Takeover threat for EFM as £1.4bn fund is put to tender

Edinburgh Fund Managers' future as an independent company was yesterday thrown into doubt after its biggest client said it might take its £1.4bn fund to a rival company.

The struggling fund manager's shares fell 6 per cent to 370p on the announcement that Edinburgh Investment Trust would begin a beauty parade, after suffering a dramatic fall in its assets under EFM's management last year. The investment trust will consider EFM, but only among other candidates.

Losing the mandate would cut around £2m or nearly a third of yearly profits for EFM, prompting speculation that it will again be a takeover target.

It has already been considered by Commonwealth Bank of Australia and Hermes, manager of the BT pension fund, but would become a lot more vulnerable if it is stripped of its biggest contract.

Many in the City believe EFM will lose the business because Edinburgh Investment Trust was dissatisfied with its performance last year.

Reporting figures for the year to 31 March, the trust's net asset value per share fell by 10.4 per cent, compared to a 5.7 per cent drop in the FTSE All-Share index.

Edinburgh Investment Trust's board highlighted its displeasure with EFM when it reduced the notice period of the company's contract from one year to three months.

Lord Eglinton, chairman of the trust, said in a statement: "After much thought, the board is not able to give a continuing commitment to EFM without judging them formally against other fund managers." Iain Watt, chief executive of EFM, said his company "welcomed" the chance to bid for the trust's funds, in the hope that it would resolve the uncertainty which has surrounded the relationship between the two groups since last year.

"Some people believe that we will not win the re-tender. But we believe we have got a strong case to put and we want to get on with life, which we hope will include Edinburgh Investment Trust for many years to come," Mr Watt said.

EFM did brush up its performance dramatically when it appointed Robert Waugh, formerly a fund manager at Phillips & Drew, to manage the trust in October. He beat the index in the second half of the year. EFM has also attracted Anne Richards, who was head of Merrill Lynch's Alpha team.