Munro sets Newton on track post-reorganization

When Euan Munro took up the CEO role at Newton Investment Management, he was taking the helm of a business that was about to change dramatically.

He joined the firm in June 2021 amid a process to transform the then-$62.8 billion firm. In February 2021, Hanneke Smits — CEO of parent firm BNY Mellon Investment Management and former CEO of Newton — began reorganizing some of the money managers within the BNY Mellon stable. One of the changes was to move Mellon Investments Corp.'s equities and multiasset strategies and teams, as well as BNY Mellon Investment Management's Japanese equities team, to Newton.

The integrations enlarged Newton's global footprint. As well as almost doubling the firm's assets under management at the time — Newton now runs $103 billion in assets — the change also moved the dial on its client base, with the firm now 50% U.S. and 50% rest of the world, and he now also has portfolio managers based outside of London.

"Newton was going from a single-site fund management business … to a genuinely global business, but (it was) more than just a geographical spread," Mr. Munro said in an interview at Newton's headquarters in London. "We were bringing in some heavy-duty quantitative capabilities from San Francisco. We (brought) in real depth in small- and midcap U.S. equities with the team in Boston — whereas previously, Newton really just had the resources to look at large-cap U.S. And then we were … bringing to the (new) American colleagues … sustainability research that we had here in London," he said.

That new quantitative capability is something Mr. Munro highlighted as an exciting area of growth for Newton, as well as income strategies and the firm's multiasset offering for the U.K. adviser market.

Adding that breadth of expertise through the combination of the teams and capabilities also helped to build the firm's active multidimensional research platform — something Mr. Munro has been keen to communicate to clients. The aim of the platform is to equip Newton executives with the strategies, information and research they need to navigate a changing market environment.

While Mr. Munro is experienced in leading a money management firm — he joined from Aviva Investors where he was CEO between 2014 and 2021 — one aspect of Newton's client base was new to him.

"One of the strengths of Newton in my eyes was that all of the clients were effectively third-party … (having) selected us, which means every client is a badge of honor," he said. His experience in the past with Aviva Investors and at previous firm Standard Life Investments was in managing money for a huge and stable captive client, and then building the third-party business on top.

Being the "chosen utility" by clients extended to the teams that joined Newton from Mellon, and so one challenge Mr. Munro identified was ensuring their clients were also happy and reassured about the changes. Mr. Munro's worry was that "they might be nervous about my intentions in terms of trying to create something new," he said. "A lot of asset management mergers have gone badly because they haven't been able to bring the client base with them — their client base has suspected that maybe it's just the whole cost-cutting exercise or something of that nature."

With that in mind, Mr. Munro spent much of his first year at Newton meeting clients, explaining what was being done and why, and that the change was not a cost-cutting exercise.

"It wasn't about trying to smash two businesses together for synergies. It was trying to build a better business in the future," he said.

While the firm found some clients taking up the expanded offerings from Newton, such as using access to sustainability research or U.S. small-cap ideas, there have been some casualties.

"I think with every merger (within) asset management, there's an element of risk. I think we've navigated that quite well. Very few clients chose to leave us because of the integration," he said.

There were "very, very limited" examples where clients had exposure to both Mellon and Newton due to the integration, "and they felt overexposed to us as a house," he added.

Year-to-date gross inflows were $5 billion, with a strong first-quarter for Newton's U.K. intermediary business in particular. The firm saw gross inflows to global, U.K. and U.S. equity income strategies, as well as for its Sustainable Global Dynamic Bond fund and multiasset strategies. The firm was recently awarded three institutional allocations from U.S. clients and there's also a strong institutional pipeline in Asia-Pacific from clients looking for quant capabilities, according to a spokeswoman. She did not name the institutional investors.

Along with new strategies for Newton came more fresh talent.

In 2022, Mr. Munro hired Mitesh Sheth, former CEO of investment consultant Redington Ltd., as CIO of the multiasset business, and Therese Niklasson was named global head of sustainable investment, joining from Ninety One Asset Management where she held the same role.

He also highlighted Newton's investigative team — "a number of former investigative journalists. That's a brilliant team," Mr. Munro said.

That team is there to support investment teams in their analysis and assessments of companies. "When we're talking to companies, normally we're talking to the chief executive, the finance director, maybe the chairman, maybe the senior independent director. They will give us a corporate story."

The investigative team talks to different people — maybe an academic with specialism in technology who has a view on whether a company is cutting edge in what it's doing, for example.

Along with building out talent and teams, Mr. Munro has also worked to "raise the game with thought leadership — getting our message out to the marketplace that 'yes, we're good at managing money, but we'd also want to talk about broader issues and we can add value.'"

He wants Newton to be top of mind for clients when they have a board meeting where sustainability might be on the agenda, or to be consulted on some of the important investment themes in the future, he said.

"If they're having that thought, I want them to think of Newton," Mr. Munro said.

Not only does that enhance and deepen relationships with clients and help them, but from a commercial point of view it "is quite simple: Every manager will go through episodes where performance isn't what we would like — you know, investing is hard. Even great teams go through fallow periods … And during those periods, the strength of the relationship and the equity you've banked with the clients is incredibly important," Mr. Munro said.

Mr. Munro has now spent nearly a decade running teams rather than directly running assets — he joined Aviva from Standard Life Investments where he was global head of multiasset investing and fixed income, known in the money management industry as a star fund manager and the architect of SLI's hugely successful global absolute-return strategies, or GARS. Those strategies grew to more than £20 billion ($25.3 billion) in assets under management under Mr. Munro's leadership, from about £1 billion in 2008.

But running teams rather than directly managing assets doesn't mean he's not closely observing markets.

Mr. Munro agreed that it's time for investors to think about the known-unknowns and how they may impact portfolios.

"We're not going to have any particular insight" into the thinking behind the war in Ukraine, for example, meaning "we're unlikely to have an edge," he said.

But the important thing is that even though "you maybe don't have any advantage in terms of insight, you still need to consider from a portfolio construction point of view, so they become risks that need to be managed."

However, what is clear to see is that Russia's invasion of Ukraine highlighted "the fact that we are not yet ready to deal with a fully electric economy. If we are thrust into that too quickly, it leads to all kinds of social injustice, the cost-of-living crisis and so on, where inevitably, the poorer in society are worst-affected. And that throws up this concept of what's the right pace and phase of transition?" Mr. Munro said. Moving too quickly risks missing the targets, he added.

Does he miss running money?

"Probably a little bit, if I'm honest. I love this industry, I love markets, I like the debate."

When asked whether he still looks at markets and thinks through what he would have done were he still managing portfolios — for example, through the collapse of Silicon Valley Bank — Mr. Munro said: "I definitely felt that there was a lot of very threadbare unicorns running around Silicon Valley — I felt it was a bubble. I've seen bubbles before. I've lived too long and been through too many market cycles and know what they look like and smell like. So, I was expecting quite a bit of capital to be lost in the crypto world, in the sort-of Silicon Valley startup world," he said.

But he's also pragmatic about the fact that even the best money managers cannot be omniscient.

"The market has an uncanny way sometimes of finding the point of connection that we're all missing. So, if I was looking at a typical venture capital fund portfolio, I probably would have said, 'yes, they all look quite expensive, but they're all in different things'," with diversification across sectors. But Mr. Munro said he "would have probably missed" the fact that they all used the same bank, with more money with that bank than is covered by the federal protection limit.

"And all of a sudden, the market finds that weakness. And I think that's the point. Sometimes, you just have to know you don't quite know what's going to bring the pack of cards down but be aware of when things are risky and try and look at that in maybe a slightly different direction," he said. "Investing is hard. Making money as an enterprise or in a portfolio is hard. It shouldn't be easy," Mr. Munro added.