The Royal Bank of Scotland (RBOS)

                             Fund Management Profile


Today, commercial...
early 1990s, though, the company was denying that it had any plans to acquire further
investment businesses. At the same t...
deal Newton also retained a three-year capital raising option, obliging RBOS to
subscribe for up to £10 million in cumulat...
given the investment needs of an ageing UK population, fund management was a
growth area. Such arguments did not, however,...
a new bank designed to safeguard Scotland’s future banking independence, Adam &
Co drew heavily upon traditional values. A...
exchange dealings (The Herald, August 17, 1993). The bank with the former jockey in
its team had been devastated by a piec...
family’s legacy is preserved at the bank, through the presence of Madame
Schlumberger Primat’s son, D Primat, on the board...
Since the takeover in 1993, Adams & Co has expanded significantly. In 2002 it
recorded its eighth consecutive year of prof...
however, denied by RBOS which rejected the idea that it was contemplating a merger
of the two banks. Indeed even the bring...
funds under management. As for Clydesdale, the defections left its fund management
operations severely depleted. At this p...
Today Adams & Co continues to see itself as a “discretionary fund manager” (CA
Magazine, December 2001) with its activitie...
In the end the company was sold to surprise bidder, Nationwide Mutual, an American
insurer for £1.03 billion. Nationwide w...
Whatever the future of these subsidiaries, RBOS again seemed to be demonstrating an
arms length attitude to fund managemen...
not make absolutely the correct decision? Certainly in selling Gartmore the bank
seemed to achieve an exceptional price.

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The Royal Bank of Scotland (RBOS) Fund Management Profile


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The Royal Bank of Scotland (RBOS) Fund Management Profile

  1. 1. The Royal Bank of Scotland (RBOS) Fund Management Profile Introduction Today, commercially speaking, RBOS is virtually ubiquitous. Its Royal Bank, NatWest and Bank of Ulster branches cover the whole of the UK and Ireland. If you take out insurance with Direct Line or Churchill you are dealing with the company. If you open a savings account at Tesco supermarket, or ask them for a loan, you are ultimately an RBOS customer. Even the Queen cannot escape, with Coutts, the traditional bank of the Royal Family, just another RBOS subsidiary. When it comes to fund management, however, RBOS is far from ubiquitous, with most of its activity in this area left to its private banking subsidiaries or outsourced altogether. As the following profile will demonstrate, though, this is not a story of a bank failing in its attempt to make an impact in a new commercial area. In the case of RBOS it could easily have established itself as one of the UK’s dominant fund managers. Moreover, it could have done so on a number of different occasions. The fact that has refrained from doing so has been grounded in its own decisions about its appropriate strategic direction. Capital House In the late 1980s and early 1990s, RBOS’ investment management activities were conducted principally by its subsidiary, Capital House. This was established at the rather inauspicious point in time of October 1987 (with the “Black Monday” stock market crash taking place on 19/10/87). Indeed, it would be possible to speculate that this baptism of fire is perhaps related to the general reticence shown by RBOS to commit itself to the fund management sector. Certainly after a few yeas of operations, RBOS seemed to be less than fully committed to this particular subsidiary. This was picked up on by the financial press, with one comment being that “There has been considerable speculation that the bank did not wish to be involved in fund management…”(The Scotsman, May 7, 1994). At the time of its creation Capital House had £1.7 billion of funds under management. By 1994 this had reportedly risen to £5 billion (The Scotsman, May 7, 1994). In the course of this rapid expansion the company had opened offices in Hong Kong and Boston. These supplemented its existing offices in Edinburgh, London, Jersey, Guernsey, the Isle of Man and Singapore. With £5 billion in assets, Capital House was a significant player within the Scottish fund management industry. Baillie Gifford, for example, was not much further ahead around this time, with around £7.9 billion under management (CA Magazine, December 1993). If RBOS had chosen to enlarge the subsidiary, it could have conceivably established itself as one of the dominant Scottish fund managers. In the 1
  2. 2. early 1990s, though, the company was denying that it had any plans to acquire further investment businesses. At the same time, however, it also denied that it had any plans to sell Capital House (The Scotsman, May 7, 1994). These mixed signals were becoming particularly apparent around 1994. In that year Capital House was taking major steps in strengthening its investment team. Early in that year, for instance, it appointed Gary Steinberg from the Universities Superannuation Scheme (USS) to the new position of global investment strategist. The company had the appearance of one that was preparing for future growth. The new confidence was expressed by the company’s Corporate Affairs Director, John Ellwood, who seemed to break with RBOS tradition by stating that “Capital House is a company which is determined to grow by acquisition…” (The Scotsman, May 7, 1994). At the same time, though, there was a growing suspicion that Capital House was not regarded as a core operation within the wider RBOS empire. Its MD, Paul Field, for example, who took over from Norman Riddell in 1993, did not sit on the main RBOS board, although most of the bank’s other areas of activity were represented. The view that the company was being sidelined by RBOS was expressed by the Scotsman (May 7, 1994) through the following comment: “…Capital has never appeared to figure highly in its banking parent’s plans, hardly receiving a mention in the annual review of the most recent financial year, compared with other areas of activity like Direct Line” In the end, the two opposing views that Capital House was about to be strengthened and/or ditched by RBOS were effectively reconciled through a deal with Newton Investment Management. The prospect of a deal certainly seemed to please those who had ambitions for Capital House, with Corporate Affairs Director, John Ellwood stating that “I would see it as extremely exciting and extremely positive were we to get into bed with Newton Management” (The Scotsman, May 7, 1994). Newton Investment Management Newton was established in 1977 as a joint venture between Stewart Newton (formerly with Ivory & Sime) and the international broker, Reed Stenhouse. Initially the new company specialised in pension fund management. After the takeover of Reed Stenhouse by Alexander and Alexander, Newton and his colleagues acquired a controlling stake in the company in 1986, buying out the rest of the shares in 1992. (The Scotsman, September 17, 1994, Scotland on Sunday, April 19, 1998). The Deal In September 1994 RBOS merged its investment management subsidiary, Capital House, with Newton Investment Management. This created a broadly based group with funds under management of around £8 billion (The Scotsman, September 17, 1994). Under the terms of the merger RBOS offered to inject Capital House into the Newton business and, in addition, pay £25 million. In return, the bank would take a 33 percent stake in the new group, with a right to board representation. As part of the 2
  3. 3. deal Newton also retained a three-year capital raising option, obliging RBOS to subscribe for up to £10 million in cumulative redeemable preference shares. Dr George Mathewson, CEO of RBOS, said that the deal would enhance the range and performance of fund management products offered by the bank. It was announced that a new range of unit trusts and PEP products were to be introduced by RBOS following the merger. These would be marketed under the RBOS name from early 1995. Thereafter RBOS customers would only be offered products managed by Newton and marketed using the RBOS name. At the time of the merger Capital House looked to be the slightly larger player. It employed 230 staff, for example, compared to Newton’s 225 (The Scotsman, September 17, 1994). Going by the £5 billion of funds held by Capital House, it would also seemed to have outranked Newton in this department.1 As a result of the deal some job losses were predicted. Perhaps more significantly, RBOS effectively lost direct control of its fund management activities. These activities had pretty much now been outsourced to an investment group in which RBOS held only a minority stake. By 1998 RBOS seemed to have lost all interest in its former investment subsidiary and was seen to be open to offers for its share of Newton. This was noted in the Scottish financial press, where it was stated that “The Royal Bank is understood to be keen to exit Newton altogether” (Scotland on Sunday, April 19, 1998). At this juncture, in addition to the 33 percent of the company held by RBOS, an equal amount of equity was under the control of Stewart Newton, with the remainder being held by other senior staff. The company now managed more than £10 billion of funds and was expected to fetch a price of around £200 million (Scotland on Sunday, April 19, 1998). The previous year Newton Investment Management had been approached by Merrill Lynch with a view to striking a deal. In the end, though, Merrill Lynch went for the much larger Mercury Asset Management, for which it paid £3.1 billion in the course of 1997. With the Merrill Lynch talks coming to nothing, senior executives at Newton were said to be looking for a strategic partnership that would allow them to keep overall control of the business. In the end they struck a deal with US based Mellon Financial Corporation, which took a 75 percent stake in the company.2 Newton management retained the remaining 25 percent, with RBOS exiting the company altogether. As of the end of 2001 Newton had around £23 billion of funds under management, with the bulk of this amount (just under £11 billion) coming from pension funds. In Scotland it employed 222 people and managed around £700 million of funds (CA Magazine, December 2001). As the involvement a large global players such as Mellon and Merrill Lynch would indicate, in the late 1990s there was considerable interest in the UK fund management sector. During this period stock markets were fairly strong and there was a view that, 1 According to different figures from the The Scotsman (September 17, 1994) Capital House only contributed £3 billion of funds to the new venture 2 This had increased to 93 percent by 2001 (CA Magazine, December 2001) 3
  4. 4. given the investment needs of an ageing UK population, fund management was a growth area. Such arguments did not, however, seem to convince RBOS. Even with fund management enjoying a growth phase, it seemed happy to turn its back on the sector. Tilney Investment Management Tilney traces its 160-year history back to Liverpool in the 1800's. In 1986 Tilney joined the RBOS-owned Charterhouse Group to form Charterhouse Tilney ( In 1993 there was a Management buyout of the private client and fund management divisions and a return to independence under the name of Tilney & Co. In April 1998 the official name for the operating company changed to Tilney Investment Management. In May 2000 the Tilney Group joined Refco (Ibid). During 2003 it bought the private client arm of EFM for £5 million (The Herald 3/6/03). Today, the company has over £4 billion of funds under management ( Looking at the experience of RBOS with Tilney, certain parallels emerge with its involvement with Capital House and Newton Investment Management. As with Capital House, the interest in Tilney could be traced back to the mid 1980’s. Again, as with Capital House, that interest seemed to wane from the early 1990s with RBOS losing control of Tilney altogether. At this juncture RBOS could conceivably have combined its fund management interests (Capital House, Tilney and even Adam & Co which was bought in 1993 – see below) to form a dedicated fund management operation on a significant scale. This was not, however, the strategic direction that it chose. Adam & Company As alluded to above, the involvement of RBOS in the fund management sector was increased through its purchase of the private bank, Adam & Co, in September 1993. This brought a further £115 million worth of funds into the RBOS Group (figures for December 1993 – CA Magazine, December 1993). At the time of the take-over Adam and Co had only been in existence for 10 years. Its first decade, though, proved to be quite eventful. The company was launched in Edinburgh in June 1983 ( The two men responsible for its formation were Sir Charles Fraser (subsequently its Chairman) and Sir Ian Noble (also co- founder of the merchant bank, Noble Grossart) (The Scotsman, June 14, 2001). In many ways the move to create the bank was a defensive one. At the time the future independence of Scotland’s two principal banks, RBOS itself and Bank of Scotland (BOS), looked far from assured. RBOS was then being courted by both Standard Chartered and the Hong Kong and Shanghai bank (HKSB). As for BOS, it was then 30 percent owned by Barclays, with its future prospects unclear. In order to safeguard Scotland’s independent banking traditions, albeit on a fairly modest scale, Adam & Co was created, basing itself in traditional style, at Charlotte Square, Edinburgh. It was Scotland’s first new bank since 1840 (The Herald, July 20, 1993). The name Adam & Co was decided upon in honour of the Scottish economist, Adam Smith. For 4
  5. 5. a new bank designed to safeguard Scotland’s future banking independence, Adam & Co drew heavily upon traditional values. As MD, Ray Entwistle, put it in 2003 “we have turned the clock back to the 1940s” (The Scotsman, March 7, 2003). Expanding upon the theme he gave the following flavour of the bank’s traditional ethos: “…when clients come into the foyer, we know most people by their first name. We’re more like a club than a bank” (The Scotsman, March 7, 2003) The bank’s original institutional backers included Selective Assets Trust and Standard Life. It also counted with the involvement of M&G, CU, Abtrust and the Life Association of Scotland (The Herald, July 20, 1993). Apart from this rather prosaic list of institutional investors, the bank also counted with the backing of the wealthy French Schlumberger family (an involvement which was to prove crucial for the bank’s survival – see below).3 In addition, the bank also sold equity to its growing client-base. By 1992 around a third of its shares were held by some 900 private individuals, mainly clients (The Herald, October 19, 1992). As this would suggest, its average client was an individual with considerable wealth. While the bank might have emerged in order to safeguard Scotland’s banking traditions it very much aimed its services at the country’s elite, rather than at the wider population. As one comment in the financial press put it “… the bank had a fearful arrogance, making it generally known that its facilities were restricted to individuals of high net worth. Inevitably it became colloquially known as the toff’s bank” (The Herald, December 19, 1992) Or, to draw from a competing publication: “Adam & Co….to be blunt, does not manage cash for any old riff-raff” (Scotland on Sunday, August 25, 2002). In September 1986 the young bank absorbed Continental Trust Ltd, thereby acquiring a base in London. In early 1987 there was a restructuring which saw the creation of the new subsidiary Adam & Company Investment Management Ltd ( By the end of the decade the bank was looking relatively secure, even managing to become more profitable than one of the Big Four English banks. As the financial press put it (with one eye on that impressive Adam & Co client list) “The future looked plush” (The Herald, December 19, 1992). The solid performance continued into the early 1990s. In 1992 the bank announced a record £722,000 pre-tax profit and its first-ever interim dividend. In response, The Herald (February 29, 1992) stated that “It is becoming a habit to look for good results from Adam & Company, the plushy private bank…”. The bank, which included among its senior management former amateur jockey, Sandy Dudgeon (assistant MD), seemed to be racing ahead.4 Keeping his feet on the ground, though, Chairman, Sir Charles Fraser, while optimistic about the bank’s prospects, cautioned that this was “a time for continued vigilance and control” (The Herald, February 29, 1992). As it turned out these words were both prophetic and somewhat ironic. The following year the bank suffered a huge single loss of £21 million on unauthorised foreign 3 In some reports e.g. The Herald (December 19, 1992) the Schlumberger family are said to have become involved with Adam & Co at a later stage when the bank took over an investment trust. 4 For a profile of Dudgeon, see The Herald (October 19, 1992). 5
  6. 6. exchange dealings (The Herald, August 17, 1993). The bank with the former jockey in its team had been devastated by a piece of ill-advised gambling. At the time Adams & Co was on course for record profits, boosted, not least, by the same treasury operations that eventually threw it into crisis (The Herald, September 16, 1992). The extent of the crisis was not to be under-stated with the £21 million figure representing around twice the bank’s own share capital. At this point panic could easily have set in and the bank could have suffered a run on its reserves. Fortunately, though, Adams & Co enjoyed the support of its own clearing bank, RBOS, which effectively acted as guarantor. This was acknowledged by Adams & Co Chairman, Sir Charles Fraser, who, in assuring that the bank was still a going concern, stated that: “the Royal Bank of Scotland, banker to the group companies, continues to provide all support to the bank that its board believes to be necessary and has agreed terms for committed banking facilities” (The Herald, September 16, 1992) In offering to guarantee the financial issuances of Adam & Co, RBOS was seen by some commentators, to be acting “bravely”, giving the uncertainty surrounding the bank’s future (The Herald, July 20, 1993). In time RBOS would be rewarded for its good faith when it came to take over the bank entirely. For now, though, it was left to others to construct a rescue package for Adam & Co. Initially, it was widely thought that help might be offered from across Charlotte Square, in the form of Ivory & Sime. This fund manager had an interest in the bank’s shares, while the Chairman of Adam & Co, Sir Charles Fraser, also had close connections with Ivory & Sime. Once an injection of cash from a shareholder had been announced by Adams & Co, though, Ivory & Sime MD Allan Munro denied any involvement, stating that “We are not the shareholder who had provided a safety net”. He went on to articulate the extent of Adams & Co’s good fortune that it had found such a saviour, commenting that “To have a shareholder make that sort of financial investment has to be the coup of all time” (The Herald, September 17, 1992). In fact the proud Scottish bank’s saviour took the form of a 75-year-old French widow, Madame Schlumberger Primat. At the time she was the bank’s largest shareholder with 1,775,000 shares (The Herald, September 25, 1992). With the bank in deep trouble she agreed to subscribe completely to a £21 million Special Preference Share issue that would ensure the continuance of the bank. In pure business terms the move made little sense. Rather, it seemed that Madame Schlumberger Primat had developed a liking for the bank and its principles. As one report at the time put it, in the case of Adam & Co, “Only the philanthropy of its principal shareholder and director Mme F. Schlumberger Primat saved it” (The Herald, July 20, 1993). Despite the good faith shown by the influential French family in the bank, though, their involvement in 1992 proved far from profitable. The following year the bank was sold to RBOS for £10.5 million leaving Madame Schlumberger Primat with a loss of £12 million (The Herald, July 20, 1993) (The Herald, September 7, 1993). Far from being bitter, though, she agreed to continue serving on the bank’s board following the RBOS takeover (The Herald, July 24, 1993). ). Today the French 6
  7. 7. family’s legacy is preserved at the bank, through the presence of Madame Schlumberger Primat’s son, D Primat, on the board of Directors (Adam & Co, Report and Accounts 2002). The actual purchase offer from RBOS amounted to 15p per ordinary Adams & Co share. A the time of the bank’s launch some 10 years previously these had been valued at 100p (The Herald, July 20, 1993). This meant some serious losses for the bank’s original shareholders. The Abtrust Investment Trust, for example, lost an estimated £400,000 through its exposure to Adam & Co (The Herald, August 4, 1993). Given the extent of the bank’s one-off currency loss, though, most shareholders were probably relieved to receive any form of payout. To a large extent they had avoided losing everything through the generous involvement of Madame Schlumberger Primat. In pure business terms RBOS came out of the deal well. It had effectively allowed a major shareholder to save the bank, before stepping in and picking it up at a price well below the cost of rescue. In some ways this could be seen as a reward for the good faith shown by RBOS when it acted a guarantor to Adams & Co at the height of its crisis. It had now managed to add another private bank to its range of interests, with Adams & Co now sitting alongside Child & Co (the oldest bank in Britain, established in 1580) in RBOS’ private banking stable. Despite its growing influence in private banking, RBOS still managed to have the takeover cleared by the DTI which decided there was no need for a monopolies or mergers enquiry (The Herald, August 14, 1993). As for Adams & Co itself, it seemed content to be joining forces with RBOS. Following the bank’s troubles in 1992 it had hired advisors from Lazards to consider its strategic options. Their advice seemed to involve striking a deal with a larger, financially secure, institution. In the words of Sir Charles “The preference was to find a big brother…” (The Herald, July 20, 1993). Given its previous dealings with Adams & Co, RBOS fitted this role perfectly. In the end, a bank which was created partly in response to the threats to RBOS’ own independence, now found itself within the RBOS empire. Interestingly, another potential “big brother” for Adam & Co was thought to be Coutts, the English bank with links to the Royal family. At the time it formed part of the NatWest Group. In another strange twist of fate the two private banks would end up as “sister” organisations within the RBOS family upon its takeover of NatWest in 2000 (see below). At the time of the RBOS deal Adams & Co had a blue chip list of current accounts totalling around 4000 and managed funds of around £120 million (The Herald, July 20, 1993). Adams & Co as Part of RBOS After the takeover by RBOS in September 1993 Adam & Co continued operating independently with a separate board of directors. In 1995 it bought Carolina Trust (Guernsey) Ltd from the American Nations Bank, thereby strengthening its offshore capability ( 7
  8. 8. Since the takeover in 1993, Adams & Co has expanded significantly. In 2002 it recorded its eighth consecutive year of profit growth. Over the previous five years it had recorded profits growth averaging around 40 percent. For its financial year leading up to 2002 it reported net earnings up 23 percent to £10.1 million, with. lending up £57 million to over £250 million. To mark its continued success it announced the opening of a new office in Aberdeen, adding to its bases in Edinburgh, London, Manchester and Guernsey (The Scotsman, March 22, 2002). In the period from the end of 1993 to the end of 2001 the bank’s funds under management increased from £115 million to £456 million. During this period it became more focussed upon managing its private clients’ funds. As of December 1993, 70 percent of its funds were in the form of private clients, with pension funds making up 16 percent and just under 14 percent coming form charities, overseas and trusts. By December 2001 the private client sector accounted for 80 percent of funds, with pension funds down to 8 percent and charities at 12 percent (CA Magazine, December 1993, December 2001). As the above figures would suggest, private banking enjoyed a period of strong growth from the mid 1990s. In the case of Scotland other private banks such as Coutts and Rathbones were becoming more active during this time. The growing interest in the Scottish private banking scene was shown in 1998 when Merrill Lynch opened an office in Edinburgh. This formed part of its strategy of establishing a network of private banks in order to compliment the strong corporate and institutional presence it had gained through its purchase of Mercury (as mentioned above) and the stockbrokers Smith New Court. The vibrancy within the sector was recognised by Adam & Co MD Entwistle who stated that “Private banking is the fastest growing sector in financial services today and just about everybody wants to get into it” (The Sunday Herald, July 30, 2000). Research at the time by HSBC showed that more than four million people in the UK had more than £50,000 of free assets (The Scotsman, March 22, 2001). Many of these had enjoyed the fruits of the long running stock market boom and were becoming the type of client sought by the private banks such as Adam & Co. By mid-2000 the bank serviced the investment needs of 8500 clients, among them many of Scotland’s top sporting and entertainment celebrities (The Sunday Herald, July 30, 2000). Around this time it effectively became a “sister” operation to competitor Coutts & Co, following the £21 billion takeover of NatWest by RBOS in February 2000. At the time Coutts was a far larger operation than Adams & Co, employing 5,000 people in 16 countries. Adam & Co, for its part employed around 250 people (The Scotsman, August 24, 2002). Coutts was also far more profitable than its Scottish competitor. In the previous calendar year it had made profits of around £200 million (The Scotsman, June 1, 2000). Coutts also provided investment management services for its clients and, at the time, was one of Europe’s largest hedge fund managers with around US$1.2 billion invested (with the actual hedge fund management outsourced to external managers) (The Scotsman, June 1, 2000). With two such similar banks in its organisation, it was thought that RBOS might consider bringing Coutts and Adams & Co together in a single company. This was, 8
  9. 9. however, denied by RBOS which rejected the idea that it was contemplating a merger of the two banks. Indeed even the bringing together of their back office operations was explicitly ruled out. Today the two banks coexist within the RBOS Group and target separate geographical and national markets. Coutts focuses on English high earners, including those living in Scotland. Adams & Co, for its part, concentrates on its predominantly Scottish clientele. To complicate things further RBOS itself has its own high-net-worth private client team. (The Scotsman, March 13, 2002). Until now, though, the three separate parts of the organisation seem to have coexisted amicably and there has been no indication that any merger is being considered. The fact that even the back-office activities of Coutts and Adam & Co were kept separate is interesting, given that the Scottish bank was increasingly taking over these activities for external firms. This area covers consolidated banking, custody and administration services. By 2001 Adams & Co was providing back office services for 12 other investment houses. In the course of that year Adams & Co took on a contract to manage the back office activities of First State (the new owner of Stewart Ivory). This brought Adams & Co’s funds under administration to around £3 billion (The Scotsman, November 7, 2001). The deal raised a few eyebrows in international banking circles in that it linked RBOS with First State’s owner, the Commonwealth Bank of Australia (CBA). In fact the speculation that further deals could be in the pipeline proved accurate, although they were restricted to Adam & Co and First State rather than their respective parent companies. The deal in question took place in mid-2002 and involved the purchase by Adams & Co of Stewart Ivory Wealth Management (SIWM) owned by First State Investments. The purchase price was not disclosed. Based upon the tendency for such outfits to fetch one to five percent of assets, though, this would have valued the deal at between £4.5 million and £23 million (Scotland on Sunday, August 25, 2002). At the time Stewart Ivory had around 750 individual accounts worth more than £450 million. The purchase would double Adams & Co’s funds under management, bringing them to close to £1 billion. Thanks to the deal the company was transformed into the largest private wealth manager in Scotland. Speaking after the purchase, Ray Entwistle MD at Adam & Co stated that “This acquisition is strategically important for Adam and places us at the absolute forefront of private client businesses in Scotland” (The Scotsman, August 24, 2002). With this deal Adams & Co saw its fund base even more heavily skewed towards private clients. With Adams & Co showing its capacity to be acquisitive, there was speculation that it may be tempted to go for the private client business of Martin Currie (MCPC) or even EFM or Friends Ivory & Sime (Scotland on Sunday, August 25, 2002). As it turned out this particular speculation came to nothing, with former RBOS company, Tilney, buying the EFM business in 2003 (see above) and MCPC merging with the private investment arm of Thornhill in late 2002 (see Martin Currie profile). An indication of this growing willingness of Adam & Co to actively seek out new business had, in fact, been given the previous year, 2001. In June of that year it attracted four fund managers from the Clydesdale Bank to strengthen its Glasgow office. This piece of corporate poaching resulted in a boost of £50 million in new 9
  10. 10. funds under management. As for Clydesdale, the defections left its fund management operations severely depleted. At this point it was thought that it had only around £1 billion under management (The Scotsman, June 14, 2001, The Scotsman, March 22, 2002). On the subject of defections, it is worth mentioning those suffered by Merrill Lynch, which effectively brought to a close its attempt to establish a private clients office in Edinburgh (see above). In July 2000 it had lost five key staff and around £150 million of clients’ money to city rival, Rathbones. Then, in the course of 2000 UBS Warburg poached two of its remaining three fund managers, to set up its own wealth management operation in Edinburgh. Soon after Merrill Lynch announced it was closing the Edinburgh office (Scotland on Sunday, August 18, 2002). Returning to Adam & Co, at the end of 2002 it established a property partnership to cater for clients wanting to invest directly in property rather than stocks and shares. By this stage many private investors were wary of the stock market due to the long running bear phase. This shift in attitude was acknowledged by Entwistle who stated that: “Our clients have been keen to look at property as they ask what else they can do with their money as equities fall. The particularly noticeable trend has been buying on the continent” (The Scotsman, March 26, 2003) The partnership’s first purchase consisted of a business park in Preston. This was followed by the purchase of five shopping centres for more than £25 million (The Scotsman, June 23, 2003). New ventures such as this helped the bank to a solid performance for the 2002 financial year, with profits up to £10.6 million – a 5 percent increase over the previous year. In the course of the year the bank had loaned more than £300 million (a new record) to its client-base that now numbered around 10,000 (The Scotsman, March 26, 2003). In addition to new ventures, such as its property business, Adam & Co retains a link with perhaps the most traditional form of investment management; namely investment trusts. The company is a member of the Association of Investment Trust Companies (AITC) and controls the Private Investors Capital investment trust which has around £22.5 of total assets ( The actual management of the trust, however, is outsourced to First State Investment Management (UK) Ltd (formerly known as Stewart Ivory). This is another example of the links between Adam & Co and First State.. Like most financial institutions Adams & Co had suffered a decline in fund management business from 2000, due to falling markets. This was, however, compensated for by the banks other activities, such as deposits and lending. This demonstrated that Adams & Co was first and foremost a traditional bank rather than a fund manger. The point was picked up on by Entwistle who stated that: “We must be one of very few private banks in Europe to increase our profits in 2002. Most of our rivals are highly geared towards investment-related activity” (The Scotsman, March 26, 2003) 10
  11. 11. Today Adams & Co continues to see itself as a “discretionary fund manager” (CA Magazine, December 2001) with its activities described as “…that of providing banking, investment management and other financial services” (Adam & Company Group Plc, reports and Accounts to 31st December 2002). Given the wide-ranging nature of its activities, it is clearly very far removed from being a “pure” fund manager such as Baillie Gifford. This diversity had helped it survive a difficult period for fund mangers. With stock markets declining form the early 2000s the once fashionable fund management sector suffered a decline in its fortunes. A seller’s market quickly changed into one where buyers could pick up a bargain. In 2002, for example, Rothschild Asset Management was bought “for a virtual song” (£61 million) by HBOS (The Scotsman, December 5, 2002). Similarly, the admittedly much troubled, EFM, was sold to AAM in 2003 for a fraction of its previous market capitalisation (see EFM profile). By operating first and foremost as a multi-service bank, Adam & Co have been able to avoid many of the problems of the pure fund managers. In the process it has retained its position within the RBOS group, at a time when, true to its traditions, the parent bank has been purging itself of its dedicated fund management subsidiaries. This has taken the form of the disposal of Gartmore and the investment arm of Ulster Bank, both of which came RBOS’ way after its takeover of NatWest. Gartmore In 2000 Gartmore was an international fund management business with around £60 billion of funds under management (The Scotsman, March 9, 2000: article b). It was based in London with offices in Scotland, Jersey, Germany, Japan and the USA. The Scottish operation of Gartmore, based in Glasgow, accounted for around £800 million of funds (Ibid). The company had been merged with NatWest’s existing fund management operation upon acquisition by the English bank in 1996. With NatWest being pursued by both RBOS and BOS during 2000, it put Gartmore up for sale as part of its defence strategy. No takers were immediately found, however, with the defence strategy itself ultimately proving unsuccessful. With the takeover of NatWest by RBOS in 2000 Gartmore joined the Scottish banking group. It was not to remain there for long, though, with Fred Goodwin, Group Chief Executive of RBOS stating that "The Royal Bank of Scotland Group recognised in its bid for NatWest that it was not the best owner of Gartmore” (RBOS Press Release, 30 March 2000). Initially, Gartmore was expected to fetch a price of around £550 million, with UK insurance company, CGU, being seen as the front-runner (The Scotsman, March 31, 2000). Gradually, though, it became apparent that there were various potential buyers and that the company would fetch a much greater sum. This was recognised by the Scotsman (March 9, 2000: article a) which stated that as far as RBOS was concerned “Far from being a forced seller, the queue for Gartmore has made it a sit-back-relax- and-watch-the-money-tumble-in-seller”. 11
  12. 12. In the end the company was sold to surprise bidder, Nationwide Mutual, an American insurer for £1.03 billion. Nationwide was founded in Columbus Ohio in 1925 and at the time was ranked the 30th largest insurance and finance company in the world. The American company was highly active in the 401k pension market in the US. These pensions are similar to the stakeholder pensions which were due to be launched in the UK in April 2002. This led to speculation that Gartmore could become a major player in the UK stakeholder market (The Scotsman, March 31, 2000). Under the terms of the deal Gartmore Scotland would retain its Glasgow base and existing management team (The Scotsman, March 31, 2000). RBOS, however, would have no future role to play. With this sale, it was shown that RBOS did not have any ambitions to continue with fund management on any large scale. In many ways the company could consider itself fortunate to have sold Gartmore for such a high price. A few years on, with the stock market uncertainty taking its toll, it would have been lucky to have got anywhere near the agreed price. Ulster Bank Investment Managers (UBIM) Limited Soon after the Gartmore sale RBOS also disposed of the investment side of Ulster Bank, another company from the NatWest Group. UBIM was Ireland’s fourth largest fund management company with approximately £4.6 billion (Euro 8 billion) in assets under management at 31 March 2000. It employed a staff of 73, all of who were to be retained by the new owner. The buyer was the KBC Group, a diversified banking and insurance group headquartered in Brussels (RBOS Press Release, 5 May 2000). Speaking about the deal, Ulster Bank’s Chief Executive Martin Wilson commented: “Royal Bank Group is delighted to announce that KBC will be the new owners of UBIM. UBIM has been a highly successful operation within Ulster Bank but having recognised that this business required a new owner to bring it to the next stage of development, I believe today’s announcement is good news for UBIM clients and employees”(RBOS Press Release, 5 May 2000). Once again RBOS had acted quickly to dispose of a fund management business which it regarded as non-core. Royal Scottish Assurance and NatWest Life Both Royal Scottish Assurance and NatWest Life are subsidiaries within the RBOS Group. In the case of both subsidiaries RBOS has a 50/50 joint venture partner agreement with Aviva, the parent group of Norwich Union (The Scotsman, February 10, 2004). The two subsidiaries were responsible for the stakeholder pension products sold within RBOS. The actual fund management side of the business, though, was farmed out to Norwich Union. In early 2004 RBOS announced that it was pulling out of the stakeholder pensions market altogether. Following the move RBOS stakeholder customers would be moved to Norwich Union. This strategic withdrawal heightened suspicion that RBOS would eventually close Royal Scottish Assurance and/or NatWest Life (The Scotsman, February 10, 2004). 12
  13. 13. Whatever the future of these subsidiaries, RBOS again seemed to be demonstrating an arms length attitude to fund management. Its withdrawal from the stakeholder market is of additional interest in that it followed on from its disposal of Gartmore, the company tipped to be one of the dominant players in the new market. Fund Management within RBOS Today So far this profile has consisted primarily of examples of RBOS distancing itself from fund management activities. This begs the question: where does the bank stand in relation to fund management today? Principally its involvement with the sector would seem to take place through its Adams & Co and Coutts subsidiaries, with the former concentrating on the Scottish market. As already discussed, though, both of these companies are essentially private banks with an element of asset management thrown in. Even then, both banks outsource much of their fund management activity (e.g. Coutts’ hedge funds and Adams & Co’s investment trust activity). In the case of Adams & Co it does at least demonstrate some fund management credentials by belonging to the Association of Investment Trust Companies (AITC) ( RBOS, itself, is not listed as a member. Moving on to the other significant trade body; The Investment Managers Association, neither Adams & Co nor RBOS are mentioned in the members’ section. The closest RBOS comes to being acknowledged is through its Direct Line subsidiary (more specifically Direct Lines Unit Trusts Ltd which is listed as a member) ( This subsidiary offers two separate funds. As of January 2004 Direct Line had just under £109 million under management in the UK. This put it in 93rd place amongst managers with UK funds (including unit trusts, OEICs, PEPs and ISAs) ( As of 2001 the NatWest subsidiary offered its clients a portfolio of six investment funds, outsourced to six external fund managers (Scotland on Sunday, May 6, 2001) RBOS itself also offers its customers six unit trusts under its own name (Growth, Income, High Yield, Balanced, International Growth and Cash) ( Conclusion On two separate occasions in its recent history RBOS could have established itself as a significant fund manager. Firstly it could have combined its Capital House and Tilney interests in the early 1990s and then conceivably added Adams & Co into the fund management mix. Then, with the takeover of NatWest in 2000 it could have brought together the fund management functions of Adams & Co with those of Coutts. These could have then been added to the activities of the more dedicated asset managers; Gartmore and Ulster Bank Investment Managers. Had the latter course of action been followed RBOS would have been a highly significant player within the Scottish fund management sector. This, it chose not to do, seeing its strategic future elsewhere. Given the success of the bank over the last decade who is to say that it did 13
  14. 14. not make absolutely the correct decision? Certainly in selling Gartmore the bank seemed to achieve an exceptional price. As discussed in the description of Adams & Co’s formation, it was not so long ago that the long-term independence of RBOS looked highly questionable. Today it is one of the UK’s top companies and very much in the premier league of global banks. Again to turn to Adams & Co this company’s one-time close links with fund manager Ivory & Sime were alluded to when discussing its own fight for survival. This particular fund manager is famous on the Scottish scene for the number of spin-offs which it has created (see profile). In the case of RBOS a similar picture has emerged, although instead of spinning-off such companies, the bank has sought to extract itself from numerous fund manager operations. Today RBOS uses the corporate slogan. “Make it Happen” ( When it has come to getting involved in fund management, though, that slogan would seem to read “Make Sure it does not Happen”. 14