Howard Carter, Chief of F&C Asset Management: The serial acquisitor with a point to prove about organic growth

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The Independent Online

Howard carter's office is a bit of a mess. Having moved into his new premises just five days ago - within hours of the completion of Isis Asset Management's reverse takeover of F&C - the room is still full of boxes, and the chief executive is not yet quite sure how to open the concealed door which leads into his own private meeting room.

But while his new surroundings do not quite have the modern, minimalist feel of the Isis offices, less than a mile away, Mr Carter was adamant that he be moved in, along with the central dealing team, immediately, to get straight down to the task of integrating the two businesses.

The complex deal places Isis, or F&C Asset Management as it has been renamed, as the fifth-largest fund manager in the UK, with assets of £120bn, and a market value of more than £1.1bn. While some analysts have speculated that Isis may have paid too high a price, Mr Carter won't hear a word of it. "When we announced the deal in the summer, Isis's shares were suspended at 199p. We're now trading at 230p, so clearly the market has reacted positively," he said.

Mr Carter has promised to deliver £33m of cost-savings from the deal, which will come mainly from job cuts. Like all asset management mergers, F&C and Isis promises to be a messy affair, with the enlarged group not needing double the staff to be double the size.

He says: "Something like 70 per cent of your costs in a fund management business are people costs. When you put a business together you don't need two chief execs, two chief investment officers and two chief financial officers. But what we aren't doing is cutting costs - we're removing duplication."

Among the biggest casualties of the merger is the Isis brand, which Mr Carter and his team have tirelessly - and successfully - spent the past two years establishing. Bizarrely, however, the enlarged group has opted to take the F&C name, which is almost unheard of in the UK retail market.

Having made such a quick success of the Isis brand, Mr Carter remains confident in his ability to pull off the same trick again. He adds that F&C is much better known in the institutional and European markets, and believes it was right to make a branding decision immediately, rather than putting off the inevitable.

"If you look at investment management businesses - and the investment banks often people don't make difficult decisions up front. If they've got two different brands they tend to leave them as they are, until eventually they get round to changing things several years later.

"If you look at Citigroup, they got to a stage where their investment bank was called Smith, Salomon, Barney - I'm not sure in which order. I know all of those companies very well, but was never sure of the name of the group. Now, finally, they've rebranded it all Citigroup."

Having sealed two sizeable deals in just two years, after his £240m acquisition of Royal & SunAlliance's investment business in 2002, Mr Carter says he is now happy with the size of the group. And after building up a reputation for being a true disciple of the acquisitive growth philosophy, he says is now keen to show the City that he can make a success of growing his business organically too.

"People might think that I'm a serial acquisitor," he says. "But I've done that mainly because I wanted to get the business to the right size - large enough and diverse enough to compete with the big guys.

"When I first started at Friends Ivory & Sime, we were too big to be small and too small to be big. We're now a significant player. We're not the biggest - and I'm not sure I want us to be the biggest - but we're big enough that from here we grow our business organically."

After a tough few years in the world's equity markets, Mr Carter remains cautiously optimistic that the next few years will provide plenty of opportunity for an acquisitive growth strategy.

With saving and financial education rapidly moving up the political agenda, he believes the investment industry is well positioned to be one of the principal beneficiaries as policymakers and individuals begin to respond to the reality of the pensions crisis.

"The real fundamental issue is simply that there are going to be a lot more people retired, and fewer people working. It takes me back to my days as an economics lecturer," he says.

"If you've got 100 people in the world and 99 of them are retired and just one is working, that one person has to supply for all 99. So what they get will not be great. And the one person who is working will probably be taxed so highly that he may decide it's not worth working anyway, which is a whole other issue. So people are going to have to work longer and think about how much they save."

As well as hoping to benefit from an overall increase in savings levels, Mr Carter adds that Isis, and now F&C, are increasingly benefiting from their position as one of the only large activist fund managers in the City. He says Isis has, over the past few years, attracted some big European institutional clients, as well as many private investors, who support the idea of fund managers with a social conscience and willingness to hold to account the companies they invest in.

"Historically, there's no doubt that the easiest thing for a fund manager to do if they didn't like what was going on in a company, was to sell their shares and move on. What we're trying do to is to increase shareholder value for our clients - trying to make companies we invest in better companies."

While Mr Carter stops short of laying the blame of the fat-cat culture on apathetic fund managers, he says his own fund managers are not scared to challenge executive pay if they feel it is not in proportion to performance. He adds that the new F&C will, like Isis, reward its fund managers for out-performance, and not for failure.

Although the future looks bright for the new F&C, Mr Carter admits that another severe downturn in the equity markets is the one eventuality which could put a very nasty spanner in the works. Even in the absence of another crash, he accepts the industry consensus that equity returns are going to be much lower going forward.

"It's been interesting to see that bond yields have come down in reaction to oil price rises recently, when historically it has been the other way round. People are accepting that we're now in a low inflation world, and subsequently lower returns."

One other slightly grey cloud which sits on F&C's horizon is the split-capital investment trust debacle, which is to make a small but noticeable dent in the group's balance sheet when it contributes towards the investor compensation fund later this year. While the exact amount that F&C will pay is yet to be revealed, it is likely to be a seven-figure sum and could be anything up to 5 per cent of group pre-tax profits.

Mr Carter, however, remains supportive of the regulator as a whole, arguing that standards were in dire need of being raised from the worryingly lax levels before the Financial Services Authority came into being five years ago. Although most of the firms involved in the split-cap investigation harbour some resentment about the manner in which they have been bullied into paying up for a crime they feel they never committed, Mr Carter remains reluctant to be drawn into a debate on the topic before the final ruling has been released.

After four years in the job and the end of his days as a consolidator fast approaching, the ambitious Mr Carter must surely now be keeping one eye on his exit strategy. If he can prove that he has the mettle to make a successful shift to an organic growth, he may soon find himself well placed as a potential successor to one of the UK's top financial services groups' chief executives. Not bad for a man who started his career as an economics lecturer at Leeds Poly.

From lecturer to leader

Position: Chief executive of F&C Asset Management (called Isis Asset Management before this week).

Age: 53.

Pay: £797,000 including pension contributions in 2003.

Career: Graduated from University of East Anglia with BA, and then MA in economics in 1973 and 1974. Began career as economics lecturer at Leeds Polytechnic in 1974, before moving on to become a senior economist at Montagu Loebl Stanley, a stockbroking firm, in 1981. Joined Prudential-Bache as chief economist and director of UK government bond department in 1984. In 1988, joined Friends Provident as head of fixed interest and saving, eventually being promoted to chief investment officer of Friends Ivory & Sime. In 2000, he became chief executive of FIS, which was rebranded as Isis Asset Management in 2002, following the acquisition of Royal & SunAlliance's investment business. After successfully completing the reverse takeover of F&C this month, he became chief executive of the enlarged group.

Interests: Going to the gym, watching cricket and playing the odd round of golf.

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