Munro shaking up Aviva Investors

Euan Munro, CEO at Aviva Investors, has made big changes not only to investment processes, but also to personnel, in his quest to bring the money manager to the forefront of institutional decision-makers' minds.

One of the biggest challenges has been differentiating between “global” and “international.”

“Aviva Investors has been international for a very long time, but is now really coming together as a global asset manager,” Mr. Munro said.

The £234.3 billion ($370.7 billion) London-based firm has global capabilities and presence, he said, but the operations and view were compartmentalized.

“Until recently, asset managers within the regions looked toward local regions and regional clients: Asia (executives) ran Asia assets for Asian investors. We were really missing out on the opportunity to be global, pulling (executives across the globe) into conversations, sharing insights” and client perspectives, he said.

Aviva Investors “seemed to me to be structured like a whole lot of asset class boutiques,” Mr. Munro said. “When I arrived, there was genuinely a hunger to be put together and to engage. Giving them permission — and the travel budget — helps.”

“Fairly powerful” executive-level CEOs, “who were responsible for regions” were part of the problem, Mr. Munro said. “I dismantled the regional structure. We needed a matrix structure ... with global functional heads” of asset classes. Aviva Investors now has different, non-executive-level regional heads.

Significant changes to structure and personnel include:

• Pat O'Brien, North America CEO, and Tahnoon Pasha, Asia-Pacific CEO, left the firm. New regional, non-executive level CEOs are Andra Purkalitis for North America, and Kevin Talbot for Asia-Pacific;


• David Lis, promoted in October to chief investment officer, equities and multiassets — an executive role — from head of equities; and


• Jean-Francois Boulier, promoted to chief investment officer, fixed income — an executive role. He was appointed CEO for Aviva Investors France in 2009.

The firm also has faced uncertainty at the top, something Mr. Munro said had made it difficult to attract third-party interest. That uncertainty was sparked by the departure of CEO Andrew Moss in 2012. Paul Abberley temporarily filled the post and then returned to his job as head of investments in June 2013, before leaving the firm that November to join retail manager Charles Stanley & Co. Ltd. John Misselbrook, a non-executive director, took the CEO baton from Mr. Abberley until Mr. Munro joined permanently in January 2014.

“Given that asset management is a people business, having interim CEOs ... is just not wonderful,” Mr. Munro said. “Even that in itself is enough to put some consultants off. But those things have been very explicitly taken off the table.”

Mr. Munro hopes his appointment will bring the stability necessary to attract more external business.

“Aviva Investors has never been a big contributor” to its parent Aviva PLC, said Ashik Musaddi, London-based European insurance analyst at J.P. Morgan Chase & Co. “Look at Legal & General Group, Prudential and Standard Life — those are three other big insurance companies in the U.K., and their asset management arms have grown massively. But Aviva Investors has never been successful in third-party relative to these names.”

Around 80% of Aviva's £234.3 billion in assets under management is managed for the parent insurance company. Mr. Munro is well aware that this needs to change — not the least because Mark Wilson, group CEO at Aviva PLC, said in his 2013 preliminary results statement that the level of external assets — and the manager's 3% contribution to group operating profit — was “inadequate.”

“(Mr. Wilson has made clear that) Aviva Investors will be core to Aviva PLC in five years' time whether or not it has grown third-party assets. But if we haven't, then I won't expect to be here,” Mr. Munro said.

He sees profit and third-party assets as linked. Managing captive client assets is not particularly profitable, he said. “The opportunity is to grow the third-party assets — that is where a lot of the profit growth will come from.”

And Mr. Musaddi is confident of Mr. Munro's potential to grow the business. “Is (Aviva Investors) a game changer right now? No. But can it be in the future? Definitely yes,” he said. “The reason is Euan Munro and Mark Wilson.”

Mr. Musaddi said Mr. Munro's background — he was the “architect” of Standard Life Investments' hugely successful global absolute-return strategies, or GARS, which grew to more than £20 billion as of June 30, from about £1 billion in 2008 — is key. “If he can replicate that same success at Aviva Investors, then certainly it will be a game-changing business. Because if your best fund is working, you get traction in the market — you attract inflows and talent, and launch new funds.”

But it has required new thinking, Mr. Munro said, to get the company to a global overview, “connecting the dots” across the globe on investment-grade assets, infrastructure, fixed income and equities. It is also why he spent his first six months holed up at the office and developing the Aviva Investors Multi-Strategy family of funds — which his time at Standard Life Investments as global head of fixed income and multiasset investing no doubt helped and influenced.

But success will not happen overnight — something made evident in the manager's financial results for the first half of 2014. While operating profit increased to £41 million, up 32% from the same period in 2013, due in part to higher performance fees, external clients withdrew £5.8 billion of assets, contributing to a 2.6% decline in total assets to £234.3 billion.

But J.P. Morgan analyst Mr. Musaddi is not particularly concerned. “Because there have been a lot of changes, these things are bound to happen,” he said. “But once the team as it currently is settles down, those things don't take a lot of time to hit an inflection point and move exponentially in the right direction.”

Aviva PLC acknowledged in the six-month financial update that it will take time to attract assets, and Mr. Munro said consultants and distributors — including one U.S.-based distributor that was particularly impressed with the business, which he declined to name — are now coming through the door.

Mr. Musaddi said Mr. Munro will have to “prove his worth for one year at least. In late 2015, early 2016 he could start to grab huge amounts of funds, (and it) could be a very relevant business by 2017-'18. For early 2015 though, I would doubt that,” he said.

Mr. Munro said he won't be jumping on the passive management bandwagon to attract third-party assets. “There is a lot of pressure toward "cheap as chips,'” he said. “My business is probably several hundred billion too small to compete with the big passive guys.”

But pressure on active management is something that keeps him up at night. “I don't expect people to pay for bad performance, for beta and market exposure — but we need to make sure there isn't a regulatory framework that stops us charging for value-add.”