BZW plans pounds 1bn expansion

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The Independent Online
BARCLAYS de Zoete Wedd, the investment banking arm of Barclays, is planning a substantial expansion of its active fund management operations that may see more than pounds 1bn splashed out on takeovers of fund managers or asset portfolios.

BZW's ambitions mean it is the latest large institution to join the frenzy in snapping up independent or medium-sized fund managers, who are finding it increasingly tough to survive alone.

In June, BZW paid out pounds 275m for San Francisco-based Wells Fargo Nikko Investment Advisers, a passive index tracking fund manager, known in the trade as a "quant" manager.

That business, renamed Global Investors, now dominates BZW's asset management activities, with pounds 153bn of funds under management. With total funds now approaching pounds 200bn, the deal has propelled BZW to second place globally, behind Fidelity of the US.

The active side, BZW Investment Management, earns higher margins from larger fees from pension fund and wealthy individual clients, however, and BZW is concerned not to be viewed as a just a fund tracker.

With pounds 34bn, BZWIM has less than half the funds of Mercury Asset Management (MAM), Britain's largest institutional fund manager, but is keen to lift this to up to pounds 100bn.

"We don't simply want to be known as a quant house," says John Varley, chairman of BZW Asset Management, the holding company for BZW's fund management activities.

Some of the world's biggest banks, including Merrill Lynch, Morgan Stanley and UK rival NatWest, are also looking to snap up fund management operations, as well as financial giants such as GE Capital of the US.

Just over a week ago, Allied Irish Banks bought 75 per cent of John Govett, one of the UK's smaller fund managers with pounds 3bn of funds, in a deal that valued Govett at pounds 101m. That followed Germany's Commerzbank's pounds 169m takeover of Jupiter Tyndall earlier this year.

Takeover speculation refuses to leave MAM, demerged in May by merchant bank Warburg and now worth pounds 1.6bn, while quoted managers M&G, Invesco, Perpetual and Henderson Administration have also been firmly in the frame.

In the latest moves, Nationsbank of the US is seeking to put together a pounds 600m consortium bid for Gartmore, the UK's fourth largest fund manger owned by France's Compagnie de Suez.

Privatisation of the pounds 17bn British Coal Pension Fund is also in its final stages, with a sale due shortly.

Mr Varley, 39, an ex-corporate financier, was appointed earlier this year, and in September brought in Andrew Skirton as BZWIM's chief executive.

Mr Skirton, only 32, joined BZW from Legal & General in 1989 and moved up from BZWIM's gilts and bond investment side.

"We're looking to double or treble the active asset management side over time ... by acquisitions or takeovers of asset portfolios," Mr Skirton said.

BZWIM did not detail how much it might pay out to satisfy its ambitions, but doubling or trebling activities could cost anywhere from pounds 500m to pounds 1.4bn.