Widows Trailling Rivals as Outside Clients Withdraw Money

Scottish Widows Investment Partnership, Lloyds Banking Group Plc’s asset-management arm, is trailing U.K. competitors in attracting money from clients as it struggles to improve fund performance.

The money-management units of insurers Standard Life Plc, Prudential Plc and Aviva Plc all had net inflows from third-party customers last year, filings show. External assets managed by Scottish Widows fell by 4.9 billion pounds ($7.7 billion), or 18 percent, in 2011, the company said in a Feb. 24 statement.

The decline is a setback for Chief Executive Officer Dean Buckley’s plans to boost profit by running more lucrative funds for external clients. Over the past six months, he has added fund managers and analysts, overhauled the firm’s property team and named a new chief economist to help bring in business. Lloyds decided last year against selling off the unit, which has subsumed the Hill Samuel and Clerical Medical brands.

“We don’t use any of their funds,” said Ben Yearsley, a financial adviser at Bristol-based Hargreaves Lansdown Plc, the U.K.’s largest retail brokerage. “It’s a number of years since they have had any decent funds. There’s nothing you have to go and buy, and it’s a very competitive space out there.”

The company’s flagship equity fund, the 1.4 billion-pound Scottish Widows U.K. Growth Fund, ranked 263rd of 282 competing funds in the 12 months through March 15, according to data compiled by Morningstar Inc. It gained 1.1 percent in the period, versus an average increase of 7.5 percent. It ranked 257th of 279 funds in the previous 12 months, gaining 5.5 percent, compared with the average rise of 11.4 percent.

‘Strategic Priority’

The firm’s biggest mutual fund, the 2.5 billion-pound Scottish Widows Corporate Bond Fund, rose 5.4 percent in the year to March 15, ranking 49th of 87 similar funds tracked by Morningstar. That compared with an average increase of 5.3 percent. In the previous 12 months it ranked 57th of 81 funds, returning 5.1 percent compared with the average of 5.9 percent.

Spokeswomen for Scottish Widows declined to make Buckley available for interview for this story. Kevin Brown, a spokesman for London-based Lloyds, declined to comment.

“Growing our external business continues to be a key strategic priority for us as we progress through 2012,” Scottish Widows said in an e-mailed statement last week. “We are well-positioned to deliver on our plans for future growth and we are confident in our ability to build on our existing third-party funds under management.” Two new clients added funds in the first quarter, the firm said, again declining to identify them.

Scottish Widows said in January it hired Geoff Hepburn from a closely held property company in England in addition to six internal promotions in the real-estate team. The same month it appointed Lucy O’Carroll as chief economist, bringing her from within the Lloyds group.

Unidentified Client

Scottish Widows now oversees less for outside clients relative to its total funds under management than its four competitors, data compiled by Bloomberg. The firm, the bulk of whose assets come from 200-year-old life insurer Scottish Widows, posted net outflows of third-party assets for the past two years while its rivals all took in money from clients in both years.

Most of the outflow was due to one institutional investor pulling 2.7 billion pounds, the firm said in a statement on Feb. 24. It didn’t disclose the identity of the client. Pretax profit at the unit still rose 13 percent to 99 million pounds, the company said.

Lloyds has transferred all its fund management assets to the Edinburgh-based firm since buying parent Scottish Widows in 1999, scrapping other brands including Hill Samuel, Clerical Medical and Insight. The bank affirmed last year that Scottish Widows is a central part of its strategy. There are no signs that will change, said Ian Gordon, an analyst at Investec Ltd..

‘Very Surprising’

“Regardless of performance, I don’t expect there to be any fundamental change,” Gordon, who has a buy rating on Lloyds, said in an interview. “It would be very surprising if it was a candidate for disposal.”

Of the four largest companies disclosing client fund flows, Aviva Investors pulled in the most new money from outside customers in the year, filings show. The London-based firm attracted 5.2 billion pounds compared with 4.4 billion pounds at Prudential’s M&G unit and 4.3 billion pounds at Standard Life Investments.

Following is a table of assets under management, the proportion of those invested for external clients and the level of net inflows during 2011, based on company reports.

Money Manager            2011           2010           2009

Scottish Widows     Billion Pounds
AUM                      139.9          146.2          141.7
3rd-party assets          23.1           28.0           30.0
3rd-party net             (3.8)          (4.4)           6.7
3rd-party AUM as %        17             19             21
of total

Standard Life Inv.
AUM                      154.9          156.9          138.7
3rd-party assets          71.8           71.6           56.9
3rd-party net              4.3            6.2            7.3
3rd-party AUM as %        46             46             41
of total

Prudential (M&G)
AUM                      201.3          198.0          174.0
3rd-party assets          91.9           89.3           70.3
3rd-party net              4.4            9.1           13.5
3rd-party AUM as %        46             45             40
of total

Aviva Investors
AUM                      262.5          259.8          249.6
3rd-party assets          52.2           50.7           44.7
3rd-party net              5.6            2.4           (0.2)
3rd-party AUM as %        20             20             18
of total

Legal & General
AUM                      371.2          354            315.1
3rd-party assets         304.4          283.5          250
3rd-party net            Not disclosed  n/d            n/d
3rd-party AUM as %        82             80             79
of total assets
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