In September 2008, Alain Dromer had the unenviable task of remaking and rebranding Aviva's money management businesses into Aviva Investors. The move was made in part to enable the manager to attract third-party assets to add to the £205 billion ($310 billion) run for its insurance company parent, Aviva PLC. Aviva now runs about £45 billion in external client assets. The change, announced just days after the Lehman Brothers bankruptcy, involved integrating 15 companies around the world, most of which lacked sales staff and the infrastructure needed to run third-party assets.
That's why Mr. Dromer calls Aviva Investors a “giant startup.” Institutional investors didn't “know we were in existence a year and a half ago. We suddenly appeared on the radar screen of institutional clients, distribution networks — very recently but as a very large force.” But he also had to tackle poor performance and find a way into U.S. equities, which he did in January with the $122 million acquisition of value manager River Road Asset Management, which manages $3.6 billion.
Mr. Dromer joined Aviva in September 2007 after performing a similar reorganization for HSBC Global Asset Management, where assets nearly tripled in his six-year tenure. But his true love is music. The native Parisian was quite serious about becoming a concert pianist as a student, but gave it up as a career path “when I realized that I was so hesitant that I was probably not mad enough to do it as a career.”
What's behind the drive for third-party assets — to boost profitability? The drive for third-party assets is multifold. Growth is something that the group has an appetite for. We believe that asset management is a growth area, so we want to be positioned for growth.
We (also) believe that finding external clients strengthens our position vis-à-vis the internal client (Aviva's insurance assets). There is no such thing as a “captive client” in today's world. We have to be very clear about that.
We have to perform and we have to demonstrate that we are competitive in the marketplace if we want to keep our internal client. And the best way to do this is to win mandates and clients in the external competitive world.
And finally, you're right, profitability is a key driver.
How important was the River Road acquisition to U.S. expansion plans? It was important in three ways. We believe that we don't have to do everything for all clients in all markets. However, U.S. equities are so important in global markets that not having an internal understanding of what's happening in this market was something missing.
The second element is that in the U.S. at the moment our business is dominated (more than 95%) by (Aviva's insurance assets). We wanted to accelerate our access to third-party clients, notably large institutional clients and their consultants, and some distribution networks. And River Road brings their knowledge of that, and they can demonstrate to the marketplace that a small group of alpha generators can prosper and develop fast and well within Aviva Investors.
The third one is that their performance, their track record, is really good and there is demand for U.S. equities, not only in the U.S. but outside the U.S. We believe there will be strong potential for developing them outside the U.S.
How will you attract third-party clients in the U.S.? The strategy is one of focus. It is a huge market where a limited (amount) of success can make a big difference for us. So we have to choose what we are doing. There are two ways to choose: one is on the client side; the other is on the product side.
The very large institutional clients are the first ones we are talking to because we believe that they will recognize our capabilities faster than those that are completely dependent on consultants, because consultants (often require) a three-year track record.
As far as product segmentation, it's not to have a big, waterfront offering. It's to have a very limited set of products, those manufactured in the U.S., where we have a very successful team doing mostly fixed income at the moment, pre-River Road. We are developing products in conjunction with the insurance company (and) have in the pipeline a new product that ... is a stable-value solution very much in demand at the moment for defined contribution schemes in the U.S.
How have you turned around performance? It used to be that performance was a bit of a concern two years ago. That, being the No. 1 service that a manager provides to its clients, was the No. 1 thing to address (and has been done in a number of ways) including some senior appointments.
The appointment of Paul Abberley (as CEO of) Aviva Investors London, (which) encapsulates all of the (manager's) alpha generators, was the most obvious one. But the appointment of Richard Field (as director of) global investment solutions ... was the other one because there were performance issues on different fronts.
The European equity portfolios also were transformed with the appointment of the head of the team, John Botham, who joined the firm (three) years ago and has profoundly transformed the process and delivered very strong performance.
In credit, we have transformed the team profoundly by the appointment of a new head, Mark Wauton, who has joined a year ago and has completely revamped the team, the process, the way to manage the money there, and the results have been brilliant in the last few months. We are very optimistic about the future for this capability.
Have you also made adjustments to investment processes? In the last two to three years, certainly (more so) in the last 12 to 18 months, we have looked at all the processes and we have taken decisions in all the spaces. (In some cases), we have confirmed that we were happy with the processes but they needed time ... which has been the case for the U.K. equity team.
When we were not happy with where we were going, in terms of global equities for instance, we have decided to terminate the desk. When we're not happy with the process and thought we had to take a completely different approach, like with emerging market equities ... a new process has been put into place.
As a result of all of these actions, performance in 2009 has been quite strong. Last year we had 68% of our funds beating their targets for three years and 83% beating their targets over one year.
Now you're making a push into absolute return across asset classes? The intention is exactly that — for each capability that we have, to make it available as an engine for generation of alpha in an absolute-return approach, combining the skills of our fund managers and the skills that we believe we have in risk management together. In absolute return obviously we are providing clients with a stronger expectation that there will be this asymmetrical approach to performance that can only come with very strong risk management.
At the moment we are doing this successfully in London. We have desks with proven track records already. Piggybacking on that we are also developing ... (absolute-return strategies in convertible bonds, U.K. equities, European equities and credit). Certainly River Road is making inroads in the U.S.”