Edinburgh Fund Managers, having completed its acquisition of Dunedin Fund Managers, is now considering more expansion opportunities.
"This year, we need to give everybody confidence that things are working well," said Iain Watt, the firm's chief executive in Edinburgh. "But when we look at where we should go in the next two to three years, we know we want to expand in North America (and the United Kingdom) through (business opportunities) with existing clients and looking at any business that might come our way."
North America appears to be the primary focus of the firm. As Gloria E. Carlson, director of Edinburgh Fund Managers PLC North America in Atlanta, put it, the firm "is putting a lot of emphasis on building its North American business."
But the U.K. market isn't being ignored; since the Dunedin acquisition closed in March - EFM launched two more products. One was a safety-first mutual fund, which puts a floor on the amount units can decline in any year, and the other was for pension funds -a less expensive version of an insurance policy whose money is invested in EFM's investment trusts.
In North America, EFM has been watching a few "quite interesting" money management opportunities, which Mr. Watt did not identify. However, he did say EFM "would like to build a North American business similar to what we have" in the United Kingdom, including management of pension funds, mutual funds and closed-end funds.
"We're a very profitable company and we also have plenty of cash reserves if we need it for expansion," said Mr. Watt. He said EFM has (British pounds)20 million (U.S. $12.9 million) of profits and (British pounds)26 million (U.S. $16.77 million) of cash and investments.
Officials said the firm had been tracking Edinburgh-based Dunedin for four years before acquiring it for $128 million this year. Dunedin, which had been the larger of the two in terms of assets under management, became available after the departure of some of its key personnel triggered client losses in the U.S. market.
In the wake of the Dunedin merger, EFM retained all of its U.K. clients, and inherited all of Dunedin's former U.K. clients. But in North America, many Dunedin clients - especially public pension funds - dropped out. From a peak of some $3 billion under management from North American clients in June 1995, only about $1.2 billion remained at the time of Dunedin's merger; after more defections, EFM only has between $600 million and $700 million of assets under management from former Dunedin pension clients in North America. (Before the merger, EFM had about $500 million under management, including mutual fund assets, from North American clients.)
Of EFM's $12 billion of total worldwide assets under management, 53% comes from U.K. investment trusts, 24% from U.K. pension funds, 10% from U.K. mutual funds, 9% from mutual funds and separately managed accounts in North America, and 4% from private clients.
However, EFM officials were "delighted" about the amount of Dunedin business they inherited in North America. "The bid we made for Dunedin was based on assets we'd get in the U.K.," said Mr. Watt. Keeping any in North America was viewed as a plus, because the firm had factored nothing into that equation. What's more, the Dunedin merger "has given us a critical mass in North America now," he believes. Now, "we're in a better position to compete and gain more business."
The Dunedin purchase made EFM the third-largest investment trust manager in the United Kingdom, up from what Mr. Watt called the "lower part of the top 10." Moreover, "we're now among the U.K.'s top 20 investment managers," compared with ranking only in the top 50 beforehand, he said.
From the merger, EFM also obtained additional "good caliber management," said Mr. Watt.
The talend gained by EFM includes: Richard Muckart, formerly Dunedin's investment director who became investment director as well as head of emerging markets investing at EFM; David McCraw, Dunedin's U.S. investment manager who retained that function at EFM; and Colin Peters, a Dunedin director responsible for business development and administration, who continues the duties at EFM.
But absorbing Dunedin also had a somber side: 70 to 80 people were laid off from the combined firm; EFM also closed Dunedin's offices in Edinburgh and Chicago; and EFM sold Dunedin's venture capital business, with about (British pounds)50 million under management, in a management buy-out.
