY and have an advice proposition. It could be a powerful driver of growth over the medium term,’ he added.
Despite Polin’s background in the fund management industry, he said Ashcourt has no immediate plans to launch products.
‘Not at this juncture. We have taken the decision to remain independent for the financial planning side and I don’t believe the two sit neatly together at the moment on my reading of the regulatory landscape.’Ashcourt Rowan’s medium-term targets (three to five years)
• Grow assets to £10 billion - broadly split 50:50 between asset management and financial planning
• Achieve an operating margin of 25% or above
•Re-introduce dividend payouts for shareholders