A specialist equity manager with a 127-year history dating to Britain's industrial revolution, Martin Currie's assets under management grew to £15.7 billion ($31.3 billion) at year-end 2007, nearly tripling the £5.5 billion figure five years earlier, around the time Mr. Watt embarked on an extensive program to refocus the company.
He simplified the product line and expanded the clientele worldwide, thereby boosting revenue while reducing the number of investment strategies on offer. U.S. clients, for example, now account for £4.7 billion of the total assets under management - more than doubling the £2 billion figure from five years ago. That amount might be set to jump even higher. In 2007, Mr. Watt helped to engineer the sale of 24.9% of the company to New York-based Crestview Partners LP. One of the key attractions was Crestview's connections to U.S. clients, whom Martin Currie hopes to tap in a bid to further expand in the U.S.
How does Martin Currie plan to take advantage of the deal with Crestview? When we decided to bring on a minority external investor, we wanted a firm that would add value to what we did. Crestview met all of our criteria. It is led by people who know our industry extremely well. Also, Crestview Partners is extremely well-connected in the U.S. They've been really good at helping us to meet potential clients as well as helping us with our strategy there.
Are there specific targets you have for the U.S.? We do have internal targets, but that's not something we'd share. In the U.S., we deal with most types of clients and we operate across most regions. We just feel that the U.S. is the center of the world's investment industry, and therefore, there are surely more clients (for) whom we could provide a top-quality service. We just need to get to know them.
What are some of the strategies you see as being important sources of growth? What we sell into the U.S. are long-only equity products global and derivatives of global strategies and there remains potential for that as a product range. We also do specialist international equity mandates based around the emerging market theme, including Asia and China. We have a long/short equity range, again based around international equity. I would see all of those things as having enormous potential. The only (strategy) we don't do that we are working very hard on is 130/30. Most 130/30 in the U.S. has been done by quant managers. We believe that we have the skills as a fundamental manager who is used to managing long/short equity to run 130/30. We're basically doing a lot of work on that at the moment, but we haven't launched it as a product.
If you do decide to launch a fundamental 130/30 strategy, when would that be? We don't know whether we will launch it; it's in the R&D lab at the moment, and it might stay in the R&D lab or it might come out, but we're certainly working on it. What we need is to do is evaluate whether the marketplace would like us to launch a product like that, and then we need to make sure that we get the right kind of launch clients.
What are some of the most important factors behind Martin Currie's growth in assets? More money is going into international equities, and that's pretty much true throughout the world. We have particular expertise in Asian equities of various kinds, and again that has been an area of growth. So we've had the right products before our clients. The second thing over the last few years is that our clients have been experiencing strong asset growth for various reasons. So collectively, they have had more assets to deploy and we have benefited from that. The third thing is that over the last few years, we've moved from being predominantly institutional to having a more balanced business between institutional and wealth management. That has been a conscious strategy, and the wealth management part of our business has been very positive in terms of asset flows.
Do you see Martin Currie's expansion efforts threatened by the current turmoil in the market? Obviously, the market turbulence that we're living through at the moment is a concern. When you get these market corrections, and no matter what the catalyst for them is, there is clearly a risk that buyer behavior changes. My sense is that when we come out on the other side, fundamental, high-conviction equity management will absolutely have a central place in our clients' thinking; equities is already growing cheaper by the day. Whilst I can't judge the timing in these things, I think we have the right product range. We don't do fixed income. We don't do property. We don't do private equity. We don't do complex hedge fund strategies. We have a very simple product range that focuses on a subset of the equity product range, and I think for an independent company like ours, that's the right focus.
When there is a market correction, are there steps that an asset manager can take to mitigate any negative effects on its business? It depends on what kind of an asset manager you are. In the last downturn, with the tech bubble bursting, we introduced our long/short equity range. The feeling was that our clients wanted exposure to stocks but what they didn't want was full exposure to falling markets. We developed our long/short equity range as a mechanism to give our clients access to our skill without access to the beta at that time. Over the last few years, the hedge fund business has grown to about $2 billion. That's one example of building product areas that can take advantage of new market conditions. We've also launched a long/short financial fund. It's been in incubation for a couple of years, but again, our feeling was that the financial sector was so big and exciting that it was overdue for an increase in volatility.
Some of the strategies you run do have liquidity constraints. Can you address how you approach capacity issues? Rigorously. We believe that liquidity, and therefore capacity management, is intimately related to investment returns. We have invested a lot into systems that will help us work out what is the right capacity for each product. If we look at our growth in terms of AUM and revenue over the past few years, it's reasonably good, but we've had to close a number of products during that time. What we've got is a sufficiently broad product range, so that even with a few products closed, we still have enough of a growth driver within the business. We've got to protect the interest of our existing clients first, and the best way to do that is to close strategies when we have to do so. Having said that, the capacity work that we've done illustrates that we can still grow far more in the next few years without getting to a point where everything will be closed.
Is there a need then to launch more new products? We will launch new products but there won't be lots more, because we don't want to overcomplicate the manufacturing. If we do another interview in two or three years' time, I don't think you'll see a product line that's radically different from the one we've got at the moment ... The problem that our industry has is managing complexity rather than managing simplicity. We've chosen to have a complex client situation by operating across the whole globe in terms of client relationships. But to do that, we've chosen to keep the product range really tight.