View from City Road: Time to ditch tradition

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The Independent Online
TRADITIONAL fund managers should wake up to what is happening to their business. They are losing clients to their indexed counterparts at a speed that is bewildering most of them.

Barclays de Zoete Wedd Investment Management, one of London's largest indexed fund managers, has won pounds 2bn of business in the past six weeks. This rate of winning business is highly unusual in the slow- moving world of fund management.

Its clients include Wellcome Trust, which has invested a large part of the proceeds of its pounds 2bn sale of shares in Wellcome; Marks & Spencer, which switched the management of part of its pension fund from Prudential Portfolio Managers and Mercury Asset Managers; Reed International's pension fund and Allied-Lyons, which has invested a further pounds 100m of its pension fund through BZWIM.

No one expects BZWIM to keep this up. But then no one expected the indexed fund management business to grow this large. There was at least pounds 25bn invested in indexed funds in 1991, according to the latest National Association of Pension Funds survey, and it looks as if the next survey will throw up a far larger figure. In addition, some insurance companies have adopted indexation for part of their funds.

Indexed fund managers have the modest aim of performing in line with the market as reflected by the FT All Share index. Traditional or active managers aim to outperform, something that they cannot all do all of the time. Even those that do succeed for a short time rarely keep it up for long.

It is time for weaker firms to recognise their limitations. If they cannot beat the index, they should join the indexers.