Standard Life's clients are steady, but cautious

Standard Life Investments' institutional clients are cautiously optimistic about the prospects for the firm's GARS portfolio, despite the departure of Euan Munro, the strategy's architect.

After it was announced in July that Mr. Munro, global head of multiasset investing and fixed income and member of the board at SLI, was leaving the Edinburgh-based firm to become the CEO of asset manager Aviva Investors in London, SLI was quick to name Guy Stern as head of multiasset and macro investing. Mr. Stern, with the firm since 2008, had been head of multiasset management.

“Our team-based culture means that Standard Life Investments is able to implement these changes with immediate effect with minimal disruption,” said Keith Skeoch, CEO of Standard Life Investments, in a statement issued at the time.

So far, clients and consultants are accepting that, with caution.

The $10.6 billion Orange County Employees Retirement System, Santa Ana, Calif., hired SLI in June to run $100 million in the global absolute return strategy. “OCERS is continuing to monitor the situation, however we believe that the transition of the leadership to Guy Stern who has been overseeing the day-to-day operations and portfolio management responsibilities of the global absolute return strategies to be positive,” Robert Kinsler, a spokesman for OCERS, said in an e-mailed statement. “Staff has not recommended a watchlist for Standard Life at the present time.”

The City of San Jose (Calif.) Police & Fire Department Retirement Plan, which awarded SLI $45 million to manage one of three global tactical asset allocation mandates at the end of January, has put the firm on watch, on the recommendation of its investment consultant, NEPC LLC.

“As a result of Mr. Munro's departure, NEPC's due diligence committee changed the rating of GARS internally from "no action' to "watch,' and we will continue to monitor the situation and reassess the due diligence rating should there be additional departures or large outflows from the strategy,” said an Aug. 20 NEPC memo to the board of the $2.9 billion city retirement plan.

The memo added, however, that NEPC was “not recommending any action at this time,” and that SLI “continues to be included in searches for clients contemplating adding GAA strategies to their portfolios.”

In an e-mail, Roberto L. Pena, director of retirement services for the San Jose fund, said executives plan to “continue monitoring the situation at Standard Life.”

The $39.4 billion Illinois Teachers' Retirement System, Springfield, hired Standard Life in May 2012 to invest about $400 million in GARS for the pension fund's real return portfolio. Spokesman David Urbanek said Standard Life continues to be a manager and has not been put on any watchlist.

Since Mr. Munro helped launch the strategy in 2005, GARS has done well. For the three-, five- and seven-year marks though June 2013, GARS had annualized returns of 5.97%, 8.2% and 7.49%, respectively, well above the benchmark returns of 0.12%, 0.36% and 1.58%, for the respective periods, according to eVestment LLC, Marietta, Ga.

As of June 30, SLI has $43.0 billion in GARS, according to the company. Executives declined to provide a breakout of how much was institutional, or how much was managed for Standard Life's internal assets.

But there has been some concern as to what Mr. Munro's departure means for the firm's long-successful GARS, as some consider the strategy to be inextricably linked to Mr. Munro.

“Losing Euan is clearly a blow,” said Andy Hughes, an insurance analyst at Exane BNP Paribas in London, in an e-mailed response to questions. But Mr. Hughes went on to point out that ultimately, the departure “does not seem to (have) had a huge negative impact” on GARS. Mr. Hughes also noted that Mr. Stern, not Mr. Munro, has been managing the fund for several years now.

But despite some notes of concern, executives within SLI meanwhile are not at all convinced the sky is falling.

For one thing, although he was just named as Mr. Munro's official replacement, Mr. Stern has been acting as the day-to-day manager of GARS since 2008, said Jack Boyce, managing director and head of U.S. distribution at Standard Life Investments in Boston.

Also, the firm manages GARS through a team-based approach, ensuring no individual has large responsibility over the risk budget. “Guy is supported by 32 multiasset professionals. It's based on a team. It's bigger than any one person,” Mr. Boyce said in a telephone interview. “It was never built as a star system.”

Mr. Boyce added firm executives have been talking with clients to make sure they “understand the strategy now and as we move forward.” So far, responses from clients “have been very positive,” according to Mr. Boyce.

“This (strategy) has a lot of different positions in a lot of different geographies, so it would be very difficult to come from one person,” added Tam McVie, Standard Life investment director, also in Boston, in a separate telephone interview.

Mr. Boyce added: “In the U.S. alone, we've raised over $2 billion through the month of June, just through GARS,” said Mr. Boyce. “So I feel very good about the growth that we have and I have every expectation that that growth will continue.”

Mr. Munro declined to comment.