Special Report on Investment Trusts (8): Takeover creates group with power to cast a giant shadow: A pounds 42.5m deal has created Britain's biggest manager of investment trusts, with 18 trusts and funds of pounds 2.7bn
Wednesday 20 January 1993
The enlarged group is the manager to 18 trusts with total funds of pounds 2.7bn, the largest being Witan with about pounds 800m. Ben Wrey, who recently became Henderson's chairman, says there is no need to reduce the numbers by merging any of the trusts. Perhaps surprisingly, Henderson's mainly general trusts, such as Witan, overlap little with Touche Remnant's more specialist funds.
Jeremy Edwards, Henderson's managing director, says the acquisition has given the group a very powerful lead position in the investment trust industry at a potentially important time. After five dull years, Henderson hopes private investors may start to recover their enthusiasm for shares.
Mr Wrey suggests low interest rates and incipient economic recovery may persuade savers to move some of their cash into shares and fixed interest stocks - along the lines of what has been happening in the US. Mr Wrey said: 'We have had phenomenal growth of cash in the system. The public, after five years of sitting on the sidelines, bruised after 1987, will hopefully start to redeploy their savings in the stock market.'
He adds: 'The great battle we will have to win is getting the private investor back on a big scale into investment trusts. They are superb long-term investment vehicles for private clients. They can be geared (borrow additional funds), they can make off-beat investments, venture capital investments. Investment trusts were created for private individuals and that mission is still there.'
Henderson and its rivals will be looking for a similar revival in unit trust sales, potentially the most profitable part of the investment management business. Some doubted whether unit trusts had a future at all after the 1974 crash but funds under management have since rebounded from pounds 1.3bn to pounds 62bn. Henderson believes there could be a further leap. 'When the cycle turns and interest rates really do fall, you get a totally different attitude to risk investment,' Mr Wrey says.
The acquisition of Touche Remnant has brought a further 12 unit trusts into the group to add to Henderson's existing 22 funds. The group has about pounds 1bn in unit trusts. About two-thirds of the Touche Remnant funds are duplicated in Henderson's range, and the group is considering how to rationalise the trusts.
Touche Remnant's investment managers were initially concerned about Henderson's more disciplined approach, which limits the discretion of individual managers. Henderson says its approach reflects its much heavier involvement in the management of pension funds, where clients typically specify certain guidelines for the management of their money. Mr Wrey says Henderson is overcoming the initial fears: 'The early signs are enormously encouraging.'
Touche Remnant had about pounds 2.1bn under management, about pounds 1.3bn in investment trusts. Although this is a huge sum of money in most contexts, Mr Wrey says it was probably insufficient to allow Touche Remnant to make a success of its business in the 1990s. He adds: 'That must sound mad to Mr and Mrs Joe Bloggins. But if you want to be a global money manager, and have the systems, the research and all you need to support an international money management business, you need to be huge.'
The enlarged group has about pounds 10bn under management. If Henderson is to make the deal work, it must run this larger business on an infrastructure only modestly bigger than that which it had before. The reduction in unit costs will then lead to a significant improvement in profits. Henderson yesterday announced it was making 76 staff redundant. This will cost the company pounds 1.4m in redundancy payments, but the future savings are expected to be substantially greater.
Touche Remnant, which was originally connected with the accountants Touche Ross, had rather lost its way in recent years. Mr Wrey says a lot of its problems stemmed from the debilitating loss of its flagship, TR Industrial & General, which was taken over by the British Coal pension funds for pounds 560m in 1988. The firm was unable to build substantial unit trust or pension fund management businesses to reduce its dependence on investment trusts.
Touche Remnant was in 1989 taken over by Societe Generale but the relationship failed to produce the hoped-for volumes of business. The firm suffered operating losses in 1990 and 1991, and ended its three-and-a-halfyear association with SocGen with less money under management than it had had originally.
Henderson, which is itself a listed company, has been able to invest pounds 20m in new systems in the last five years. Mr Wrey said the group can offer its new colleagues better computer systems and research than were available within Touche Remnant.
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