Scottish Widows Restored to Top Becomes Buckley's Bet for Funds

From his office in the shadows of Edinburgh’s medieval castle, Dean Buckley is trying to restore the luster to the 199-year-old Scottish Widows Investment Partnership.

The company’s largest equity fund ranked 277th of 296 competing funds tracked by Morningstar Inc. (MORN) analysts in the 12 months ended Feb. 25. Buckley, the firm’s chief executive officer, has hired more than 20 money managers since the start of 2010, including three this week.

“I’ve made the changes we need to make,” Buckley, who presides over 146.2 billion pounds ($238 billion), said in an interview at his headquarters in the Scottish capital. “The bet’s in place and we now need to deliver. I’m measuring it month by month through 2011.”

Buckley, 50, has been no stranger to upheaval since he took the top job at Scottish Widows Investment in January 2008. While his peers accumulated money at a steady pace last year, the fund-management unit of Lloyds Banking Group Plc (LLOY) was a revolving door for portfolio managers and struggled to add clients.

Scottish Widows Investment’s assets rose 3.2 percent in 2010, while they climbed 29 percent at cross-town rival Baillie Gifford & Co. Buckley named new heads for U.K. and global stocks last year, and a leader for the company’s fixed-income group after managers, including bond investor Rod Davidson, Kim Catechis, who ran emerging markets, and Ian Vose, head of developed markets, left. In all, the firm lost at least a dozen money managers in the past 18 months.

Source: Scottish Widows Investment Partnership via Bloomberg

From his office in the shadows of Edinburgh’s medieval castle, Dean Buckley is trying to restore the luster to the 199-year-old Scottish Widows Investment Partnership. Close

From his office in the shadows of Edinburgh’s medieval castle, Dean Buckley is trying... Read More

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Source: Scottish Widows Investment Partnership via Bloomberg

From his office in the shadows of Edinburgh’s medieval castle, Dean Buckley is trying to restore the luster to the 199-year-old Scottish Widows Investment Partnership.

Executive Departures

The biggest challenge “is convincing the market they can retain people,” said Haig Bathgate, chief investment officer of Edinburgh-based Turcan Connell, which oversees about 1 billion pounds for clients. “There’s been an exodus of people and very high-profile people as well.”

The departures came amid questions about whether Lloyds would keep Scottish Widows at the heart of its fund business following the bank’s takeover of mortgage lender HBOS Plc, which was a rescue brokered by the U.K. government in September 2008.

A month later, Buckley took a phone call from his new boss, former HBOS director Jo Dawson, whilst on vacation in San Diego with his wife and two children.

“That was the first point where I thought ‘Goodness me, this is massive change,” Buckley recalls.

In the end, London-based Lloyds added about 50 billion pounds of assets to Scottish Widows Investment and sold what remained of HBOS’s Insight Investment Management unit. Lloyds decided to phase out HBOS’s Clerical Medical brand of funds and life insurance in favor of Scottish Widows.

‘Tidying Up’

“Once we’d done it, my goodness, wasn’t there a lot of tidying up to do,” Buckley said on Feb. 17. “That tidying up probably took us all through the whole of 2010.”

Assets increased more slowly than at competitors after an institutional customer withdrew money following a strategy review, Scottish Widows Investment said. The client wasn’t identified.

This year, the focus is on boosting the performance of the company’s stock funds to win more external clients, Buckley said. Scottish Widows Investment gets 20 percent of its assets from outside the firm with the rest coming from Lloyds.

“I want to grow our external business rapidly,” Buckley said. “If I deliver against my plans, I’d expect the external business to grow much more quickly than our internal business.”

At Standard Life Investments, 45 percent of its money is from external clients and Baillie Gifford’s 72 billion pounds are managed solely for outside customers, including Vanguard Group Inc., the world’s biggest mutual fund company.

Relative Returns

The 1.6 billion-pound Scottish Widows U.K. Growth Fund, the firm’s largest stock fund, rose 11.8 percent in the 12 months to Feb. 25, trailing the average 18.1 percent advance of its peer group, according to data compiled by Chicago-based Morningstar.

The company’s biggest mutual fund, the 2.5 billion-pound Scottish Widows Corporate Bond Fund, rose 5.6 percent in the same period, ranking 59th of 87 similar funds and compared with an average increase of 6.3 percent, Morningstar reported.

“We were too defensive in a rising market,” said Buckley. “We’ve been guilty of not paying enough attention to top-down and the macro environment around our equity portfolios.”

Turcan Connell, which selects funds for clients, sold its last Scottish Widows Investment product, the High Income Bond Fund, in June 2005, Bathgate said.

“They didn’t have a fund that was well enough ranked for us to consider,” Bathgate said in an interview. “There’s been a great deal of instability. That’s calmed down now and there’s no corporate reason not to buy Scottish Widows funds.”

Moving Money

Bathgate invested last year with Dundee-based Alliance Trust’s fixed-income team, led by Davidson, 46, who left Scottish Widows in August 2009.

Bathgate said he would consider investing in funds run by Peter Cockburn, Scottish Widows Investment’s head of U.K. stocks, since his appointment last May. Cockburn, 40, replaced Robert Waugh, 42, who stepped down as head of equities eight months earlier. Cockburn is in charge of 42 billion pounds.

“It’s going to take a while to turn our equity performance around into propositions that are attractive,” Buckley said. “This is a project that will take the whole of 2011 to establish any sort of traction.”

Scottish Widows traces its origins to 1812, when a group of Edinburgh businessmen set up the fund to provide for widows of British soldiers killed in the Napoleonic wars.

Lloyds, Britain’s biggest mortgage lender, bought the business in 2000. From 2000 to 2004, the firm replaced its chief investment officer, the CEO twice and two chief operating officers left. Buckley previously was chief of the U.K. and Middle East investment unit of London-based HSBC Holdings Plc. (HSBA)

New Managers

Buckley appointed this week three new managers for the international equities department, which has been run by Mike McNaught-Davis, 46, since May 2010. That month, the company’s emerging markets team, led by Catechis, 49, decamped to Martin Currie Ltd. The firm plans to hire another two fund managers for U.K. stocks by the end of March.

For now, with another month just passed, Buckley is continuing to monitor performance.

The U.K. Growth Fund is down 0.62 percent so far in 2011, compared with an average increase of 0.17 percent, Morningstar figures to Feb. 25 show. The Corporate Bond Fund, overseen by Neil Murray, is up 1.12 percent, twice the average.

“I don’t want to sit over their shoulder,” Buckley said. “But I’m keeping a close eye on how things are developing and so far it’s gone pretty well.”

To contact the reporters on this story: Rodney Jefferson at r.jefferson@bloomberg.net; Tim Farrand in Edinburgh at tfarrand@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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