Scottish Widows Investment Partnership (Swip) yesterday tore the heart out of its Edinburgh equities business amid persistent rumours that state-backed owner Lloyds Banking Group is fattening the struggling fund management business up for a sale.
The company said 23 of the 38 fund managers and analysts who work at the operation, which manages £58bn, would be casualties of a switch to a lower-risk investment strategy. Investment advisers who have queried the move have been told that a future sell-off "has not been ruled out".
Swip said the move had been driven by "client demands" as it seeks to boost business from third parties, which has badly lagged rivals.
Including the £58bn-strong equities business, Swip manages £143bn in total, but 80 per cent comes from the in-house life insurance business of Scottish Widows, and only 20 per cent from external clients. Nearly half of the £154.9bn managed by its rival Standard Life Investments comes from third parties.
Swip refuses to disclose how its revenues are split between in-house and third-party business, but improving the latter is vital if Lloyds' chief executive, Antonio Horta-Osorio, is to derive value from a sell-off as part of his strategic review of his businesses.
The bank is grappling with the forced sale of more than 600 branches known as "Verde". Plans to sell to the Co-op have been hit with delays as a result of regulatory issues.
Experts have questioned whether the Swip's new investment strategy will attract the new clients it needs. Swip's plan will see it looking to beat benchmark indices such as the FTSE 100 by between 0.5 per cent and 1 per cent, as opposed to 3 per cent or more at present. Such a low-risk strategy can be managed by fewer people, with computer modelling taking up much of the strain.
But Meera Patel, a senior analyst at Hargreaves Lansdown, described the plan as making "bets around the edges" of stock market indices. She said: "Our view of Swip's active equity management arm is that it isn't very good. They've generally delivered less than average performance.
"The other issue we have had with them is that the moment a team gets anything behind them in terms of performance they get poached. I'm not sure that what they say they are going to be doing is what the market wants."
Another fund management industry source, who asked not to be named, said other life insurers have made similar moves as they grapple with a new era which allows savers with products such as pensions to choose who manages their money rather than being stuck with the in-house option.
"Fund management groups linked to life insurers need to evolve as they can no longer count on a big wedge of money coming from their sister company," the source said.
Swip had been operating 45 investment strategies but that will be down to just six in the UK after the restructuring is complete.
Francis Ghiloni, a director of distribution and client management for Swip, said: "This has been driven by our clients. They are increasingly asking us to manage equities on a global basis rather than on a regional basis like, say, Europe or the US. In switching from 45 to six strategies we will be able to manage the money with a lot less people."