Abbey continues rollout of outsourcing initiative

Many distributors talk about open architecture product selection, but at UK banking and insurance group Abbey National, the idea of choosing best of breed managers for the entire £30bn (E45bn) product range has been a reality since the beginning of 2004.

The outsourcing initiative, brainchild of chief investment officer James Bevan, continues to roll out, despite the £8.2bn takeover bid tabled by Spain’s Banco Santander Central Hispano (BSCH).

The latest tranche of outsourcing should see Abbey handing its £170m SM Opportunity fund to external managers in September. This product belongs to the £12bn currently invested in insurance funds by customers of Abbey’s Scottish Mutual and Scottish Provident subsidiaries.

The fund’s new managers will be expected to outperform a bespoke benchmark by 2 per cent, using asset allocation, cross-border stock selection and currency overlay techniques.

“I am confident that what we are doing is value accumulative for unit-holders and shareholders in our open-ended investment companies,” said Mr Bevan. “The institution taking over may have a different view, but we don’t know what that view will be.”

About £30bn was outsourced in a transitionary mandate to State Street Global Advisors (SSgA) earlier this year. The US institution is expecting to keep at least £10bn in passive and enhanced-index mandates for the long term, with the balance gradually distributed among Abbey’s managers. They currently include AllianceBernstein, Axa Rosenberg, BGI, Deutsche, Goldman Sachs, Invesco, JP Morgan Fleming, Merrill Lynch, Oechsle, Pimco, RCM, Schroders, and Western. With the multi-manager concept, Abbey retains accountability to customers for performance of investors’ funds. Lack of accountability has been a problem in those banks which simply sell other houses’ funds.

Abbey’s suitor, BSCH, is no stranger to outsourcing. It’s private banking subsidiary, Banif, operates products sub-advised by ABN Amro, Invesco, JPMorgan Fleming and Goldman Sachs. Mr Bevan’s expected product streamlining also fits neatly with BSCH’s vision of a simple range for customers. Both banks are leading suppliers of structured products in their home markets.

Mr Bevan will be one of the key speakers at PWM’s Open Architecture Forum to be held in London on November 17. Further information at www.ftbusinessevents.com

Bevan: ‘BSCH might have different view’