Aviva CEO Versey looks to his firm's next growth phase

The pressures facing money managers across the globe right now don't worry Mark Versey, CEO at Aviva Investors, too much.

Just 2½ years into his role at the helm of the £226 billion ($279.1 billion as of March 31) money manager, replacing Euan Munro who joined Newton Investment Management as CEO, Mr. Versey has already overseen a streamlining — and cost-reduction — exercise, aimed at making the firm more efficient, scalable and allowing executives to focus on managing clients and their money.

Last September, the firm announced "a massive outsourcing agreement" with Bank of New York Mellon, Mr. Versey said. The deal saw the custodian take on asset servicing including custody and fund administration, and providing front-office support including mandate monitoring and performance measurement.

Mr. Versey also turned his attention to the firm's product offerings, streamlining and shutting down "a few things (that) weren't really in demand from the client base," which is mostly institutional, he said. As of March 31, 93.4% of AUM was managed for institutional or wholesale clients.

That included shuttering parts of the equities business, cutting down on the "multiple flavors" of absolute return, and closing some of the real estate strategies "that were really getting too small to … do what clients need them to do," he said.

Having already "slimmed the cost base down" means reports such as that of Boston Consulting Group in May — which said market performance had been responsible for 90% of the asset management industry's revenue growth for almost two decades and that the tide is now turning and managers need to look at their cost base — don't worry him too much.

"We've already done that. … So almost our entire business focus now, apart from obviously managing investments, is distribution and it's really refreshing to be able to focus on that," Mr. Versey said. Aviva's 2022 annual report said baseline controllable costs were down 4% over the year for Aviva Investors, to £331 million.

There are three areas of development for Mr. Versey now as he works to grow the business: insurance asset management, being a real assets specialist and being synonymous with sustainability.

When it comes to insurance asset management, Aviva Investors has a natural advantage in that its parent company, Aviva PLC, is one of the largest insurers in the U.K. And about 80% of Aviva Investors' assets under management is attributable to the wider group — although Mr. Versey was quick to point out that 100% of the manager's growth comes from third-party clients, with the firm bringing in £1.3 billion in net inflows from external clients last year. External net inflows for the first quarter of 2023 were £171 million.

"Insurers like to work with insurance asset managers because we talk the same language and there's a really strong alignment of interests," such as in real assets co-investments with global insurers, he said.

On the real assets side — something that's inevitably close to his heart since he ascended to the CEO role from the position of CIO for real assets, although his resume also covers work on the equities and fixed-income side — the firm offers real estate, infrastructure, forestry and other investments.

The firm's AUM split was about 42% credit, 32% multiasset and macro, 18% real assets and 8% equities as of March 31.

The third area of focus for Mr. Versey and Aviva Investors is sustainable investing.

The firm ranks third in shareholder advocacy group and charity ShareAction's ranking of global managers' approaches to responsible investment. Aviva Investors also contributed to the creation of one of the United Nations sustainable development goals; and ahead of the United Nations Conference on Sustainable Development in 2012, Aviva Investors convened the Corporate Sustainability Reporting Coalition — member investors had a total $2 trillion in AUM. The group proposed reporting requirements on sustainability and also urged participant countries to form a convention on corporate sustainability reporting.

"And sustainable investing is something that we were almost pioneers of originally, but it's not something we'd really marketed very well. I think we've missed the trick," he said.

While investing is first about financial returns, sustainability is "a core thing for everything we do... You can do both," Mr. Versey said.

One of this sustainable investment themes is "buy brown, make it green" — something that applies across asset classes, with the only difference being the time frame to do so.

"You need to be a long-term investor to really try and do this on equities. And probably the longest time frame of all will be government bonds," he said — an interesting point given insurers have to hold government bonds to match liabilities and "we look to help Aviva get its portfolio to be net-zero" by 2040. "Probably the hardest-to-change sector in the end is going to be government bonds … It will be very hard to get to net-zero on your assets if the government isn't equally getting there," Mr. Versey said.

And Mr. Versey writes a lot of letters to get companies and governments on board with the move to a net-zero economy. That includes writing to governments and finance ministries at the start of each year, "explaining what we think the country should be doing, which is really about transition plans in particular," he said.

What the industry needs governments to do is lay out what each will do with the different sectors that require greening, he said.

One of the things Aviva Investors is asking the U.K. government to do is create a "sector pathway … of how it's going to help all the different sectors, like transportation and farming, to get to net zero" by 2050. "What is the policy going to be? What are they going to invest? Are they going to give subsidies? Are they going to police it? Are they going to actually have regulation? So there's a lot of levers that government can use," he said.

Mr. Versey also communicates with corporations, and the firm is coming up on three years into its climate escalation engagement policy with oil and gas firms.

"We wrote to the top 30 emitters — so the 'dirty 30' — … and said, if you don't sign up to net-zero with science-based targets, we'll divest. And we gave them three years because it's a hard thing to do," Mr. Versey said.

Time is up at the end of this year, and "about two-thirds have made really good progress, which is encouraging. None of them are yet fully Paris-aligned, is probably worth saying. So, there's still work to do and there always will be, I'm sure, but we're really pleased with the progress that has been made. But it does mean there will be some holdings that we will actually divest," he said, declining to name companies.

The three focuses come together in the firm's Climate Transition Real Assets Fund — an about £500 million strategy investing in real assets, run in a way that targets net zero by 2040, and is pitched at various investors including defined contribution plans and insurers. "That's a great example of our three strands" in one vehicle, he said.

Mr. Versey also highlighted Aviva Investors' own diversity, equity and inclusion policies and practices, and is particularly proud of the firm's returners program, which aims to bring women back into the investment sector after 18 months or more of time out. On the inclusion side, he co-sponsors Aviva's "origins community" — one of six employee resource groups working to make the firm more inclusive. The origins community celebrates cultural difference including race, ethnicity, faith and belief, and social mobility.

There's also a "reverse mentoring scheme" in place — his own mentor is a young woman in Aviva Investors' controls oversight function. "It helps the leaders see the company (in) a completely different light," he said, adding that the aim is not to task these more junior people to find solutions, but rather to help "to identify the problems and see the world through a different lens," Mr. Versey said.